1 00:00:00,680 --> 00:00:01,880 This is Al Brooks. 2 00:00:02,080 --> 00:00:04,000 Thank you for watching the Brooks Trading Course. 3 00:00:04,360 --> 00:00:06,599 This is the first video in the course, and in 4 00:00:06,600 --> 00:00:09,521 this video I will talk about basic terminology. 5 00:00:11,680 --> 00:00:14,441 If you are already familiar with the terms that 6 00:00:14,442 --> 00:00:18,041 I use, you can go ahead and skip this video. 7 00:00:20,100 --> 00:00:26,940 All traders often use words that can be very unclear, and for definitions you can 8 00:00:26,941 --> 00:00:33,180 go to my website, brookstradingcourse.com, and there is a glossary there. 9 00:00:33,800 --> 00:00:39,760 For example, throughout the video course I will be using abbreviations on different 10 00:00:39,761 --> 00:00:43,240 slides, and these are some of the common ones that you will see. 11 00:00:43,620 --> 00:00:48,260 Always in long, always in short, buy, buy low, sell high, scalp, 12 00:00:49,040 --> 00:00:52,560 breakout, the close of a bar, double bottom, double top. 13 00:00:52,980 --> 00:00:55,728 When you hear me talk about a moving average, I'm talking 14 00:00:55,729 --> 00:00:59,640 about a 20 bar exponential moving average, or an EMA. 15 00:01:00,320 --> 00:01:04,160 Then the high of the bar, HFT, high frequency trading. 16 00:01:04,900 --> 00:01:08,380 When you see me use HH, I'm talking about a higher high. 17 00:01:09,200 --> 00:01:10,380 Low is L. 18 00:01:11,000 --> 00:01:15,320 A lower low, a low that is below a prior low, is a lower low. 19 00:01:16,000 --> 00:01:20,360 When I say moving average, that's the same as the exponential moving average, 20 00:01:20,480 --> 00:01:23,740 except rarely I will talk about some simple moving averages. 21 00:01:23,920 --> 00:01:25,300 When I do, I'll explain it. 22 00:01:26,200 --> 00:01:30,030 Moving average gap bar, when there's a bar where there's a 23 00:01:30,031 --> 00:01:33,200 gap between the low or high of the bar in the moving average. 24 00:01:34,100 --> 00:01:36,320 Measured move, I talk about this in every video. 25 00:01:37,560 --> 00:01:43,260 Major trend reversal, MTR, I talk about that in almost every video. 26 00:01:44,600 --> 00:01:50,260 Open of the day, pullback, PB, I refer to that in almost every video. 27 00:01:51,700 --> 00:01:56,940 Sell, and then when I talk about corrections, especially after a climax or 28 00:01:56,941 --> 00:02:02,220 when I'm expecting a reversal, you'll often see me use the phrase TBTL, 29 00:02:02,340 --> 00:02:08,781 10 bars, 2 legs, which is a common occurrence when the market is trying to correct. 30 00:02:10,180 --> 00:02:13,295 Trading range, TR, and when the trading range is 31 00:02:13,296 --> 00:02:16,820 particularly tight, I call it a tight trading range, TTR. 32 00:02:20,060 --> 00:02:25,500 Every market at all times is either in a trend or in a trading range. 33 00:02:26,120 --> 00:02:30,100 A bull trend typically begins with a bull breakout, which is a big bull trend bar, 34 00:02:30,280 --> 00:02:31,280 a white bar. 35 00:02:31,340 --> 00:02:36,840 Bear bars are black bars, and here the bar opens at this point at the bottom of the 36 00:02:36,841 --> 00:02:39,860 white box, and that is the close of the white box. 37 00:02:43,150 --> 00:02:47,790 After the breakout, which can last many bars, here it lasted a couple bars, 38 00:02:48,310 --> 00:02:52,630 there is a pullback where a low of a bar goes below the low of the prior bar, 39 00:02:53,190 --> 00:02:58,830 and that usually results in a transition from the breakout phase of a trend, 40 00:02:58,890 --> 00:03:01,610 which is very strong, into a channel phase of the trend. 41 00:03:02,770 --> 00:03:06,930 And a channel is a weaker trend, but it's still a bull trend. 