How to Use the Brooks Encyclopedia of Chart Patterns

so I'm going to bring Alan now  hello Alan good to see you hey Richard  good seeing you  hi everyone I'm Al Brooks and I'd like  to spend a few minutes telling you how I  use my Encyclopedia of chart patterns  back in the 1980s and 90s I spent about  10 000 hours back testing all kinds of  ideas I wanted to create categories of  chart patterns that hopefully would be  Fairly reliable  and I came up with about a hundred  patterns for the bowls 100 patterns for  the Bears and then each pattern can fail  so we multiply times two and I have  about 400 categories you don't have to  learn all 400 types of patterns and  their variations but if you learn a  handful of them and you get very good at  them you're then in a pretty good  position to make some money as a Trader  I made my collection available online  several years ago and I'm going to talk  a little bit now about how I use it  as we watch today unfold and try to  figure out what's going on and every bar  gives you additional information  and based upon what you're seeing you're  changing your opinion about what the  market might do so here we have a double  bottom it failed to create a reversal we  had a third leg down and then a reversal  from the higher low double bottom so  this is a wedge sell-off to a high or  low double bottom a bad Buy Signal bar  but then a pretty good pull bar here  it's a reasonable buy bidding for a  swing up  always assume that what is happening on  the open is a test of some kind of  support or resistance even if you don't  see that support or resistance and the  initial move can be the exact opposite  of what the eventual Trend will be the  market makes strong moves on the open  half the time the strong moves lead to a  swing and half the time the strong moves  reverse and you get a swing in the  opposite direction so don't get too  excited about a breakout early in the  day only trade it if it continues to  have follow-through if you get a  reversal bet on the opposite direction  if you're trading and you see a pattern  and you're pretty familiar with it then  go ahead and place a trade but if you're  not all that comfortable with what  you're seeing you can turn to this  encyclopedia to find similar patterns so  first of all you have to decide what  you're seeing here we have a reversal up  with small bodies and prominent tails  and a small pullback after a bear trap  the market tried to go down and it's  reversing up this could be the start of  a small pullback will Trend it's a gap  down below the moving average probably  below yesterday's close  so if you're uncomfortable with what's  going on you can look in the  encyclopedia in the section about Gap  downs and reversals up or in the section  on both Trends from the open or on the  section of small pullback bull Trends  and try to find something that looks  similar to this and if you find several  days that have patterns similar to this  then you take a reasonable bet that what  we'll follow today will be like what  followed on those other days here we had  a rally we had three attempts down one  two and three a wedge top but in a small  pullback bowl Trend it's probably a  minor reversal this is a double bottom  with this low but a bad Buy Signal bar  it's a lower low so a little bit weaker  and it follows a fairly Big Bear bar  this is probably a minor reversal so it  looks like today is going to be a  trading range day  when you look at the encyclopedia and  you'll see things that look like this a  lot of them will look like this for the  rest of the day and that will give you  confidence to take shorts up here  despite the small pullback bull Trend  and it'll give you confidence to bet  that the reversal is down will be minor  so you look to buy a reversal back up  you look for bull bars closing near  their highs here we have a couple you  can buy on a stop above the high of that  bar and get along there for a swing up  at the end of the day  you have to constantly reevaluate what's  going on the bulls and bears are always  fighting and they're trying to control  the market they're trying to change the  direction and trying to get the  direction to go their way a long time  but you have to be quick to exit even  with a loss if you decide that the  premise of the trade that you took is no  longer valid if so look for a trade in  the New Direction and if there's good  evidence that your premise is now again  good you can enter again in your  original Direction This is an fomc  announcement I don't have the bars at  the beginning of the day because they're  not necessary to illustrate the point  but here we have a very strong bear  breakout and some bear follow-through  but tail here bigger tail here a low one  cell signal with a bull bar so we're  getting buying buying and a bad sell  signal and then more sales so we may  reverse from a double bottom you look at  the sections on fomc announcements I  have sections for every type of thing  that can happen after an fomc  announcement and you're going to be  thinking about a bear breakout that will  fail and reverse up and you're looking  to buy above a bull bar closing near its  high for a swing up  always trade a small size at least until  you're consistently profitable  try not to constantly reverse on minor  reversals so if the market is doing this  instead of buying and selling and buying  and selling and buying and selling and  buying you're going to lose a lot of  money when the market is in a fairly  tight trading range with small bodies  and prominent tails and a lot of  overlapping bars it's better to do  nothing  better to