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

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first video in the course, and in this video I will talk about basic

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terminology.

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If you are already familiar with the terms that I use, you can go ahead and

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skip this video.

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

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go to my website, brookstradingcourse.com, and there is a glossary there. For

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

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

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always in short, buy, buy low, sell high, scalp, break out, the close of a bar,

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double bottom, double top. When you hear me talk about a moving average, I'm

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talking about a 20 bar exponential moving average, or an EMA. Then the high

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of the bar, HFT, high frequency trading. When you see me use HH, I'm talking

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about a higher high. Low is L. A lower low, a low that is below a prior low, is a

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lower low. When I say moving average, that's the same as the exponential

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moving average, except rarely I will talk about some simple moving averages. When I

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do, I'll explain it. Moving average gap bar, when there's a bar where there's a

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gap between the low or high of the bar in the moving average. Measured move, I

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talk about this in every video. Major trend reversal, MTR, I talk about that in

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almost every video. Open of the day, pullback, PB, I refer to that in almost

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every video. Sell, and then when I talk about corrections, especially after a

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climax or when I'm expecting a reversal, you'll often see me use the phrase TBTL,

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10 bars, 2 legs, which is a common occurrence when the market is trying to

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correct. Trading range, TR, and when the trading range is particularly tight, I

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call it a tight trading range, TTR. Every market at all times is either in a

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trend or in a trading range. A bull trend typically begins with the bull

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breakout, which is a big bull trend bar, a white bar. Bear bars are black bars, and

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here the bar opens at this point at the bottom of the white box, and that is the

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close of the white box. After the breakout, which can last many bars, here

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it lasted a couple bars, there is a pullback, where a low of a bar goes

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below the low of the prior bar, and that usually results in a transition from the

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breakout phase of a trend, which is very strong, into a channel phase of the trend.

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

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going up, we have highs that are above prior highs, we have higher highs, and we

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have higher lows, and that is the definition of a trend. Eventually, a

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channel typically evolves into a trading range. So I view a bull channel as a

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bear flag, because most of the time you get a bear breakout and a transition

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

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in breakout mode, which means traders are anticipating a breakout, and here we

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have a bull trend and a trading range. The breakout can be to the upside, in

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which case you're getting a resumption of the prior bull trend, or it could be to

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the downside and you can get a reversal of the bull trend. You'll often hear

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traders talk about support and resistance. Support is some price below

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the current price, where a sell-off is likely to pause or reverse. So even

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though you don't see anything right here that is causing the market to go up, the

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market believes this price is too low, so when it gets down here, the market goes

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up. Here, we're a little bit lower, but the same general area. There's support

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down here. Every sell-off is being bought. And resistance is the opposite. It's a

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price above the current price, and a rally to that level is likely to stall

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or reverse. On the chart, you don't see a line drawn across a resistance level, but

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you notice the price action. The market goes up and it turns down. It goes up to

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that same general price area, turns down. It goes a little bit higher and twice

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tries to go higher, and it turns down. Traders see this price level as

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resistance, and they expect that if the market gets back up there again, it'll do

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what it did the prior times. Not always, but most of the time. A breakout is

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simply a move beyond support or resistance. A bear breakout is a move

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below support. Here we have a bull channel, higher lows, higher highs, and

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then we have a break below the line. This is a big bear trend bar, and it is a

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breakout.

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It's a move below support. There's other support down here, and the market broke

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through support here. Here, it did not. It kept holding support, holding support.

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Eventually, it broke out, and now it's testing the next lower support level,

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which is a prior low, and we don't know yet if it will continue down and break

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below that support or bounce at that support. When the market was at this

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price level earlier, it rallied. Maybe it will do that again now that it's at that

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same price level, and it did. The support held, and a strong bear breakout led to a

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bounce instead of a bear trend. Every bear trend bar is a breakout. Every bull

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trend bar is a breakout. It's a bull breakout. We're reversing up. You can also

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say that we're breaking out, breaking out of a very steep two-bar bear trend, and

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we're stalling here, a smaller bar with a tail on top at a price level where the

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market stalled repeatedly earlier, so we're stalling at resistance. We don't

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know yet if the market will reverse down from resistance or if it will break

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out. In this particular case, we broke far above the resistance level, and we had

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follow-through buying, so this is a successful bull breakout after a failed

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bear breakout. This type of chart is a candle chart. I sometimes refer to each

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candle as a bar instead of a candle, and you'll see on a lot of the bars, there's

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a black line on top. Sometimes there's a black line on the bottom, and white bars

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can have black lines on the bottom or on top. Black bars can have black lines on

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the bottom or on top. They can have them on top and bottom. Here's a black bar

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with a line on top and bottom, a white bar with a line on top or bottom, and I

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usually refer to those black lines as tails. Other people refer to them as

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wicks or shadows. It doesn't matter. I just like the word tail. A bar where

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there is either a big white box or a big black box is a trend bar. It occurs more

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commonly in trends, and I call it a trend bar because it's a one bar trend, so the

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market is trending up for this one bar, open nearest low, close nearest high. In

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

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

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bar, and if the tails are more prominent relative to the size of the bodies, I

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tend to say that's not a trend bar. It's more of a trading range bar, and I refer

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to trading range bars as doji's. Trading range bars, in general, have smaller

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bodies and more prominent tails. I view them as a one bar trading range, and on

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some smaller time frame chart, they are one bar trading ranges. A bull trend bar

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

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

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

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based upon technical analysis. A lot of institutions prefer fundamental analysis.