42 00:03:07,010 --> 00:03:10,990 We're still going up, we have highs that are above prior highs, we have higher 43 00:03:10,991 --> 00:03:14,930 highs, and we have higher lows, and that is the definition of a trend. 44 00:03:15,550 --> 00:03:20,110 Eventually, a channel typically evolves into a trading range. 45 00:03:20,430 --> 00:03:25,310 So I view a bull channel as a bear flag, because most of the time you get a bear 46 00:03:25,311 --> 00:03:27,650 breakout and a transition into a trading range. 47 00:03:31,460 --> 00:03:35,382 And once the market's in a trading range, it then is in 48 00:03:35,383 --> 00:03:38,920 breakout mode, which means traders are anticipating a breakout. 49 00:03:39,380 --> 00:03:43,980 And here we have a bull trend in a trading range, the breakout can be to the upside, 50 00:03:44,120 --> 00:03:48,940 in which case you're getting a resumption of the prior bull trend, or it could be to 51 00:03:48,941 --> 00:03:51,920 the downside, and you can get a reversal of the bull trend. 52 00:03:59,450 --> 00:04:02,870 You'll often hear traders talk about support and resistance. 53 00:04:03,830 --> 00:04:06,830 Support is some price below the current price, 54 00:04:06,831 --> 00:04:10,271 where a sell-off is likely to pause or reverse. 55 00:04:11,170 --> 00:04:14,870 So even though you don't see anything right here that is causing the market to 56 00:04:14,871 --> 00:04:19,310 go up, the market believes this price is too low, so when it gets down here, 57 00:04:19,690 --> 00:04:20,690 the market goes up. 58 00:04:21,130 --> 00:04:23,910 Here we're a little bit lower, but the same general area. 59 00:04:24,690 --> 00:04:28,550 There's support down here, every sell-off is being bought. 60 00:04:31,920 --> 00:04:33,340 And resistance is the opposite. 61 00:04:34,240 --> 00:04:37,879 It's a price above the current price, and a rally 62 00:04:37,880 --> 00:04:41,000 to that level is likely to stall or reverse. 63 00:04:41,860 --> 00:04:44,793 On the chart, you don't see a line drawn across a 64 00:04:44,794 --> 00:04:47,880 resistance level, but you notice the price action. 65 00:04:48,360 --> 00:04:50,180 The market goes up and it turns down. 66 00:04:50,740 --> 00:04:53,580 It goes up to that same general price area, turns down. 67 00:04:53,860 --> 00:04:58,360 It goes a little bit higher and twice tries to go higher, and it turns down. 68 00:04:59,380 --> 00:05:04,040 Traders see this price level as resistance, and they expect that if the 69 00:05:04,041 --> 00:05:08,000 market gets back up there again, it'll do what it did the prior times. 70 00:05:08,240 --> 00:05:09,960 Not always, but most of the time. 71 00:05:13,680 --> 00:05:16,860 A breakout is simply a move beyond support or resistance. 72 00:05:17,420 --> 00:05:19,780 A bear breakout is a move below support. 73 00:05:20,080 --> 00:05:23,328 Here we have a bull channel, higher lows, higher 74 00:05:23,329 --> 00:05:26,421 highs, and then we have a break below the line. 75 00:05:26,900 --> 00:05:30,000 This is a big bear trend bar, and it is a breakout. 76 00:05:32,700 --> 00:05:34,200 It's a move below support. 77 00:05:34,520 --> 00:05:39,560 There's other support down here, and the market broke through support here. 78 00:05:40,100 --> 00:05:40,920 Here it did not. 79 00:05:41,020 --> 00:05:42,660 It kept holding support, holding support. 80 00:05:42,780 --> 00:05:46,800 Eventually it broke out, and now it's testing the next lower support level, 81 00:05:46,960 --> 00:05:52,020 which is a prior low, and we don't know yet if it will continue down and break 82 00:05:52,021 --> 00:05:55,360 below that support or bounce at that support. 83 00:05:55,820 --> 00:05:58,540 When the market was at this price level earlier, it rallied. 84 00:05:59,020 --> 00:06:02,440 Maybe it will do that again now that it's at that same price level. 