Reading Price Charts Bar by Bar

Brooks calls this Barb Wire and declares it the single most important thing to avoid. The pattern: three or more overlapping bars near the flat 20-bar EMA where at least one is a doji. It represents perfect equilibrium — neither bulls nor bears control the market. Every breakout attracts hopeful traders, and most immediately reverse.

Brooks' approach if you must trade it: wait for a strong trend bar to break out, then fade it. If that fade also fails, the second entry (a Breakout Pullback) is highly reliable. The cardinal sub-rule: never buy above Barb Wire if bars are below the EMA, never sell below it if bars are above. Brooks estimates that avoiding this pattern alone can turn a losing trader into a winner.

This principle underlies dozens of Brooks' specific patterns. Double Tops, Double Bottoms, failed High/Low 2 setups, and Expanding Triangles all share one root: when the market pushes twice at a price level and can't get through, something fundamental shifts. Sellers who shorted twice and failed won't try a third time soon. Buyers who defended twice add to positions with conviction.

The practical application: after a bear trendline break, if the market rallies back to the old high and fails (forming a Lower High), that's your short entry. The corollary also holds — if a second attempt at something succeeds, the move extends far because the failed defenders must exit, pouring fuel on the breakout.

Strong trends produce a paradox. The best With Trend entries occur during pullbacks that look like the trend is ending. The worst countertrend entries appear at moments that look like obvious reversals. Brooks notes that on many trend days, the most impressive reversal bars and biggest trend bars are actually countertrend — trapping traders into the wrong direction.

In a strong bear, selling near the day's low feels absurd — but that is exactly where smart money enters. Meanwhile, that beautiful bull reversal bar with the long tail tempts countertrend traders, only to collapse within minutes. Brooks' rule: during strong trends, every countertrend setup should be viewed as a With Trend entry. Place your order where the countertrend traders will have their protective stops.

Every failed entry creates fuel. When traders enter and the market immediately reverses past their stop, that forced exit creates momentum in your direction. Brooks teaches traders to identify where stops cluster — typically one tick beyond a signal bar or entry bar — and place entry orders at exactly those prices.

The cleanest examples are failed breakouts. If a bull trend bar breaks out of a trading range and the next bar reverses into a small bear inside bar, those who bought the breakout are trapped. Selling one tick below that inside bar puts you short precisely where trapped longs must cover. With no buyers willing to re-enter until more price action develops, the market becomes one-sided in your favor — all sellers, no buyers.

Brooks turns failure into edge. A Failed Final Flag occurs when a horizontal flag at the end of a trend breaks out but quickly reverses — often marking the actual trend's end and triggering a multi-leg countertrend move. A failed Wedge reversal produces a Measured Move equal to the Wedge's height in the original trend direction.

The most powerful variant is the failed failure — a Breakout Pullback. When a breakout fails (trapping breakout traders), then that failure also fails, the market has resolved two layers of uncertainty. Both sides now agree on direction. This double-confirmation makes Breakout Pullbacks among Brooks' most reliable setups. Failed ii patterns, failed High 2 longs in bears, and failed Low 2 shorts in bulls all function this way.

First entries fail often because not enough traders are convinced. A High 1 pullback in a bull may reverse, but a High 2 — the second time a bar's high exceeds the prior bar's high during a correction — carries far more weight because both sides now see the first countertrend attempt failed. Daily chart bottoms almost always require a second reversal off the low.

Brooks warns about the good-fill-bad-trade trap: if a second entry lets you in at a better price than the first, be suspicious. Genuine second entries typically cost slightly more — that premium is your insurance for dramatically better odds. The corollary: if a second entry also fails, assume you're misreading the market and stop trading that direction entirely.

Brooks calls this setup M2B / M2S (moving average, second entry, buy) in bulls and M2S (sell) in bears. It combines three of his highest-conviction elements: a confirmed strong trend, a two-legged correction, and a touch of the 20-bar EMA. In a bull, wait for two downward legs that bring price back to the EMA, then buy above the setup bar.

This works because each EMA touch in a strong trend re-engages institutional buyers. When price stays on one side of the EMA for two hours or more — what Brooks calls a 2HM pattern — the first EMA touch is particularly reliable. Take every M2B in a bull and every M2S in a bear, and swing at least half your position, because these moves frequently extend far beyond what seems reasonable.

Brooks' math is stark. A trader who consistently nets just one point per day trading 100 Emini contracts earns over $1 million per year. Four points yields $4 million. The Emini handles this volume without significant slippage. By contrast, adding lower-probability setups to increase trade count introduces losses that erode the edge built by the best setups.

Brooks recommends beginners limit themselves to two to five setups per day — primarily M2B/M2S entries in trends and second entry reversals at swing extremes on range days. Once consistently profitable, shift focus to contract count, not setup variety. Start with 100-500 SPY shares before graduating to Emini contracts. The single worst habit: Barb Wire scalping in midday trading ranges, which feels productive but mathematically destroys accounts.