Original subtitles

This is Al Brooks.

Thank you for watching the Brooks Trading Course.

This is the first video on the course and in

this video I will talk about basic terminology.

If you are already familiar with the terms that

I use you can go ahead and skip this video.

All traders often use words that can be very unclear and for definitions,

you can go to my website, brookstrainingcourse.com, and there is a glossary there.

For example, throughout the video course, I will be using abbreviations on different

slides, and these are some of the common ones that you will see.

Always in long, always in short, buy, buy low, sell high, scalp,

break out, the close of a bar, double bottom, double top.

When you hear me talk about a moving average, I'm talking about a 20 bar

exponential moving average or an EMA then the high of the bar HFT high frequency

trading when you see me use HH I'm talking about a higher high low is L a lower low a

low that is below a prior low is a lower low when I say moving average that's the

same as the exponential moving average except rarely I will talk about some

simple moving averages when I do I'll explain it moving average gap bar when

there's a bar where there's a gap between the low or high of the bar and the moving

average measured move I talk about this in every video major trend reversal MTR I

talk about that in almost every video open of the day pullback PB I refer to that in

almost every video sell and then when I talk about corrections especially after a

climax or when i'm expecting a reversal you'll often see me use the phrase tbtl 10

bars two legs which is a common occurrence when the market is trying to correct

trading range tr and when the trading range is particularly tight i call it a

tight trading range ttr every market at all times is either in a trend or in a

trading range A bull trend typically begins with the bull breakout,

which is a big bull trend bar, a white bar.

Bear bars are black bars, and here the bar opens at this point at the bottom of the

white box, and that is the close of the white box.

After the breakout, which can last many bars, here it lasted a couple bars,

there is a pullback, where a low of a bar goes below the low of the prior bar.

the breakout phase of a trend, which is very

strong, into a channel phase of the trend.

And a channel is a weaker trend, but it's still a bull trend.

We're still going up.

We have highs that are above prior highs.

We have higher highs and we have higher lows.

And that is the definition of a trend.

Eventually, a channel typically evolves into a trading range.

So I view a bull channel as a bear flag, because most

of the time you get a bear breakout and a transition

And once the market's in a trading range, it then is in

breakout mode, which means traders are anticipating a breakout.

And here we have a bull trend and a trading range.

The breakout can be to the upside, in which case

you're getting a resumption of the prior bull trend.

Or it could be to the downside and you can get a reversal of the bull trend.

You'll often hear traders talk about support and resistance.

price where a sell off is likely to pause or reverse.

So even though you don't see anything right here that is causing the market to

go up, the market believes this price is too low.

So when it gets down here, the market goes up.

Here we're a little bit lower, but the same general area.

There's support down here.

Every sell off is being bought.

And resistance is the opposite.

It's a price above the current price and a rally

to that level is likely to stall or reverse.

On the chart, you don't see a line drawn across a

resistance level, but you notice the price action.

The market goes up and it turns down.

It goes up to that same general price area, turns down.

It goes a little bit higher and twice tries to go higher and it turns down.

Traders see this price level as resistance, and they expect that if the

market gets back up there again, it'll do what it did the prior time.

times, not always, but most of the time.

A breakout is simply a move beyond support or resistance.

A bear breakout is a move below support.

Here we have a bull channel, higher lows, higher

highs, and then we have a break below the line.

This is a big bear trend bar and it is a breakout.

It's a move below support.

There's other support down here and the market broke through support here.

Here it did not.

It kept holding support, holding support.

Eventually it broke out.

And now it's testing the next lower support level, which is a prior low.

And we don't know yet if it will continue down and

break below that support or bounce at that support.

When the market was at this price level earlier, it rallied.

Maybe it will do that again now that it's at that same price level.

And it did.

The support held and a strong bear breakout.

led to a bounce instead of a bear trend.

Every bear trend bar is a breakout.

Every bull trend bar is a breakout.

It's a bull breakout.

We're reversing up.

You can also say that we're breaking out,

breaking out of a very steep two-bar bear trend.

And we're stalling here, a smaller bar with a tail on top at

a price level where the market stalled repeatedly earlier.

