Al Brooks Price Action — Complete Trading System Summary

Based on Trading Price Action Trends, Trading Price Action Reversals, Trading Price Action Trading Ranges, and Reading Price Charts Bar by Bar by Al Brooks.

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Table of Contents

1. Core Philosophy
2. Market Structure: Trends vs Trading Ranges
3. Bar Types and Candle Patterns
4. Trend Lines and Channels
5. Bar Counting: High 1/2/3/4 and Low 1/2/3/4
6. Breakouts and Failed Breakouts
7. Trading Ranges
8. Pullbacks
9. Reversals
10. Common Trend Patterns
11. Entry Rules and Trade Management
12. Day Trading
13. Risk Management and Trader's Equation
14. Key Price Action Principles

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1. Core Philosophy

The Market is Institutions

• 90%+ of trading in large markets is done by institutions
• Market movement is the cumulative effect of many institutions placing trades
• Institutions are profitable over time; if you trade, a profitable institution takes the other side
• You should always trade in the direction of the majority of institutional dollars

Price Action is Primary

• Price action is any change in price on any chart type or time frame
• Read charts bar by bar — every bar offers important clues
• Ignore news, fundamentals, TV experts, and indicators
• The chart tells you exactly what institutions are doing and where they are going
• Use only a 20-bar exponential moving average (EMA) as a辅助 tool

The Only Tool You Need

• A single 5-minute candle chart with a 20-bar EMA
• No indicators, no fundamentals, no news
• Price action will tell you what institutions are doing

Key Mentality

• Think in probabilities — everything is gray, not black and white
• A setup that reasonably resembles a textbook setup will likely behave similarly
• Close is usually close enough
• Never trade on hope or emotion; follow your rules
• Wait for clarity; if you cannot figure out what the chart is telling you, do not trade

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2. Market Structure: Trends vs Trading Ranges

The Fundamental Question

Every trader must repeatedly answer: Is the market trending or not trending?

• If trending: Enter in the direction of the trend ("with trend")
• If not trending: Enter opposite to the most recent move ("fade" or "countertrend")

Definitions

Term	Definition
Trend	A series of price changes that are either mostly up (bull) or down (bear). Contains swings, legs, and pullbacks.
Trading Range	Sideways movement where neither bulls nor bears are in control. Minimum: a single bar with a range largely overlapped by the prior bar.
Swing	A smaller trend that breaks a trend line; occurs within a larger trend or sideways market.
Leg	A small trend that breaks a trend line; part of a larger trend. Can be a pullback or a with-trend move.
Pullback	A temporary pause or countertrend move that is part of a trend and does not retrace beyond the start of the trend.

Directional Probability

• During most of the day, directional probability is 50-50 (equidistant move up or down)
• During a strong trend, it might be 60-70%, but cannot last long
• When uncertain, assume the market is in a trading range
• Market gravitates toward uncertainty

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3. Bar Types and Candle Patterns

Trend Bars

• A bar with a body (close above or below open)
• Indicates at least minor price movement in the direction of the body
• In a bull trend: bull trend bars have small tails and large bodies, closing near their highs
• In a bear trend: bear trend bars have small tails and large bodies, closing near their lows

Doji Bars

• A candle with a small body or no body at all
• Neither bulls nor bears control the bar
• All bars are either trend bars or nontrend bars (dojis)

Reversal Bars

A bull reversal bar in a bear leg:

• Classic: tail at bottom, close above open and near the top
• Minimum: close above open OR close above midpoint
• Best bull reversals have:
  • Open near or below close of prior bar, close above prior bar's close
  • Lower tail ~1/3 to 1/2 bar height, small/no upper tail
  • Not much overlap with prior bar(s)
  • Strong entry bar follows (bull trend bar, not doji inside bar)
  • Close reverses closes/highs of more than one bar

A bear reversal bar in a bull leg:

• Classic: tail at top, close below open and near the bottom
• Minimum: close below open OR close below midpoint
• Best bear reversals have:
  • Open near or above close of prior bar, close well below prior bar's close
  • Upper tail ~1/3 to 1/2 bar height, small/no lower tail
  • Not much overlap with prior bar(s)
  • Strong entry bar follows (bear trend bar, not doji inside bar)
  • Close reverses closes/lows of more than one bar