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Technical analysis, I'm looking at charts that show prices, and the price action

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is how the price moves. How is the price acting? How is it going up, going down,

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going sideways? How much momentum? How strong are the moves up and down?

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Fundamental analysis, it's mostly used by institutions, and they are looking at

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economic information, and they mostly ignore charts, but not entirely. A lot of

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fundamental traders will say, ah, the fundamental information supports higher

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prices, and anytime the market sells off, if it pulls back to some support level,

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like a moving average or a prior low, they'll look to buy more. In their mind,

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

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the bear reversal will fail. So a lot of fundamental traders also look at charts.

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Sometimes you'll hear the expression, an ABC pullback. For example, let's say an

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ABC pullback in a bull trend. It's two legs sideways to down. It doesn't always

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have to be down. It can simply be sideways. And in a bull trend, I refer to those as

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

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

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

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

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

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

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pullback. So you have a bull trend and then A, B, C. A three-legged correction,

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two legs down, one leg up. A leg down, B leg up, C leg down, and then bull trend

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resumption. And traders would buy using a stop order above the high of the bar.

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Here's another example. Bull breakout, a pullback. Did not lead to much of a trend.

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To me, this is a high-one bull flag. I would refer to this as a high-two bull flag.

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If this breakout were bigger, I would restart the count. For example, here we have a pretty

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big bull breakout. This correction has to do with this bar, not with this prior trend.

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So I'm starting the process over again. New breakout, new pullback. This breakout is not

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big enough for me to start the process over again. You could call it a high-one. You could

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say this is a breakout and a pullback. Or you could say, well, maybe the market corrected down,

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and maybe this is still part of the correction, and this is part of the correction.

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

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corrective process. And that's why I say it can be sideways to down, not necessarily down. This

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

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Here's another bull breakout. I'm looking for pullbacks. Okay. This is an inside bar,

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but it has a bare body. On a smaller timeframe, that's a small pullback. On this chart,

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it's technically not a pullback because the low of this bar did not go below the low of that bar,

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but it's an inside bar. It's a pause. For me, that's a high-one bull flag, and bulls will buy

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just above its high, looking for resumption up. In general, they'll put a stop down here because

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

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For me, this is a bull trend and a pullback, a high-one buy setup. Is this enough of a breakout

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for me to restart the count and call this another high-one? You can. I would say that

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it's not big enough, and I would say this is all part of the same correction.

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

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high-two buy setup, and traders would buy above the high of that bar or above the high of this bar.

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

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In a bear trend, traders are looking for the exact opposite. Here's a bear trend,

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and anytime there is a pullback or a pause, traders look at it as an opportunity to go short.

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

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on this timeframe, but it probably is a pullback on a smaller timeframe. In any case, it's a pause,

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and traders will place a stop order to go short just below the low of this bar,

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betting that if it does go below that bar, the trend will resume down.

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Here, it simply went sideways, and here's a second attempt to go down.

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For me, this is a low-one short, and then we have a double top bear flag. That's a low-two short,

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so you either sell there or you sell below this bar here. Low-one bear flag, low-two bear flag.

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Same thing here. As the market's going up after each bar, traders place a stop order to go short

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

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the low of the bar. They get filled here. It's still going up. It's still correcting,

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but it's still most likely a minor reversal and a bear flag. Traders who did not sell here,

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they might instead place an order to sell below this bar. It does not get filled.

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

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

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a low-two bear flag, and ABC bear flag, A-B-C. There are always other ways to label things.

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

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and then this is part of that correcting process, and then a low-two where the second leg also

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

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view this as a larger low-two bear flag or a larger double top bear flag, first top, second

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top. It doesn't matter what you call it. You're looking for ways to enter the trend. And when you

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see these bear flags, look to sell. This is a fairly tight bear channel. The first reversal

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is probably minor. A minor reversal is going to be usually a bear leg in a trading range or a bear

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flag. We got a bear trend. We're trying to reverse, probably a minor reversal. I call it a pullback.

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Whenever I see a reversal attempt and I think it will not get very far and the trend will resume,

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I call it a pullback. That last slide, I showed a minor reversal. And look at this reversal,

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bear trend and a very strong bull breakout, follow-through bar, another follow-through bar.