So we're stalling at resistance.

if the market will reverse down from resistance or if it will break out.

In this particular case, we broke far above the

resistance level and we had follow through buying.

So this is a successful bull breakout after a failed bear breakout.

This type of chart is a candle chart.

I sometimes refer to each candle as a bar instead of a candle.

and you'll see on a lot of the bars there's a black line on top sometimes

there's a black line on the bottom and white bars can have black lines on the

bottom or on top black bars can have black lines on the bottom or on top they can

have them on top and bottom here's a black bar with a line on top and bottom a white

bar with a line on top or bottom and i usually refer to those black lines as

tails other people refer to them as wicks or shadows It doesn't matter.

I just like the word tail.

A bar where there is either a big white box or a big black box is a trend bar.

It occurs more commonly in trends.

And I call it a trend bar because it's a one bar trend.

So the market is trending up for this one bar.

Open near as low, close near as high.

In general, the strongest trend bars have relative small tails.

Sometimes they have big tails like that, but it's still a bold trend bar.

It's mostly a bold trend bar.

And if the tails are more prominent relative to the size of the bodies,

I tend to say that's not a trend bar.

It's more of a trading range bar.

And I refer to trading range bars as dojis.

Trading range bars in general have smaller bodies and more prominent tails.

I view them as a one-bar trading range.

And on some smaller time frame chart, they are one-bar trading ranges.

based upon technical analysis.

A lot of institutions prefer fundamental analysis.

Technical analysis, I'm looking at charts that show

prices, and the price action is how the price moves.

How is the price acting?

How is it going up, going down, going sideways?

How much momentum?

How strong are the moves up and down?

Fundamental analysis, it's mostly used by institutions, information and they mostly

ignore charts but not entirely a lot of fundamental traders will say ah the

fundamental information supports higher prices and anytime the market sells off if

it pulls back to some support level like a moving average or prior low they'll look

to buy more in their mind they're making the decision based upon fundamental

information betting that the reversal will fail so

a lot of fundamental traders also look at charts

sometimes you'll hear the expression an abc pullback for example let's say an abc

pullback in a bull trend it's two legs sideways to down it doesn't always have to

be down it can simply be sideways and in a bull trend i refer to those as a high to

buy setup or high to bull flag and it's an opportunity for traders to buy to get long.

so you have a bull trend and then a b c a three-legged correction two legs down one

leg up a leg down b leg up c leg down and then bull trend resumption and traders

would buy using a stop order above the high of the bar here's another example

bull breakout a pullback did not lead to much of a trend to me this is a high one

bull flag i would refer to this as a high two bull if this breakout were bigger i

would restart the count for example here we have a pretty big bull breakout this

correction has to do with this far not with this prior trend so i'm starting the

process over again new breakout new pullback this breakout is not big enough

for me to start the process over again you could call it a high one you could say

this is a breakout and a pullback or you could say well maybe the market corrected

down and maybe this is still part of the

correction and this is part of the correction.

This is an A, B, C where A went above the top of the bull breakout but it's still

part of the corrective process and that's why I say it can be sideways to down,

not necessarily down.

This one was a little bit down, mostly sideways but this one clearly is sideways.

Here's another bull breakout.

I'm looking for pullbacks.

This is an inside bar but it has a bare body on a smaller time frame that's a

small pullback on this chart it's technically not a pullback because the low

of this bar did not go below the low of that bar but it's an inside bar it's a

pause for me that's a high one bull flag and bulls will buy just above its high

looking for resumption up in general they'll put a stop down here because

sometimes the market will go sideways and then slightly lower but the trade is still

valid So for me, this is a bold trend and a pullback, a high one buy setup.

Is this enough of a breakout for me to restart

the count and call this another high one?

You can.

I would say that it's not big enough, and I would

say this is all part of the same correction.

To me, this would be a high one, a first attempt up, did not get very far,

and this would be a high two buy setup, and traders would

buy above the high of that bar or above the high of this bar.

Any time the market forms a double bottom, bull flag.

It's a high to buy setup.

Their bear trend, traders are looking for the exact opposite.