Outside Bars

• Outside bar: high above prior bar's high AND low below prior bar's low
• Outside up bar: outside bar with close above open
• Outside down bar: outside bar with close below open

Inside Bars

• High at or below prior bar's high AND low at or above prior bar's low
• ii: Two consecutive inside bars (second inside first)
• iii: Three consecutive inside bars
• At end of a leg, ii/iii is a breakout mode setup

Other Patterns

• Ledge: Bull ledge = small TR with bottom from 2+ bars with identical lows; Bear ledge = small TR with top from 2+ bars with identical highs
• Barbwire: TR of 3+ bars that largely overlap, one or more dojis, prominent tails

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4. Trend Lines and Channels

Trend Lines

• Drawn in direction of trend; slope up for bull trends (below bars), slope down for bear trends (above bars)
• Usually constructed from swing highs or swing lows
• Major trend line: contains most price action on screen, bars at least 10 apart
• A break of a major trend line is a major sign of weakness/strength

Trend Channel Lines

• In direction of trend but on opposite side of bars from trend line
• Bull trend channel line: above highs, rising to the right
• Bear trend channel line: below lows, falling to the right
• Overshoot: market penetrates the trend channel line
• Undershoot: market approaches but does not reach the trend channel line

Micro Channels

• Very tight channel where most bars have highs/lows touching trend line and often trend channel line
• Most extreme form of tight channel; no pullbacks or only 1-2 small pullbacks
• Sign of institutional program trading

Horizontal Lines

• Swing highs and swing lows
• Prior price levels of significance
• Major support and resistance

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5. Bar Counting: High 1/2/3/4 and Low 1/2/3/4

Definition

A reliable sign that a pullback in a bull trend or trading range has ended: current bar's high extends at least one tick above the high of the prior bar.

Counting System

Label	Definition
High 1	First bar with high above prior bar's high in a pullback or near bottom of TR
High 2	After a bar with lower high, next bar with high above prior bar's high
High 3	Third occurrence; usually a wedge bull flag variant
High 4	Fourth occurrence; sometimes a spike and channel pattern
Low 1	First bar with low below prior bar's low in a rally or near top of TR
Low 2	After a bar with higher low, next bar with low below prior bar's low
Low 3	Third occurrence; usually a wedge bear flag variant
Low 4	Fourth occurrence

Trading the Counts

• High 1/Low 1: First sign of correction ending; often a quick scalp
• High 2/Low 2: Most reliable; ABC correction where A=first leg, B=high1/low1 entry, C=final leg
• High 3/Low 3: Wedge flag; with-trend entry on first signal
• High 4/Low 4: Can begin as failed High 2/Low 2; wait for more clarity

Key Concept

If Low 4 fails (bar extends above high of Low 4 signal bar after Low 4 short is triggered), bears have lost control. Market will become two-sided or bulls take control.

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6. Breakouts and Failed Breakouts

Breakout

• High or low of current bar extends beyond some prior price of significance
• Can be swing high/low, any prior bar's high/low, trend line, or trend channel
• Breakout bar: usually a strong trend bar

Breakout Mode

• Setup where breakout in either direction should have follow-through
• Every trend bar is a breakout

Breakout Pullback

• Small pullback of 1-5 bars within a few bars after a breakout
• Setup for breakout resumption (buy pullback in bull, sell rally in bear)
• If you believe breakout will fail, you see it as failed breakout (not pullback) and trade opposite

Breakout Test

• Breakout pullback that comes close to original entry price
• Tests breakeven stop; may overshoot or undershoot by a few ticks

Failed Breakout (Failed Failure)

• Breakout that immediately reverses
• More reliable when the failed breakout itself fails (failed failure = second signal)
• Example: breakout above TR, next bar is bear reversal bar, market trades below that bar = breakout failed
• If market then trades above high of prior bar within few bars = breakout resuming

Five-Tick Failure

• Emini trade reaches 5 ticks beyond signal bar then reverses
• Often a setup for opposite direction trade

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7. Trading Ranges

Definition

• Minimum: single bar with range largely overlapped by prior bar
• Sideways movement; bulls and bears in balance
• Often a pullback in a trend on higher time frame
• Traders uncertain about breakout direction; repeated breakout attempts up and down that fail

