The ideal wedge has a clear overshoot on the third or fourth push and ends up in a clear reversal bar. The reversal bar's entry bar is a strong trend bar. A weak pullback gives a W1P that gives you an entry into the now reversed trend.
On trend days you probably will see a reversal like that. But on trading range days, you may have large swings that are best seen as 2 legs in each direction. None of the third pushes today resulted in significant overshoots, did not quite end in reversal bars and surprisingly sold off all the way down without any pullback. On days like this, you can pass up the wedge trades and simply wait for the next setup or if you are an aggressive trader, trade the third push as a W if it is a failed breakout.
The idea behind the failed breakout is that the breakout traders who buy above the previous swing high should not be able to make a scalp profit. You need a first entry that triggers and fails as in b18,b42,b65 and then a second entry comes into play very close to the previous signal. If the second signal bar has lots of overlap as in b44, you are better off waiting for a pullback above your entry bar and then taking the next signal. A very important requirement for a trade like this is prior strength in the new direction. A strong move in the later half of yesterday or early in the day are needed to enter this way or you may find yourself shorting a series of H1s on a strong day.
Hi Cadaver, I have been studying Brooks trading style for a while now and I've found your blog helpful for clarifying a lot of concepts. One problem I am still having is identifying A2's. I am unsure what constitues a pullback, do you have a ruleset which helps you identify each leg?
ReplyDeleteThanks,
DB
Dragon, A2 is simply a 2 legged pullback where any of the pullback bars end up near the ema. A leg is a move terminated by a trendline break (small tl in case of pullbacks). Two failed attempts in the direction opposite to the trend are also A2. It may be helpful to look at a smaller timeframe chart to see the two legs sometimes.
ReplyDeleteThanks Cadaver, the probelm I have is determining a leg. For example I counted bar 10 on Friday as leg 1, so bars 12-14 were leg 2 and I sold below bar 15. Had I not counted bar 10 the 2 legs would be 12-14 and 16-18 and a sell below 19 would have been a winner. It looks nice and clear in hindsight but how do you know to discount bar 10 in real time? Any help would be great, I am so close I just seem to miss the best trades by a tiny bit. I got stopped out to the tick on bar 18.
ReplyDeleteDB
Restart your count every new swing high or low. So you would be counting from b12.
ReplyDeleteThanks Cadaver, that clears up a lot of confusion.
ReplyDeleteDB