Here's a bear trend, and anytime there is a pullback or a

pause, traders look at it as an opportunity to go short.

The high of this bar did not go above the high of this bar, so it's technically not

a pullback on this timeframe, but it probably is a pullback on a smaller timeframe.

In any case, it's a pause, and traders will place a

stop order to go short just below the low of this bar.

betting that if it does go below that bar the trend will resume down here it simply

went sideways and here's a second attempt to go down for me this is a low one short

and then we have a double top bear flag that's a low two short so you either sell

there or you sell below this bar here low low one bear flag low two bear flag same

thing here as the markets going up after each bar traders

place a stop order to go short just below the low of the bar.

They place a stop order when this bar closes to sell right below the low of the bar.

They get filled here.

It's still going up.

It's still correcting, but it's still most likely a minor reversal and a bear flag.

Traders who did not sell here, they might instead place

an order to sell below this bar, does not get filled.

They then place an order to sell below this bar.

It does get filled.

So a second a rally in a bear trend.

It's a low two short, a low two bear flag, and ABC bear flag, ABC.

There are always other ways to label things.

Some traders instead will look at this as a larger low one, a sideways move low one,

and then this is part of that correcting process,

and then a low two with a second leg also subdivided.

They'll look at this as sideways to a low one, to a low two so they'll view this as

a larger low two bear flag or larger double top bear flag first top second top

it doesn't matter what you call it you're looking for ways to

enter the trend and when you see these bear flags look to sell

this is a fairly tight bear channel the first reversal is probably minor a minor

reversal is going to be usually a bear leg in a trading range or a bear flag.

We got a bear trend.

We're trying to reverse, probably a minor reversal.

I call it a pullback.

Whenever I see a reversal attempt and I think it will not

get very far and the trend will resume, I call it a pullback.

That last slide I showed a minor reversal.

And look at this reversal, bear trend and a very strong bull

breakout, follow through bar, another follow through bar.

so at this point we're in a bull trend here this is a major reversal not just a

bear flag here minor reversal bear flag here minor reversal bear flag minor

reversal bear flag but look at the size of this breakout far above the bear channel

this is a major trend reversal which means the bear trend is becoming a bull trend

now look at this we have a bull trend here and then a bear breakout to a broader bull

channel but you can look at this and say bull trend pretty strong bear breakout if

we go above that high or test that high maybe we'll get a trend reversal into a

bear trend and that's what we have we have a bull trend and then a bear trend if a

bull trend goes to a bear trend it's a major reversal if a bull trend just goes

sideways and the bull trend resumes it's a minor reversal even this is a minor

reversal because the full trend resumed so minor reversal the trend resumes and

instead of reversing sometimes you'll see a bar like this it's low is below the low

of the does not have to be below I call it an outside bar if the high is exactly at

Sometimes you'll see a bar like this.

Its low is below the low of the prior bar.

Its high is above the high of the prior bar.

That is an outside bar.

It does not have to be below.

I call it an outside bar if the high is exactly at the high of the prior bar,

and the low goes below the low of the prior bar.

For example, over here, this bar did not go above that high.

The two highs are at the same price.

it's low, went below.

I would still call that an outside down bar, an outside bar.

And an inside bar is a bar where it's high

and low are within the range of the prior bar.

This bar, the low is above that low.

The high is below that high.

So this black bar is an inside bar.

And look at the next bar.

This white bull body, it's inside of the black bar.

It's highest below that high, is above that low same here another inside bar this

bar is inside that bar this bar is inside that bar a small inside bar here here's an

inside bar the high is the same as that high but the low is above that low so i

would still refer to that as an inside bar that's why i say for an outside bar the

height is at or above the high of the prior bar and the low is at or below the

low of the prior bar and an inside bar the high is at or below the high of the prior

bar and the low is at or above the low of the prior bar an outside bar here outside

bar here and this is actually an outside bar as well its low was below the low of

that bar its high was above the high of this bar here's the australian dollar

versus the us dollar a five minute chart forex chart i distinguish trades into

swing trades and scalps a scalp means that I'm trying to take a quick profit I

usually exit within five bars and sometimes just one bar a swing trade means

I'm planning to hold on to my position as long as the trend is going in my direction

let's let's look at this chart and let's talk about buying here so if I buy above

the high of this bar I get filled right here just above that high.