Types

• Tight trading range: 2+ bars with lots of overlap, most reversals too small to trade
• Barbwire: tight TR with 3+ overlapping bars, one or more dojis, prominent tails
• Ledge: small TR with identical lows (bull) or identical highs (bear)

Trading Range Behavior

• Will usually break out in direction of larger trend
• If breakout fails and reverses, often becomes flag in opposite direction
• Two-legged breakout: first leg up, pullback, second leg up through first leg high

Trading Range to Trend

• Breakout from TR = reversal (usually called breakout, not reversal)
• Trend becomes TR = reversal (TR behavior is opposite to trending behavior)

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8. Pullbacks

Definition

• Temporary pause or countertrend move in a trend, swing, or leg
• Does NOT retrace beyond start of trend/swing/leg
• Small TR where traders expect trend to resume
• Can be as small as 1-tick move above prior bar's high, or a pause like inside bar

Pullback Types

Type	Description
Bar pullback	In uptrend: bar with low below prior bar's low. In downtrend: bar with high above prior bar's high.
Pullback bar	Bar that reverses prior bar by at least 1 tick
EMA pullback	Pullback to the moving average
Gap EMA pullback	Pullback that results in moving average gap bar
Double bottom bull flag	Pause in bull trend with two spikes down to same price, then reverses
Double top bear flag	Pause in bear trend with two spikes up to same price, then reverses
Wedge flag	Three-push pullback (high 3 or low 3); wedge-shaped

First Pullback Sequence

In a bull trend pullback, price typically descends through these levels:

1. Minor trendline
2. EMA
3. EMA gap (moving average gap bar forms)
4. Major trendline

Pullback Reliability

• Pullback in strong trend: high probability of resumption
• Pullback that retraces 75%+ of prior move: consider it a potential new trend
• Most pullbacks last 1-5 bars

High/Low 2 Pullbacks

• Most reliable pullback entries
• ABC correction: A=first leg, B=high1/low1 entry, C=final leg
• Breakout from C = high 2 entry

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9. Reversals

Definition

• Change to opposite behavior: bull trend to bear trend, or bear trend to bull trend, or trend to TR, or TR to trend
• Most technicians use for bull↔bear trend change; but TR↔trend is also reversal

Reversal Types

Type	Description
Major trend reversal	Bull→bear or bear→bull; requires test of old trend extreme after trend line break
Climactic reversal	Spike followed by spike in opposite direction
Wedge reversal	Three-push pattern with convergent trend/channel lines; reversing old trend
Expanding triangle	Widening price structure; often reverses trends
Double top/bottom pullback	Two pushes to same area, followed by deep pullback forming lower high or higher low
Final flag	Last pullback before trend exhaustion

Signs of Reversal Strength

• Strong reversal bar (large body, small tails)
• Next 2-3 bars also have bodies in reversal direction
• Spike grows 5-10 bars without pullback
• Reversal breaks multiple resistance/support levels
• First pullback after reversal is small (1-2 bars)
• Second signal (second attempt to reverse within few bars)

Reversal Process

1. Trend line break (especially major trend line)
2. Pullback to test old extreme
3. Test either undershoots or overshoots
4. Reversal or trend resumption

Failed Reversals

• Reversal that fails to continue; often becomes flag in trend direction
• Wedge reversals often fail
• If reversal fails within 1-2 bars, usually countertrend trade available

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10. Common Trend Patterns

Spike and Channel

• Breakout into trend where follow-through is a channel (less momentum, two-sided trading)
• Most common trend pattern
• Spike = strong initial move; Channel = more measured follow-through

Trending Trading Range Days

• Series of TRs separated by breakouts in trend direction
• Each TR is a "stair" stepping in trend direction
• Breakout pullback often retraces into prior TR

Trend from the Open

• Trend begins at first or one of first bars
• Extends many bars without pullback
• Start remains as extreme for much of day

Reversal Day

• Opens and trends in one direction
• Reverses and trends in opposite direction
• Often has two legs each way

Trend Resumption Day

• Opens with pullback or TR
• Resumes in direction of larger trend

Stairs (Broad Channel Trend)

• Series of 3+ trending swings resembling sloping TR
• Contained in channel
• Each breakout smaller than previous = shrinking stairs (waning momentum)

Tight Channels

• Trend line and trend channel line close together
• Pullbacks small, 1-3 bars
• Often micro channels (institutional program trading)

