P1:OTA/XYZ P2:ABC JWBT576-fm JWBT576-Brooks October18,2011 1:8 Printer:Donnelly P1:OTA/XYZ P2:ABC JWBT576-fm JWBT576-Brooks October18,2011 1:8 Printer:Donnelly Trading Price Action TRENDS P1: OTA/XYZ P2: ABC JWBT576-fm JWBT576-Brooks October 18, 2011 1:8 Printer: Donnelly Founded in 1807, John Wiley & Sons is the oldest independent publishing com- pany in the United States. With offices in North America, Europe, Australia, and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding. The Wiley Trading series features books by traders who have survived the market’s ever changing temperament and have prospered—some by reinventing systems, others by getting back to basics. Whether a novice trader, professional, or somewhere in-between, these books will provide the advice and strategies needed toprospertodayandwellintothefuture. For a list of available titles, please visit our Web site at www.WileyFinance.com. P1:OTA/XYZ P2:ABC JWBT576-fm JWBT576-Brooks October18,2011 1:8 Printer:Donnelly Trading Price Action TRENDS TECHNICAL ANALYSIS OF PRICE CHARTS BAR BY BAR FOR THE SERIOUS TRADER AL BROOKS John Wiley & Sons, Inc. P1: OTA/XYZ P2: ABC JWBT576-fm JWBT576-Brooks October 18, 2011 1:8 Printer: Donnelly Copyright (cid:2)C 2012 by Al Brooks. All rights reserved. The first edition of this book, titled Reading Price Charts Bar by Bar: The Technical Analysis of Price Action for the Serious Trader, was published in 2009. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. All charts were created with TradeStation. (cid:2)C TradeStation Technologies, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or com- pleteness of the contents of this book and specifically disclaim any implied warranties of merchantabil- ity or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situ- ation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may notbeavailableinelectronicbooks.FormoreinformationaboutWileyproducts,visitourwebsiteat www.wiley.com. LibraryofCongressCataloging-in-PublicationData: Brooks,Al,1952– Tradingpriceactiontrends:technicalanalysisofpricechartsbarbybarfortheserioustrader/Al Brooks. p.cm.–(TheWileytradingseries) “Thefirsteditionofthisbooktitled,Readingpricechartsbarbybar:thetechnicalanalysisofprice actionfortheserioustrader,waspublishedin2009”–T.p.verso. Includesindex. ISBN978-1-118-06651-5(cloth);ISBN978-1-118-16623-9(ebk); ISBN978-1-118-16624-6(ebk);ISBN978-1-118-16625-3(ebk) 1.Stocks–Prices–Charts,diagrams,etc. I.Brooks,Al,1952–Readingpricechartsbarbybar. II.Title. HG4638.B765 2012 332.63(cid:3)2042–dc23 2011029297 PrintedintheUnitedStatesofAmerica 10 9 8 7 6 5 4 3 2 1 P1:OTA/XYZ P2:ABC JWBT576-fm JWBT576-Brooks October18,2011 1:8 Printer:Donnelly Iwouldliketodedicatethisbooktomywonderfullykinddaughter,TessBrooks, whoseeslifeasfilledwithopportunitiesandseeksthemoutaroundtheworld withouthesitation.Sheisabold,originalthinkerandadoer,andfillsherlife withthedreamsthattherestofushavebutaretooafraidtopursue. P1:OTA/XYZ P2:ABC JWBT576-fm JWBT576-Brooks October18,2011 1:8 Printer:Donnelly P1:OTA/XYZ P2:ABC JWBT576-fm JWBT576-Brooks October18,2011 1:8 Printer:Donnelly Contents Acknowledgments xi List of Terms Used in This Book xiii Introduction 1 PART I Price Action 35 CHAPTER 1 The Spectrum of Price Action: Extreme Trends to Extreme Trading Ranges 55 CHAPTER 2 Trend Bars, Doji Bars, and Climaxes 59 CHAPTER 3 Breakouts, Trading Ranges, Tests, and Reversals 77 CHAPTER 4 Bar Basics: Signal Bars, Entry Bars, Setups, and Candle Patterns 83 CHAPTER 5 Signal Bars: Reversal Bars 89 CHAPTER 6 Signal Bars: Other Types 101 CHAPTER 7 Outside Bars 155 CHAPTER 8 The Importance of the Close of the Bar 169 CHAPTER 9 Exchange-Traded Funds and Inverse Charts 173 vii P1:OTA/XYZ P2:ABC JWBT576-fm JWBT576-Brooks October18,2011 1:8 Printer:Donnelly viii CONTENTS CHAPTER 10 Second Entries 177 CHAPTER 11 Late and Missed Entries 181 CHAPTER 12 Pattern Evolution 185 PART II Trend Lines and Channels 191 CHAPTER 13 Trend Lines 195 CHAPTER 14 Trend Channel Lines 209 CHAPTER 15 Channels 219 CHAPTER 16 Micro Channels 249 CHAPTER 17 Horizontal Lines: Swing Points and Other Key Price Levels 269 PART III Trends 275 CHAPTER 18 Example of How to Trade a Trend 289 CHAPTER 19 Signs of Strength in a Trend 307 CHAPTER 20 Two Legs 319 PART IV Common Trend Patterns 323 CHAPTER 21 Spike and Channel Trend 325 CHAPTER 22 Trending Trading Range Days 359 CHAPTER 23 Trend from the Open and Small Pullback Trends 383