exit and wait for the next  major reversal setup there's always  going to be another trade I remember  back in the 1980s when I'd see something  like this I was afraid that every day  would be like that forever and that I  would never have opportunities to trade  that was a true fear I really was afraid  that the goose would stop laying golden  eggs and the market would just enter a  tight training range and never have good  patterns there's always going to be good  trades there will always be several good  trades every day so never worry it's  boring to wait but when the market is  doing this that's what you do even if it  means you do not take any more trades  for the rest of the day  you should enter with stops this green  box is an entry here one tick above the  high of that bar you should end with  stops use protective stops I don't have  it drawn in but this is the start of the  move so you put the stop below the  bottom of the move and you look for a  swing trade a swing trade means  typically at least a couple legs one  pullback two in here three  and you're also looking for something to  last an hour or two  finally you're looking for a trade where  you can make about 40 percent of an  average day's range so if the average  day is 50 points 40 percent of that is  20 points and that's been a fairly  common thing in e-mini lately here in  2023. a lot of the swings are 20 points  if a setup is not good enough then wait  should you buy Above This full bar well  it's following five or six beer bars so  that's not a good buy should you buy  Above This Bull Bar well it's a big bull  bar you may be in the middle of a  trading Mansion it's following three  bear bars so that's not a great Buy  here we do have a trading range and  we're near the bottom of it so you want  to buy a reversal up but when you have a  bunch of bear bars it's better to wait  for some kind of a micro double bottom  and here we went down we went up and we  went down again and therefore you could  buy Above the neckline here or above a  bull bar closing near its high there and  look for a trade that'll last at least  an hour or two and have at least a  couple legs up this has one another  minor leg these are minor legs but it  did last for a couple hours or so  and never worry about missing the best  entry or the first entry because if the  trade is going to last for 20 bars there  will be other entries so yeah these  entries are further up than this  so you're risking more down to your stop  but you also have a higher probability  of making money and that's the price  that you pay  the stop further away is the price that  you pay to have a higher probability  trade so these are all very good entries  missing the first few bars if the trend  is good there'll be plenty of  opportunity to make a lot of money so if  you don't take this outside down bar  after this attempt at a wedge bottom  wait for another bar closing nearest low  sell below that here we have an inside  bar after three beer bars closing near  the lows that's all in one cell you sell  below that again the stop is up here  above the start of the move and your  risk is greater if you take the later  entries but the probability of making  money is higher and that offsets the  risk  perfect patterns are rare you'll see  them on websites and in books but it  took the person who created that chart  hours to find a perfect pattern  if you wait for perfect patterns you're  never going to trade  it's better to look for something that  looks similar to a good pattern and the  more it looks like a good pattern the  more it will behave like a good pattern  as I said nothing is going to be perfect  but get good at recognizing all the  variations and that's one of the  advantages of the encyclopedia if you  look in the sections of wedge bottoms I  have maybe 50 or 100 examples  if you look at them you'll see that most  of them are not perfect and that should  give you confidence to take trades that  look less than perfect and if you're if  you're not all that certain about a  trade here we have a wedge it's a bull  flag because it's a higher low after a  strong rally  if you don't want to take the buy Above  the consecutive inside bars you can wait  for a bull bar closing near as high so  now we have two bull bars one with a big  body closing there is high that's a  higher probability buy here we have two  boulevards closing near their highs  closing above the moving average and one  of the bodies is completely above the  moving average that is a higher  probability buy I talk about all these  little things in the encyclopedia the  encyclopedias lots of little things like  that and you're not going to remember  all of them but the more that you learn  the more confidence that you'll have in  taking trades  when you start out you're always going  to be losing money and that's okay but  you know don't be hard on yourself you  know the way I look at it is you have to  be your own Advocate and your own  cheerleader everybody else's job is to  find your faults and tell you all the  things that you're doing wrong  don't let the people get you down  take your time learn stuff learn how to  recognize patterns as they're forming  and when you see something forming if  you don't have a lot of experience with  it look for the pattern in the  appropriate section in the encyclopedia  and then look for examples that are  similar to what you see and then bet  that what follows today will be like  what followed on those other days  again I'm Al Brooks and I hope that you  found this useful this was an  introduction on how to use my Brooks  Encyclopedia of chart patterns