Original subtitles

This is Al Brooks. Thank you for watching the Brooks Trading Course. This is the

first video in 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, brookstradingcourse.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 in 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, 2 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, and that usually results in a transition from 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

into a trading range. 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. Support is some price below

the current 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 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. We don't

know yet 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 nearest low, close nearest high. In

general, the strongest trend bars have relatively small tails. Sometimes they

have big tails like that, but it's still a bull trend bar. It's mostly a bull 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 doji's. 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. A bull trend bar

is a one bar bull trend, and on a smaller time frame chart, it's a pretty strong

bull trend, and a trading range bar or doji is a trading range on a smaller

time frame chart. I make decisions on what I'm going to do with my trading

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, and they are looking at

economic 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 a prior low, they'll look to buy more. In their mind,

they're making the decision based upon fundamental information, betting that

the bear 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-two buy setup or a high-two bull flag, and it's an opportunity for traders

to buy, to get long. So for example, we have a little bull trend. Bull trend started

here. We have a new bull leg here. We pulled back. We tried to resume up. It

failed. Maybe a second attempt will be successful. This is a high-one buy setup.

Did not work. And this bar is a high-two buy setup, and it did work. Buying above

its high led to a profitable trade. Some traders would also call that an ABC

pullback. 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 flag.

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 bar, 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. Okay. This is an inside bar,

but it has a bare body. On a smaller timeframe, 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.

For me, this is a bull 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.

Anytime the market forms a double bottom, bull flag, it's a high-two buy setup.

In a 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-one bear flag, low-two bear flag.

Same thing here. As the market's 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. It does not get filled.

They then place an order to sell below this bar. It does get filled.

So a second entry short in a rally in a bear trend, it's a low-two short,

a low-two bear flag, and ABC bear flag, A-B-C. 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 where the second leg also

subdivided. They'll look at this as sideways to a low-one and then up to a low-two. So they'll

view this as a larger low-two bear flag or a 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 bull 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 prior bar.

It's 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, yet its 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 is inside of the black bar. It's high is

below that high and it's low 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 high 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. It's low

was below the low of that bar. It's high was above the high of this bar.

Here's the Australian dollar versus the U.S. dollar, a five-minute chart, a 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 onto my position as long as the trend is going in my direction.

Let's look at this chart and let's talk about buying here.

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 right below the low of that bar. To me, that's a scalp. I did not

allow any pullbacks. I get out within one, two, three, four, five bars and did not matter to me

that the trend continued. If I buy here and get out a few bars later and did not allow pullbacks,

that's a scalp. On the other hand, what happens if I exit up here or up here?

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 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. That last chart was a five minute chart and here is a daily chart. There are other

terms to use when talking about scalping and swing trading on higher timeframe charts, daily or

weekly charts. So for example, let's say a bull trader bought here and he got out here. He's a

scalper. You might call him a fast money trader or simply a trader. And if you 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. To me, 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 scalper. But usually they use the term trader. And if a person is 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 up or down on a chart is a tick. So if it goes up 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 Forex 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, S-P-Y, 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 SPY

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, whether it's a five minute chart

or a month chart, it doesn't matter. If you hear me say moving average and I don't qualify it,

I'm talking about a 20 bar exponential moving average. Some people refer to it as an EMA,

exponential 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 flowchart 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 because odds are the market's

going higher. In a bear trend, the market's always in short. At this moment, do I want to be long or

short? If I had to be in the market this instant, if I had to be always in the market and it's right

this instant, I want to be short. The market's always in short here and somewhere in here it

became always in long. Traders thought it was better to be long, easier to make money being

long than 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 bars, a bear channel with about eight or ten bars,

but tail on the bottom of the bar. That's 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. Bulls 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. Once it's in a trading range, traders will start to look for trend reversals.

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 bull 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 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, and 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.