85 00:06:04,620 --> 00:06:05,620 And it did. 86 00:06:06,540 --> 00:06:14,101 The support held, and a strong bear breakout led to a bounce instead of a bear trend. 87 00:06:17,990 --> 00:06:20,230 Every bear trend bar is a breakout. 88 00:06:21,070 --> 00:06:23,050 Every bull trend bar is a breakout. 89 00:06:23,270 --> 00:06:24,270 It's a bull breakout. 90 00:06:24,790 --> 00:06:25,790 We're reversing up. 91 00:06:26,210 --> 00:06:28,032 You can also say that we're breaking out, 92 00:06:28,033 --> 00:06:31,451 breaking out of a very steep two-bar bear trend. 93 00:06:31,670 --> 00:06:34,980 And we're stalling here, a smaller bar with a tail on top at 94 00:06:34,981 --> 00:06:38,810 a price level where the market stalled repeatedly earlier. 95 00:06:39,010 --> 00:06:40,990 So we're stalling at resistance. 96 00:06:41,370 --> 00:06:43,632 We don't know yet if the market will reverse 97 00:06:43,633 --> 00:06:46,671 down from resistance or if it will break out. 98 00:06:49,320 --> 00:06:53,120 In this particular case, we broke far above the 99 00:06:53,121 --> 00:06:56,081 resistance level, and we had follow-through buying. 100 00:06:56,200 --> 00:07:01,120 So this is a successful bull breakout after a failed bear breakout. 101 00:07:05,600 --> 00:07:08,500 This type of chart is a candle chart. 102 00:07:08,940 --> 00:07:13,260 I sometimes refer to each candle as a bar instead of a candle. 103 00:07:17,740 --> 00:07:21,620 And you'll see on a lot of the bars, there's a black line on top. 104 00:07:22,340 --> 00:07:24,140 Sometimes there's a black line on the bottom. 105 00:07:24,780 --> 00:07:28,040 And white bars can have black lines on the bottom or on top. 106 00:07:28,360 --> 00:07:31,880 Black bars can have black lines on the bottom or on top. 107 00:07:32,200 --> 00:07:34,180 They can have them on top and bottom. 108 00:07:34,300 --> 00:07:36,300 Here's a black bar with a line on top and 109 00:07:36,301 --> 00:07:39,821 bottom, a white bar with a line on top or bottom. 110 00:07:39,900 --> 00:07:43,040 And I usually refer to those black lines as tails. 111 00:07:43,220 --> 00:07:45,800 Other people refer to them as wicks or shadows. 112 00:07:46,420 --> 00:07:47,180 It doesn't matter. 113 00:07:47,340 --> 00:07:48,500 I just like the word tail. 114 00:07:49,080 --> 00:07:58,000 A bar where there is either a big white box or a big black box is a trend bar. 115 00:07:58,320 --> 00:08:00,800 It occurs more commonly in trends. 116 00:08:02,280 --> 00:08:06,400 And I call it a trend bar because it's a one bar trend. 117 00:08:06,540 --> 00:08:08,880 So the market is trending up for this one bar. 118 00:08:09,160 --> 00:08:11,520 Open nearest low, close nearest high. 119 00:08:13,300 --> 00:08:16,800 In general, the strongest trend bars have relatively small tails. 120 00:08:17,480 --> 00:08:21,020 Sometimes they have big tails like that, but it's still a bull trend bar. 121 00:08:21,120 --> 00:08:22,300 It's mostly a bull trend bar. 122 00:08:22,880 --> 00:08:26,440 And if the tails are more prominent relative to the size 123 00:08:26,540 --> 00:08:29,580 of the bodies, I tend to say that's not a trend bar. 124 00:08:29,680 --> 00:08:31,000 It's more of a trading range bar. 125 00:08:31,500 --> 00:08:35,260 And I refer to trading range bars as doji's. 126 00:08:36,680 --> 00:08:42,380 Trading range bars in general have smaller bodies and more prominent tails. 127 00:08:43,320 --> 00:08:46,040 I view them as a one bar trading range. 128 00:08:46,500 --> 00:08:50,900 And on some smaller time frame chart, they are one bar trading ranges. 129 00:08:52,560 --> 00:08:55,040 A bull trend bar is a one bar bull trend. 130 00:08:55,320 --> 00:08:58,100 And on a smaller time frame chart, it's a pretty strong bull trend. 131 00:08:58,740 --> 00:09:05,841 And a trading range bar or doji is a trading range on a smaller time frame chart. 