Three Pushes / Wedges

• Three swing highs (bull) or lows (bear) each extending further
• Trend line and trend channel line convergent
• Can be reversal pattern OR pullback/flag in trend
• Wedge flag: with-trend entry on first signal
• Wedge reversal: countertrend; better to wait for second signal

Double Top/Bottom Patterns

• Double bottom bull flag: Two spikes down to similar price, reverses into bull
• Double top bear flag: Two spikes up to similar price, reverses into bear
• Double bottom pullback: Double bottom + deep pullback forming higher low (buy setup)
• Double top pullback: Double top + deep pullback forming lower high (sell setup)

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11. Entry Rules and Trade Management

Setups and Signals

• Setup: Pattern of 1+ bars used as basis for entry order
• Signal bar: Last bar of setup; bar immediately before entry bar
• Entry bar: Bar during which trade is entered

Entry Methods

• Stop entry: Buy stop 1 tick above signal bar high, sell stop 1 tick below signal bar low
• Early entry: Enter as signal bar is forming (higher risk/reward)
• Limit entry: Enter on pullback to specific price level

Second Entries

• Second time within few bars of first entry with entry bar based on same logic
• More reliable than first entry
• Example: breakout above wedge bull flag fails, pulls back to double bottom bull flag = second buy signal

Exit Rules

• Protective stop: Limit losses
• Profit target: Take profits at predetermined level
• Trailing stop: Move stop to protect profit as trade moves in your favor
• Scratch: Exit near breakeven with small profit/loss

Order Types

• Stop order: Entry that triggers when price reaches level (エントリー)
• Limit order: Entry that executes at specific price or better
• Stop loss: Exit at loss if price reaches level
• Take profit limit: Exit at profit if price reaches level

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12. Day Trading

Key Times

• First hour: Most important; patterns related to premarket and yesterday
• Middle of day: Often TR; less directional
• Last hour: Often trending; institutional activity

Opening Patterns

• Opening reversal: Reversal in first hour
• Trend from open: Trend that starts at open and continues
• Gap open: Open beyond prior day's range; can reverse or continue

Globex/Premarket/Overnight

• Consider overnight price action
• Gaps often fill
• Overnight range used to calculate expected daily range

Always In Concept

• If forced to choose between long or short and confident: market is "always in" that direction
• Almost all always-in trades require spike in trend direction before confidence

Scalping vsSwing Trading

• Scalp: Exit with small profit before any pullback; goal less than 4 points Emini
• Swing trade: Hold through pullbacks; goal 4+ points Emini
• Scalpers need 70%+ win rate (reward usually less than risk)
• Swing traders: reward at least equal to risk

Time Frames

• Brooks primarily uses 5-minute chart
• 1-minute chart: tempting but leads to cherry-picking (losing behavior)
• Higher time frames (15-min, daily): fewer but more reliable signals

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13. Risk Management and Trader's Equation

The Trader's Equation

Probability of success × Potential reward > Probability of failure × Risk

• Set reward (distance to profit target) and risk (distance to stop)
• Assign probability based on setup quality
• If uncertain: assume 50% chance
• If confident: assume 60% chance of winning, 40% of losing

Risk Principles

• Potential reward must be at least as large as risk (unless extremely skilled)
• Never risk more than you can afford to lose
• Focus on absolute best trades
• Avoid absolute worst setups

Position Sizing

• Work on increasing number of shares/contracts as you become more successful
• Never double up after losses (martingale is mathematically broken)

Common Mistakes

• Using too small stop (gets stopped out by noise)
• Using too large stop (small rewards aren't worth the risk)
• Not following your rules
• Trading on hope or emotion
• Watching news/indicators instead of price action
• Cherry-picking trades on 1-minute chart

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14. Key Price Action Principles

Breakout Strength Indicators (Bull)

• Large bull body, small tails on breakout bar
• Volume 10-20x average on breakout bar
• Spike goes far, breaks several resistance levels
• Urgency: feels like must buy but want pullback
• Next 2-3 bars have bull bodies
• Spike grows 5-10 bars without pullback
• Low of bar after bull trend bar at/above high of bar before it (micro gap)
• First pullback after only 3+ bars, lasts only 1-2 bars
• Pullback does not reach breakout point