And let's say I get out four or five bars later

below the spare bar, right where this red box is,

If I'm exiting up here at the end of the session, to me that's a swing trade.

So I buy here, I don't worry about the pullback here, or here, or here, or here.

None of these look like major reversals.

I'm willing to continue to hold despite all of the pullbacks.

And then I look to exit at the end of the session.

If you're holding through pullbacks and for a lot of bars, that is a swing trade.

is a daily chart.

There are other terms to use when talking about scalping and

swing trading on higher time frame charts, daily or weekly charts.

So for example, let's say a bull trader bought

here and he get out here, he's a scalper.

You might call him a fast money trader or simply a trader.

And if he get out here, and this was a monthly

chart, people would call him an investor.

If it was a weekly chart, they might call him an investor.

I would call him a swing trader, even on this chart.

But in general, if you're taking quick profits on a daily chart, traders will

call you a trader or a fast-money trader or a scalper.

But usually they use the term trader.

And if a person's holding for a long time, 20, 30, 40 bars, you start to get into the

realm of being an investor, especially if it's a weekly or monthly chart.

some swing traders will hold far beyond a typical swing which might be 10 20 or 30

bars they may hold indefinitely sometimes for years or months and that would be an

investor people would use the term investor instead of swing trader for that

kind of a person if you look at a chart you see the market going up and down up

and down up and down and the smallest move upward down on a chart one move it's

called a tick if it goes up three or four it's called three or four ticks if you're

looking at a 4x chart people tend to use the term pip instead of a tick but it's

the same thing and nowadays pips are also subdivided into tenths or even hundredths

but i just refer to pips and i don't worry about the tiny small divisions a point is

a group of ticks or pips so for example one point on the e-mini chart is four ticks.

A corresponding move on the SPY SPY ETF chart is 10 ticks.

You'll sometimes hear traders talk about the lot size.

I traded five lots, which means you traded five

contracts or five shares or five units or five something.

And a handle is a big round number.

So if the spider is trading at 202.50, you would say it has a 202 handle on it.

When I talk about moving averages, I'm usually

talking about a 20-bar exponential moving average.

average, and I don't qualify it, I'm talking

about a 20-bar exponential moving average.

moving average I simply call it a moving average this moving average is a 20 bar

exponential moving average computers you cannot get around the reality that they

control all major markets most trading nowadays is automated that means the

orders are placed by computers and software programs which are called

algorithms are making decisions about when to buy, when to sell, when to add on to

positions, when to slightly reduce positions.

Here's an example of a flow chart of an algorithm.

You'll sometimes hear me talk about an institution, Bank of America, CalPERS,

the pension fund for state employees in California.

Fidelity, investments, those are all institutions.

Goldman Sachs, an institution could be a bank, it could be a hedge fund,

a high-frequency trading firm, pension fund like CalPERS, mutual funds

like Fidelity, any large entity is an institution,

and that includes large individual traders.

So, for example, the smallest position size in the E-mini is one contract.

If a trader is trading 100 contracts or 200 contracts or more, I would consider

them to be as significant as an institution,

even if they're trading for their own account.

You'll often hear me talk about setups, and it's a chart pattern.

It's something on the chart, and it makes me

believe that there will be a profitable trade.

Sometimes the setup is one bar, sometimes it's three or four bars.

Sometimes it's 20 or 30 bars.

So for example, we have a bull trend, and it's pulling back for a few bars.

And as it's pulling back, traders are placing buy stops, one

tick above the high of the prior bar, did not get filled.

A new bar closes.

they place a buy stop, one tick, or one pip above the high of that bar.

And in this case, the trader did get filled.

This is the bar when they enter their trade.

So it's the entry bar.

And this is the bar that signaled the entry.

When they saw this bar, they thought, huh, if it

goes above the high of this bar, I want to get long.

This is the signal bar, and traders get in on the entry bar.

the signal bar is the reason to take the trade.