132 00:09:08,040 --> 00:09:11,011 I make decisions on what I'm going to do with 133 00:09:11,012 --> 00:09:14,281 my trading based upon technical analysis. 134 00:09:14,680 --> 00:09:17,780 A lot of institutions prefer fundamental analysis. 135 00:09:20,920 --> 00:09:24,720 Technical analysis, I'm looking at charts that show prices. 136 00:09:25,720 --> 00:09:29,040 And the price action is how the price moves. 137 00:09:29,420 --> 00:09:30,600 How is the price acting? 138 00:09:30,760 --> 00:09:33,000 How is it going up, going down, going sideways? 139 00:09:33,460 --> 00:09:34,460 How much momentum? 140 00:09:34,600 --> 00:09:36,980 How strong are the moves up and down? 141 00:09:37,840 --> 00:09:40,940 Fundamental analysis, it's mostly used by institutions. 142 00:09:41,540 --> 00:09:43,940 And they are looking at economic information. 143 00:09:44,440 --> 00:09:46,860 And they mostly ignore charts, but not entirely. 144 00:09:47,500 --> 00:09:51,029 A lot of fundamental traders will say, ah, the 145 00:09:51,030 --> 00:09:54,441 fundamental information supports higher prices. 146 00:09:54,620 --> 00:09:59,460 And anytime the market sells off, if it pulls back to some support level, 147 00:09:59,461 --> 00:10:02,680 like a moving average or prior low, they'll look to buy more. 148 00:10:03,200 --> 00:10:07,800 In their mind, they're making the decision based upon fundamental information, 149 00:10:08,280 --> 00:10:10,000 betting that the bear reversal will fail. 150 00:10:10,440 --> 00:10:14,780 So a lot of fundamental traders also look at charts. 151 00:10:20,500 --> 00:10:24,160 Sometimes you'll hear the expression, an ABC pullback. 152 00:10:24,820 --> 00:10:28,180 For example, let's say an ABC pullback in a bull trend. 153 00:10:28,700 --> 00:10:30,900 It's two legs sideways to down. 154 00:10:30,901 --> 00:10:32,480 It doesn't always have to be down. 155 00:10:32,860 --> 00:10:34,440 It can simply be sideways. 156 00:10:35,560 --> 00:10:40,960 And in a bull trend, I refer to those as a high two buy setup or a high two bull flag. 157 00:10:41,380 --> 00:10:45,400 And it's an opportunity for traders to buy, to get long. 158 00:10:47,220 --> 00:10:49,960 So for example, we have a little bull trend. 159 00:10:50,080 --> 00:10:51,080 Bull trend started here. 160 00:10:51,120 --> 00:10:52,360 We have a new bull leg here. 161 00:10:52,740 --> 00:10:53,600 We pulled back. 162 00:10:53,680 --> 00:10:55,340 We tried to resume up. 163 00:10:55,540 --> 00:10:56,040 It failed. 164 00:10:56,500 --> 00:10:58,820 Maybe a second attempt will be successful. 165 00:10:59,540 --> 00:11:01,340 This is a high one buy setup. 166 00:11:01,520 --> 00:11:02,520 It did not work. 167 00:11:02,840 --> 00:11:05,700 And this bar is a high two buy setup. 168 00:11:06,120 --> 00:11:06,920 And it did work. 169 00:11:07,080 --> 00:11:09,540 Buying above its high led to a profitable trade. 170 00:11:10,080 --> 00:11:12,740 Some traders would also call that an ABC pullback. 171 00:11:12,980 --> 00:11:17,100 So you have a bull trend and then A, B, C. 172 00:11:17,740 --> 00:11:21,960 A three-legged correction, two legs down, one leg up. 173 00:11:22,840 --> 00:11:27,480 A leg down, B leg up, C leg down, and then bull trend resumption. 174 00:11:27,960 --> 00:11:31,580 And traders would buy using a stop order above the high of the bar. 175 00:11:31,880 --> 00:11:33,020 Here's another example. 176 00:11:33,540 --> 00:11:36,660 Bull breakout, a pullback, did not lead to much of a trend. 177 00:11:37,520 --> 00:11:39,300 To me, this is a high one bull flag. 178 00:11:40,000 --> 00:11:42,540 I would refer to this as a high two bull flag. 179 00:11:43,040 --> 00:11:47,180 If this breakout were bigger, I would restart the count. 180 00:11:47,720 --> 00:11:50,320 For example, here we have a pretty big bull breakout. 