Today, I plan to share the investment insights Benjamin Graham, Warren Buffet’s mentor, gleane...
Trade Profitably with No Indicators
03/14/2012 1:30 pm EST
For more than two decades, Al Brooks has relied upon this binary strategy, which focuses only on range and trend trading techniques and uses no complex analysis or indicators.
My guest today is Al Brooks, and we’re talking about his binary approach to the market. Al, you talk about having range-bound days and trending days, and those are the only two types. Why is that?
I’m a daytrader and I consider about 40 trades a day. On the E-mini, there are 81 five-minute bars every day, and on an average day, there are about 40 potential set-ups.
I’m thinking constantly, and for me to be able to process whether or not I should take a trade and then place the trade and do everything correctly, I have to have a bunch of rules that keep things simple. One is limiting my choices to two things, so risk on/risk off; bull trend/bear trend; trend/trading range; high probability/low probability....
So it’s just a matter of having a strategy for each one, or do you only trade one of those?
Well, I categorize everything that I see into a binary decision. For example, if it’s trend versus a trading range, if it’s a trend, I’ll look to swing more of my position. If it’s a trading range, I’ll look to buy low, sell high, and scalp. So, it determines how I want to trade. If the trend is up, I want to buy; if the trend is down, I want to sell.
Is there any objective way you gauge this? Is it previous highs and lows, or drawing trend lines, or how do you do that?
I use many, many tools. The most important thing for me is breakouts. I look for large trend bars and I look how the market responds after it creates a large trend bar.
I also use trend lines, trend channel lines, and measured moves. I do not use Elliott Wave and I do not use Fibonacci or indicators.
What markets do you typically trade?
I trade mostly the E-mini, but when the E-mini is especially quiet, a lot of times I’ll trade the (Treasury) note futures.
I also trade stocks, and when I trade stocks, I’m trading off the 60-minute chart and the daily chart, and when trading options, I’ll own puts or calls or spreads.
And are you purely technical or do you watch the news and fundamentals?
To me, news has no benefit to trading. It is entirely baked into the price charts. If you see someone on the news, it means the producer picked that person to be on the news, and the producer picked that person among all the different choices.
The market always has people with opposite opinions. That producer picked a person with one opinion. There is someone equally smart with the absolute opposite opinion.
So, if I’m watching the news, I’m only getting half the story, and it’s going to influence my decision making in a bad way, so to me, the news is bad for traders.
See related: Why Traders Should Ignore the News
Finally, will you have a trade on that would be a trend trade in, say, the E-minis, and then a range-bound trade in a stock or something else, like a future?
I trade mostly in the E-minis throughout the day. I’ll take ten to 20 trades a day, and if I’m swing trading in stocks on the 60-minute chart or the daily chart, I’m looking to hold the trade for a day or two or three, and so I’m not watching that as carefully.
Occasionally, I’ll throw in a trade in the Treasury note futures—a daytrade scalp.
- How to Tell a Breakout from a Fakeout
- Measure Trends Easily and Accurately
- Are You Using the “Trader’s Equation?”
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