Signs of Strong Trend

• Big gap opening
• Trending highs and lows
• Most bars are trend bars in trend direction
• Little overlap of consecutive bar bodies
• Bars with no/small tails (urgency)
• Occasional gaps between bodies
• No big climaxes
• No significant trend channel overshoots
• Small, infrequent, mostly sideways pullbacks
• Strong setups at pullbacks
• No two consecutive trend bar closes on opposite side of EMA
• 20+ bar moving average gap (then touch EMA = setup for test of extreme)

Best Trades (Highest Priority)

1. Major reversals at support/resistance with strong signal bars
2. Pullbacks in strong trends with good setups (especially high 2/low 2)
3. Breakout pullbacks in direction of trend
4. Second entries after failed first entry

Worst Trades (Avoid)

1. Countertrend trades in strong trends
2. Trading tight ranges hoping for breakout
3. Revenge trading after losses
4. Trading on news instead of price action
5. Entry when trader's equation is unclear

Brooks' Rules Summary

1. Wait for clarity; don't trade if you don't understand
2. Never use 1-minute chart as primary
3. Follow your rules; discipline is everything
4. Only take trades where reward ≥ risk
5. Focus on best setups; avoid worst ones
6. Ignore news, experts, indicators
7. The chart tells you everything you need to know
8. Think in probabilities; nothing is certain
9. Patiently wait for setups; don't chase
10. Keep it simple; less is more

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Glossary of Key Terms

Term	Definition
Always in	Market condition where trend direction is clear; requires spike for confidence
Bar pullback	Bar with low below prior bar's low (uptrend); bar with high above prior bar's high (downtrend)
Breakout	Price extends beyond prior significance (swing point, trend line, etc.)
Climax	Move gone too far too fast; usually followed by TR or reversal
Countertrend	Trade opposite to current trend direction
Doji	Bar with small/no body; neither bulls nor bears control
Edge	Positive trader equation; mathematical advantage
EMA	Exponential moving average (20-bar used by Brooks)
Fade	Trade opposite to recent move; countertrend
Fractal	Every pattern exists on all time frames; micro version of higher frame pattern
HFT	High-frequency trading; algorithmic/program trading
Higher time frame (HTF)	Chart with fewer bars covering same time (e.g., 15-min vs 5-min)
High 1/2/3/4	Bar counting system for pullbacks in bull trends
Leg	Small trend; part of larger trend
Low 1/2/3/4	Bar counting system for pullbacks in bear trends
Micro channel	Very tight channel; institutional program trading
Nested	Pattern containing smaller version of same pattern
Outside bar	Bar encompassing prior bar's range
Overshoot	Price extends beyond prior significance
Pullback	Countertrend move within trend; temporary pause
Reversal	Change to opposite behavior
Reversal bar	Trend bar opposite to current trend direction
Scalp	Small-profit trade; usually before pullback
Second entry	Second setup based on same logic within few bars
Setup	Pattern used as basis for entry order
Signal bar	Final bar of setup; precedes entry
Spike	Strong move in trend direction
Swing	Smaller trend; breaks trend lines
Swing high/low	Bar that extends beyond neighboring bars
Swing trade	Trade held through pullbacks; longer than scalp
Test	Price approaches prior significance; can overshoot or undershoot
Trap	Entry that immediately reverses; traps traders
Trend	Series of price changes mostly in one direction
Trend bar	Bar with body; indicates movement in body direction
Trend channel line	Line parallel to trend line on opposite side
Trend line	Line connecting swing points in trend direction
Undershoot	Price approaches but does not reach level
Vacuum	Rapid move to "magnet" level due to absent opposition
Wedge	Three-push pattern with convergent lines; can be reversal or flag
With trend	Trade in direction of current trend

Summary

Al Brooks' price action system is built on these pillars:

1. Read the chart bar by bar — every bar tells you what institutions are doing
2. Market is either trending or ranging — your response differs accordingly
3. Trade with institutional direction — don't fight the smart money
4. Wait for clear setups — patience and discipline beat rushing
5. Always satisfy the trader equation — reward must exceed risk
6. Ignore everything except price — news, indicators, and experts are distractions
7. Think probabilistically — nothing is certain, but some setups are reliable

The system works because institutions control the market and their cumulative behavior creates patterns that repeat across all time frames and markets. By learning to read these patterns, you canpiggyback on institutional trades with limited risk and high probability of success.