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So at this point, we're in a bull trend. Here, this is a major reversal, not just a bear flag.

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Here, minor reversal, bear flag. Here, minor reversal, bear flag, minor reversal, bear flag.

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But look at the size of this breakout, far above the bear channel. This is a major trend reversal,

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which means the bear trend is becoming a bull trend. Now, look at this. We have a bull trend

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here and then a bear breakout to a broader bull channel. But you can look at this and say,

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bull trend, pretty strong bear breakout. If we go above that high or test that high,

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maybe we'll get a trend reversal into a bear trend. And that's what we have. We have a bull

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trend and then a bear trend. If a bull trend goes to a bear trend, it's a major reversal.

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If a bull trend just goes sideways and the bull trend resumes, it's a minor reversal.

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Even this is a minor reversal because the bull trend resumed.

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So minor reversal, the trend resumes and instead of reversing.

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Sometimes you'll see a bar like this. It's low is below the low of the prior bar.

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It's high is above the high of the prior bar. That is an outside bar.

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

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high of the prior bar and the low goes below the low of the prior bar. For example, over here,

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this bar did not go above that high. The two highs are at the same price, yet its low went below. I

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would still call that an outside down bar, an outside bar. And an inside bar is a bar

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where it's high and low are within the range of the prior bar.

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This bar, the low is above that low. The high is below that high. So this black bar is an inside

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bar. And look at the next bar. This white bull body is inside of the black bar. It's high is

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below that high and it's low is above that low. Same here, another inside bar. This bar is inside

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that bar. This bar is inside that bar. A small inside bar here. Here's an inside bar. The high

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is the same as that high, but the low is above that low. So I would still refer to that as an

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inside bar. That's why I say for an outside bar, the high is at or above the high of the prior bar

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

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the high of the prior bar and the low is at or above the low of the prior bar.

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An outside bar here, outside bar here. And this is actually an outside bar as well. It's low

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

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Here's the Australian dollar versus the U.S. dollar, a five-minute chart, a forex chart.

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I distinguish trades into swing trades and scalps. A scalp means that I'm trying to take a quick

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profit. I usually exit within five bars and sometimes just one bar. A swing trade means

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

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

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

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And let's say I get out four or five bars later below the spare bar,

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right where this red box is right below the low of that bar. To me, that's a scalp. I did not

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

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

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

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

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I don't worry about the pullback here or here or here or here or here. None of these look like

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major reversals. I'm willing to continue to hold despite all of the pullbacks. And then I look to

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exit at the end of the session. If you're holding through pullbacks and for a lot of bars, that is

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

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

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

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scalper. You might call him a fast money trader or simply a trader. And if you get out here and

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this was a monthly chart, people would call him an investor. If it was a weekly chart, they might

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call him an investor. To me, I would call him a swing trader even on this chart. But in general,

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if you're taking quick profits on a daily chart, traders will call you a trader or a fast money

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trader or scalper. But usually they use the term trader. And if a person is holding for a long

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time, 20, 30, 40 bars, you start to get into the realm of being an investor, especially if it's a

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weekly or monthly chart. Some swing traders will hold far beyond a typical swing, which might be

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10, 20 or 30 bars. They may hold indefinitely, sometimes for years or months. And that would be

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an investor. People would use the term investor instead of swing trader for that kind of a person.

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If you look at a chart, you see the market going up and down, up and down, up and down. And the

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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

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goes up three or four, it's called three or four ticks. If you're looking at a Forex chart, people

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tend to use the term pip instead of a tick, but it's the same thing. And nowadays, pips are also

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subdivided into tenths or even hundredths. But I just refer to pips and I don't worry about the

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tiny, small divisions. A point is a group of ticks or pips. So for example, one point on the E-mini

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chart is four ticks. A corresponding move on the SPY, S-P-Y, ETF chart is 10 ticks. You'll sometimes

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hear traders talk about the lot size. I traded five lots, which means you traded five contracts

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or five shares or five units or five something. And a handle is a big round number. So if the SPY

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is trading at 202.50, you would say it has a 202 handle on it. When I talk about moving averages,

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I'm usually talking about a 20 bar exponential moving average, whether it's a five minute chart

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

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

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exponential moving average. I simply call it a moving average.

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This moving average is a 20 bar exponential moving average.

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Computers, you cannot get around the reality that they control

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all major markets. Most trading nowadays is automated. That means the orders are placed

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by computers and software programs, which are called algorithms, are making decisions about

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when to buy, when to sell, when to add on to positions, when to slightly reduce positions.

