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Excellent question. The trend channel line overshoot is what allows you to consider a High2 long in this situation. So on this particular chart the heavy drop stalled, pushed down a few more ticks then moved up and formed the doji bar. I wouldn't enter after the doji bar as they are typically horrible setup bars but after the doji bar there was a small red bar where the bears tried again to push the market down. So what you've got is a trend channel overshoot, a price stall, and two attempts by the bears to push the market down. After they fail on the second attempt you can be confident in taking the long.
Regarding the Low2, another way to view this pattern is as a failed Low2 and anytime the market fails to do what it should then you can typically take the opposite side of the trade. But again the trend channel overshoot was the key setup and typically leads to two legs up.
As I am working thru the Brooks stuff. I find that my "training wheels" allow me to see what he is talking about. The pulling away from the ema as he calls it... The price will only get so far from the 20ema until it snaps back. The trend channel overshoot. If you put a faint wilders wave on the chart this sort of thing will jump out at you. 7,10,14,16,20 emas. To me this causes the price action to flow more than jump. This is just a perception thing. Anyhow it helps me...
My guess is brooks sees this price wave and flow instinctively.... even though it is not on his charts
I am posting my CL 5min chart with some annotations about your setup, specifically I'd get in a bar earlier and have less risk.
I took two trades on CL, both winners for around 13-15 ticks. I quit trading by the time your setup happened but you'll find that the 3 are similar.
I don't actually trade with the phase shift oscillator, I use Better Sine Wave for Tradestation. So I'm posting a NT chart but I took the 2 trades from my TS charts. The two work the same way, but usually they produce slightly different results.
Blz - here is my ES chart with a comment on your setup.
I had a losing day on ES. In hindsight I should have just went short on a break of any of the swing lows. I felt like I missed the beginning of the move and didn't want to chase it. I have a short swing trade on so the move lower suited me just fine.
First, let me state that I admire Al Brooks' focus and determination immensely and think he had a generous intent in pouring his unique chart reading experience into a book. But, just as doctors are constantly blamed for bad handwriting (have you ever been able to read a prescription?) so has Mr. Brooks, who had an ophthalmology practice, not focused on clarity. The prescription is good, but you need to do some work to decipher it. I did one pass through the book and realized that was totally inadequate, so I started at the beginning and some concepts began to sink in. Then I joined Big Mike and, lo and behold, here is this forum. Great! The posts by 'Blz17', especially when illustrated with a chart, have been very helpful. I have some thoughts on indicator vs. no-indicator trading that I'll post in the near future. But I just wanted to give anticipated thanks to those who contribute to this forum and to understanding this important work better.
Since I've been reading Al Brooks, I've been playing with a lot of new techniques. One of which is Inside and Outside bars, which I didn't use to pay much attention too -- mainly because I didn't pay much attention to minute charts.
That's a perfect looking H2. Brooks even mentions that frequently the H2 will be above the H1 and as I recall it is a good thing as it indicates the side that you want to be on is still demonstrating strength.
Your set up was perfect in my opinion; a bullish ES move, pullback to EMA20 and H2. Sometimes you just can't account for those sudden high volume moves. Regardless when an H2 or L2 fails typically the opposite side is a good trade so reversing this would have been excellent. Clearly that's easy to say in hindsight but as a general rule reversing a failed L2 or H2 is a good set up.