181 00:11:51,400 --> 00:11:55,960 This correction has to do with this bar, not with this prior trend. 182 00:11:56,120 --> 00:11:58,000 So I'm starting the process over again. 183 00:11:58,120 --> 00:11:59,360 New breakout, new pullback. 184 00:12:00,040 --> 00:12:03,980 This breakout is not big enough for me to start the process over again. 185 00:12:04,320 --> 00:12:05,480 You could call it a high one. 186 00:12:05,600 --> 00:12:07,520 You could say this is a breakout and a pullback. 187 00:12:07,760 --> 00:12:13,120 Or you could say, well, maybe the market corrected down and maybe this is still 188 00:12:13,121 --> 00:12:15,402 part of the correction and this is part of the correction. 189 00:12:16,480 --> 00:12:21,125 This is an A, B, C, where A went above the top of the bull 190 00:12:21,126 --> 00:12:24,160 breakout, but it's still part of the corrective process. 191 00:12:24,520 --> 00:12:29,040 And that's why I say it can be sideways to down, not necessarily down. 192 00:12:29,400 --> 00:12:34,381 This one was a little bit down, mostly sideways, but this one clearly is sideways. 193 00:12:35,820 --> 00:12:37,140 Here's another bull breakout. 194 00:12:37,600 --> 00:12:38,860 I'm looking for pullbacks. 195 00:12:39,920 --> 00:12:45,060 This is an inside bar, but it has a bare body on a small time frame. 196 00:12:45,200 --> 00:12:46,280 That's a small pullback. 197 00:12:46,620 --> 00:12:50,740 On this chart, it's technically not a pullback because the low of this bar did 198 00:12:50,741 --> 00:12:53,620 not go below the low of that bar, but it's an inside bar. 199 00:12:53,820 --> 00:12:54,820 It's a pause. 200 00:12:55,340 --> 00:12:59,700 For me, that's a high one bull flag and bulls will buy just above its high, 201 00:12:59,840 --> 00:13:01,160 looking for resumption up. 202 00:13:01,860 --> 00:13:05,580 In general, they'll put a stop down here because sometimes the market will go 203 00:13:05,581 --> 00:13:09,760 sideways and then slightly lower, but this trade is still valid. 204 00:13:10,620 --> 00:13:15,140 For me, this is a bull trend and a pullback, a high one buy setup. 205 00:13:15,780 --> 00:13:17,926 Is this enough of a breakout for me to restart 206 00:13:17,927 --> 00:13:19,880 the count and call this another high one? 207 00:13:20,180 --> 00:13:21,180 You can. 208 00:13:21,540 --> 00:13:24,109 I would say that it's not big enough, and I would 209 00:13:24,110 --> 00:13:26,601 say this is all part of the same correction. 210 00:13:27,060 --> 00:13:30,840 To me, this would be a high one, a first attempt up, did not get very far, 211 00:13:31,240 --> 00:13:33,656 and this would be a high two buy setup, and traders would 212 00:13:33,657 --> 00:13:36,280 buy above the high of that bar or above the high of this bar. 213 00:13:36,860 --> 00:13:41,900 Any time the market forms a double bottom bull flag, it's a high two buy setup. 214 00:13:45,260 --> 00:13:49,000 In a bear trend, traders are looking for the exact opposite. 215 00:13:49,380 --> 00:13:53,373 Here's a bear trend, and any time there is a pullback or 216 00:13:53,374 --> 00:13:56,620 a pause, traders look at it as an opportunity to go short. 217 00:13:57,080 --> 00:14:01,160 The high of this bar did not go above the high of this bar, so it's technically not 218 00:14:01,161 --> 00:14:05,900 a pullback on this timeframe, but it probably is a pullback on a smaller timeframe. 