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Here's an example of a flowchart of an algorithm. You'll sometimes hear me talk about an institution,

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Bank of America, CalPERS, the pension fund for state employees in California, Fidelity

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Investments, those are all institutions, Goldman Sachs. An institution could be a bank,

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it could be a hedge fund, a high frequency trading firm, pension fund like CalPERS,

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mutual funds like Fidelity, any large entity is an institution and that includes large individual

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

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is trading 100 contracts or 200 contracts or more, I would consider them to be as significant

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as an institution, even if they're trading for their own account. You'll often hear me talk

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about setups and it's a chart pattern. It's something on the chart and it makes me believe

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that there will be a profitable trade. Sometimes the setup is one bar, sometimes it's three or four

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bars, sometimes it's 20 or 30 bars. So for example, we have a bull trend and it's pulling back for a

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few bars and as it's pulling back, traders are placing buy stops one tick above the high of the

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prior bar, did not get filled. A new bar closes, they place a buy stop one tick or one pip above

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the high of that bar. And in this case, the trader did get filled. This is the bar when they enter

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their trade. So it's the entry bar and this is the bar that signaled the entry. When they saw this

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bar, they thought, huh, if it goes above the high of this bar, I want to get long. This is the signal

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bar and traders get in on the entry bar. The signal bar is the reason to take the trade. It's the

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signal to look to enter. So here's the signal bar. We're with the trend. We're trading in the

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direction of the trend. Buying above this bar is buying with trend. Counter trend means doing the

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opposite. For example, we have a bull trend and if I'm selling below that bar right here, it's a

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counter trend trade. So I'm trading in the direction opposite to the trend. Context, you'll often hear me

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talk about context. Is it a buy setup or a sell setup? I'm always interested in the context. And

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context means all the bars to the left. If I see this bar, I want to know what took place before it.

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Do I want to buy here? Maybe it's better to sell here. I want to know what the bars to the left look

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like. And those bars to the left provide the context. So for example, if there's a strong bear

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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

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buy signal that I would not take. If anything, I'm looking to sell. When there's a very tight bear

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channel like this, I don't care if there's a good bull reversal bar and a good follow through bar.

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It's more likely the reversal will fail and this bull reversal will end up as a bear flag.

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This is a low one sell signal bar. Traders will sell just below its low, expecting the reversal

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to fail, become a bear flag, and for the bear trend to resume. I often talk about always in.

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That is the direction of the current trade. For example, here I would say the market's always in

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

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I had to be always in the market at this point, I would be long because odds are the market's

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

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

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

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

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long than short. I pay attention to context. The context here is that we're in a bear trend. We're

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getting lower highs and lower lows. We're starting to get a lot of two-sided trading, tails below

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bars, some bull bars, smaller bars, sideways bars. It's still always in short, but it looks like

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it's evolving into a trading range, which means that it may soon reverse into always in long.

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Three big bear bars, a bear channel with about eight or ten bars,

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but tail on the bottom of the bar. That's a weakening trend.

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

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box, is above the breakout point. There are problems with this bear trend. Another breakout,

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a close just around the breakout point instead of far below. Bulls are buying prior lows and they're

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making money, and that usually means that a bear channel is in the process of evolving into a

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trading range. Once it's in a trading range, traders will start to look for trend reversals.

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We have a fairly tight bear channel and we have a bull trend bar breaking above the high of the

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channel, breaking above the top of the channel. Trend lines are rarely perfect. You can see I'm

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using this high and then this series of highs. The market looks like it's turning down every time it

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hits an imaginary line at that point. I would extend the line from here all the way here. I could

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draw it from this high across that high, or I could simply use a small trend line from here to here.

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

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looking for possible trend reversals. So we have a low here, we reversed up. We have a lower low,

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we reversed up, and here the bears are trying to resume back down, but this is forming a higher

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low. This buy setup here is called a higher low major trend reversal. Higher low with the

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potential of reversing into a major trend. It's also a head and shoulders bottom. This would be

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the left shoulder, this is the head, and this would be the right shoulder. So it's a reversal setup.

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

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big bull bodies closing on their highs, the bar is getting bigger. At some point,

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the market becomes always in long for everybody, which means that traders can buy for any reason,

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expecting that the market will be higher as more bars become visible.

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Another breakout, we have a small breakout here, and now we have three bull bars,

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and traders might buy this far as it moves above that high, the neckline of the head and shoulders

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bottom. They may simply buy the close, arguing that it's the third bull close, very little

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overlap between the bars, and the bodies are getting bigger, and it's following a higher low

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major trend reversal. Over here, the tails are starting to become prominent, the bodies are

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getting small. Each doji is a one bar trading range, and here it's forming a pullback. A pullback

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

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that means I believe the trend will resume instead of reverse. Each one of these bars is a one bar

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trading range, a doji bar, and together they form a slightly bigger trading range.

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

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It was always in short all the way down here. This is Al Brooks, and thank you for watching

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this video in the Brooks Trading Course. This video was on terminology.