It's the signal to look to enter.

So here's the signal bar.

We're with the trend.

We're trading in the direction of the trend.

Buying above this bar is buying with trend.

Counter trend means doing the opposite.

For example, we have a bull trend, and if I'm selling

below that bar right here, it's a counter trend trade.

So I'm trading in the direction opposite to the trend.

Context, you'll often hear me talk about context.

Is it a buy setup or a sell setup?

I'm always interested in the context.

And context means all the bars to the left.

If I see this bar, I want to know what took place before it.

Do I want to buy here?

Maybe it's better to sell here.

I want to know what the bars to the left look like.

And those bars to the left provide the context.

So, for example, if there's a strong bear trend, do I really want to be buying here?

No, it's a bull reversal bar.

It's a buy signal, but it's a buy signal that I would not take.

If anything, I'm looking to sell.

When there's a very tight bear channel like this, I don't care if there's a good

bull reversal bar and a good follow through bar.

It's more likely the reversal will fail, and

this bull reversal will end up as a bear flag.

This is a low-one sell signal bar.

Traders will sell just below its low, expecting the reversal to fail,

become a bear flag, and for the bear trend to resume.

I often talk about always in.

That is the direction of the current trade.

For example, here, I would say the market's always in long.

So if I had to be in the market this instant, would I rather be long or short?

If I had to be always in the market at this point, I would be long.

long because odds are the market's going higher.

In a bear trend, the market's always in short.

I pay attention to context.

The context here is that we're in a bear trend.

We're getting lower highs and lower lows.

We're starting to get a lot of two-sided trading, tails below bars, some bull bars,

smaller bars, sideways bars.

It's still always in short, but it looks like it's evolving into a trading range,

which means that it may soon reverse into always in long.

Three big bear 10 bars, but tail on the bottom of the bar.

That's weakening a weakening trend.

Another big bear breakout but a big tail below and the close of this bar,

the bottom of that black box, is above the breakout point.

There are problems with this bear trend.

Another breakout, a close just around the breakout point instead of far below.

Goals are buying prior lows and they're making money.

And that usually means that a bear channel is in the process of evolving into a

trading range and once it's in a trading range traders will start to look for trend

reversals so we have a fairly tight bear channel and we have a bull trend bar

breaking above the high of the channel breaking above the top of the channel

trend lines are rarely perfect you can see I'm using this high and then this series

of highs, the market looks like it's turning down

every time it hits an imaginary line at that point.

I would extend the line from here all the way here.

I could draw it from this high across that high, or I

could simply use a small trend line from here to here.

In any case, we're getting a bold breakout of a bear channel, and that means traders

will start looking for possible trend reversals.

So we have a low here, we reversed up, we have a lower low, we reversed up.

And here the bears are trying to resume back down, but this is forming a higher low.

This setup, this buy setup here is called a higher low major trend reversal,

higher low with the potential of reversing into a major trend.

It's also a head and shoulders bottom.

This would be the left shoulder, this is the

head, and this would be the right shoulder.

So it's a reversal setup.

Not a high probability buy at this point, but once you start to get three or four

bars with big bull bodies closing on their highs, the bar is getting bigger,

at some point the market becomes always in long for everybody which means that

traders can buy for any reason expecting that the market will be higher as more

bars become visible another breakout we have a small breakout here and now we have

three bull bars and traders might buy this far as it moves above that high the

neckline of the head and shoulders bottom they may simply buy the close arguing that

it's the third bull close very little overlap between the bars and the bodies

are getting bigger and it's following a higher low major trend reversal over here

the tails are starting to become prominent the bodies are getting small each doji is

a one-bar trading range in here it's forming a pullback a pullback means that

when I refer to an attempt at a reversal as a pullback instead of a trading range

that means I believe the trend will resume instead of reverse Each one of these bars

is a one-bar trading range, a doji bar, and

together they form a slightly bigger trading range.

Somewhere in here, traders concluded that the market became always in long.

It was always in short all the way down here.

This is Al Brooks, and thank you for watching

this video in the Brooks Trading Course.

This video was on terminology.