According to Al Brooks, what is the primary force that controls price movement in markets?
Support and resistance, not news.
What is ‘support’ in the context of market pricing?
A price level below the current market where buying pressure may overcome selling pressure, causing a rally or a pause in a selloff.
What is ‘resistance’ in the context of market pricing?
A price level above the current market where selling pressure may overcome buying pressure, causing a selloff or a pause in a rally.
Why are support and resistance levels referred to as ‘inflection points’?
Because at these levels, the market decides whether to reverse its direction or break through and continue its trend.
What fundamental activity is the market constantly engaged in, according to the source material?
The market is constantly in search of a ‘fair price’ zone by probing support and resistance levels.
In a strong bull trend, what is the expected outcome when the market reaches a resistance level?
The resistance level is likely to fail, and the bull trend will continue.
In a strong bear trend, what is the expected outcome when the market reaches a support level?
The support level is likely to fail, and the bear trend will continue.
Al Brooks’ ‘80% rule’ for strong trends states that 80% of _____ will fail.
reversal attempts
A rally that fails in a strong bear trend becomes what type of pattern?
A bear flag.
Al Brooks’ ‘80% rule’ for trading ranges states that 80% of _____ will fail.
breakout attempts
What is the general trading strategy recommended for markets that are in a trading range?
Buy low (near support), sell high (near resistance), and take quick profits (scalp).
Why is support and resistance often extremely precise in markets like the E-mini?
Because these markets are dominated by computers that use precise mathematical calculations for their trades.
Why is support and resistance in Forex markets considered less precise than in stock markets?
Because Forex is a decentralized market with no central exchange, leading to slightly different price data across various brokers.
What is a ‘measured move’ target?
A projected price target based on the height of a prior price leg, which often acts as support or resistance.
When a prior support level is broken, what does it often become?
It often becomes a new resistance level.
When a prior resistance level is broken, what does it often become?
It often becomes a new support level.
A pullback to a recently broken price level to see if it will hold as new support or resistance is called a _____.
breakout test
What advice is given regarding the timeframe for setting stops?
Stops should be based on the timeframe being traded (e.g., use monthly chart stops for a monthly chart trade).
How does Al Brooks view the role of news in market movements?
News is sometimes a catalyst that begins a move, but the move itself is a probe of pre-existing support and resistance.
In a ‘buy the close’ bull trend, why does the highest close often become resistance after a reversal?
Bulls who bought that close are disappointed and will sell at their entry price to get out break-even, creating selling pressure.
In a ‘sell the close’ bear trend, why does the lowest close often become support after a reversal?
Bears who sold that close are disappointed and will buy back their shorts at their entry price to get out break-even, creating buying pressure.
What is the most important and reliable pullback percentage level according to Al Brooks?
The 50% pullback.
What is the defining characteristic of a bull trend in terms of market structure?
The formation of a series of higher lows.
What is the defining characteristic of a bear trend in terms of market structure?
The formation of a series of lower highs.
