John Wiley & Sons, 2012
$225 for all three volumes, 1,582 pages
Al Brooks is a self-taught trader who has traded his own account successfully for more than 20 years. He received a BS with honors in mathematics from Trinity College in 1974 and then went on to graduate in ophthalmology from the University of Chicago Pritzker School of Medicine in 1978. The attraction of trading was with him early; during his entire stay in Chicago he wondered if he should drop out of school and work on the floor of the Chicago Mercantile Exchange. But he continued with his medical career, taught for a year at the EmoryUniversitySchoolof Medicine and then practiced in Los Angles for about 10 years before deciding to leave medicine. He sold his practice, moved to a small town near Sacramento, CAand started trading full time. In addition to trading his own account, Brooks has written feature articles for Futures magazine and has published a previous book.
Each volume of the set starts with the same 34-page introduction. Brooks cautions us to ignore the news, investment experts, financial news stations, fundamentals such as earnings, dividends, etc., and instead concentrate only on price charts. Nothing else matters. He says, “All I need is a single chart on my laptop computer with no indicators except a 20-bar exponential moving average.” He also makes the point that price action is driven by institutions, not individual traders, so we must look at the motivations and reactions of institutions to understand price action. Throughout the books he constantly refers to specific institutional thinking and actions as the reason for the price patterns he is discussing.
The introduction goes on to say: “The market is either trending or in a trading range. That is true of every time frame down to even an individual bar.” Identification of the type of market, trending or trading range, is important because the interpretation of bar relationships is different in the two kinds of markets. He lists 24 characteristics of a trending market, such as: There is a big gap opening on the day; there are trending highs and lows; there is very little overlap of the bodies of consecutive candlestick bars. He concludes with long lists of characteristics of breakouts and reversals.
Each volume also contains a glossary defining more than 160 terms he uses throughout the texts to describe these bar patterns. Brooks is a discretionary trader, so there are very few numbers in the definitions or in the rest of the books. The definition of terms and chart discussions center on subjective interpretation of the relationships between bars. For example, he talks about a “climax” price action, which he defines as: “A move that has gone too far, too fast, and has now reversed direction to either a trading range or an opposite trend.” But how far is too far and how fast is too fast? Brooks has 20 years experience looking at price charts and trading the patterns, so he has a good intuitive sense of what is too far or too fast. But for the rest of us, it would be helpful to be a bit more quantitative.