219 00:14:06,480 --> 00:14:10,800 In any case, it's a pause, and traders will place a stop order to go short just 220 00:14:10,801 --> 00:14:13,758 below the low of this bar, betting that if it does 221 00:14:13,759 --> 00:14:16,861 go below that bar, the trend will resume down. 222 00:14:17,160 --> 00:14:21,500 Here, it simply went sideways, and here's a second attempt to go down. 223 00:14:22,460 --> 00:14:26,080 For me, this is a low one short, and then we have a double top bear flag. 224 00:14:26,400 --> 00:14:31,080 That's a low two short, so you either sell there or you sell below this bar here. 225 00:14:35,080 --> 00:14:37,900 Low one bear flag, low two bear flag. 226 00:14:40,800 --> 00:14:41,880 Same thing here. 227 00:14:42,160 --> 00:14:45,194 As the market's going up after each bar, traders place 228 00:14:45,195 --> 00:14:47,780 a stop order to go short just below the low of the bar. 229 00:14:48,440 --> 00:14:52,080 They place a stop order when this bar closes to sell right below the low of the bar. 230 00:14:52,380 --> 00:14:53,380 They get filled here. 231 00:14:53,760 --> 00:14:54,760 It's still going up. 232 00:14:55,260 --> 00:15:00,460 It's still correcting, but it's still most likely a minor reversal and a bear flag. 233 00:15:01,440 --> 00:15:04,174 Traders who did not sell here, they might 234 00:15:04,175 --> 00:15:06,740 instead place an order to sell below this bar. 235 00:15:06,860 --> 00:15:07,860 It does not get filled. 236 00:15:08,120 --> 00:15:10,580 They then place an order to sell below this bar. 237 00:15:10,680 --> 00:15:11,680 It does get filled. 238 00:15:12,160 --> 00:15:16,040 So a second entry short in a rally in a bear trend. 239 00:15:16,180 --> 00:15:20,640 It's a low two short, a low two bear flag, an ABC bear flag. 240 00:15:21,080 --> 00:15:22,140 A-B-C. 241 00:15:23,020 --> 00:15:25,340 There are always other ways to label things. 242 00:15:25,640 --> 00:15:31,940 Some traders instead will look at this as a larger low one, a sideways move low one, 243 00:15:32,360 --> 00:15:36,140 and then this is part of that correcting process. 244 00:15:36,300 --> 00:15:39,880 And then a low two with a second leg also subdivided. 245 00:15:40,320 --> 00:15:45,240 They'll look at this as sideways to a low one and then up to a low two. 246 00:15:45,740 --> 00:15:50,960 So they'll view this as a larger low two bear flag or a larger double top bear flag. 247 00:15:51,180 --> 00:15:52,860 First top, second top. 248 00:15:53,140 --> 00:15:54,540 It doesn't matter what you call it. 249 00:15:54,980 --> 00:15:57,320 You're looking for ways to enter the trend. 250 00:15:57,880 --> 00:16:01,680 And when you see these bear flags, look to sell. 251 00:16:06,210 --> 00:16:08,430 This is a fairly tight bear channel. 252 00:16:09,450 --> 00:16:11,810 The first reversal is probably minor. 253 00:16:12,390 --> 00:16:19,311 A minor reversal is going to be usually a bear leg in a trading range or a bear flag. 254 00:16:20,770 --> 00:16:22,050 We got a bear trend. 255 00:16:22,190 --> 00:16:24,830 We're trying to reverse, probably a minor reversal. 256 00:16:25,610 --> 00:16:26,970 I call it a pullback. 257 00:16:27,470 --> 00:16:30,777 Whenever I see a reversal attempt and I think it will not 258 00:16:30,778 --> 00:16:34,290 get very far and the trend will resume, I call it a pullback. 259 00:16:38,960 --> 00:16:41,440 That last slide I showed a minor reversal. 260 00:16:42,220 --> 00:16:45,880 And look at this reversal, bear trend, and a very strong bull breakout. 261 00:16:46,460 --> 00:16:48,460 Follow-through bar, another follow-through bar. 262 00:16:49,040 --> 00:16:50,880 So at this point, we're in a bull trend. 263 00:16:51,640 --> 00:16:55,240 Here, this is a major reversal, not just a bear flag. 264 00:16:55,820 --> 00:16:57,800 Here, minor reversal, bear flag. 265 00:16:58,280 --> 00:17:00,300 Here, minor reversal, bear flag. 266 00:17:00,500 --> 00:17:01,760 Minor reversal, bear flag. 267 00:17:02,180 --> 00:17:06,040 But look at the size of this breakout, far above the bear channel. 268 00:17:06,440 --> 00:17:12,121 This is a major trend reversal, which means the bear trend is becoming a bull trend. 269 00:17:17,480 --> 00:17:18,320 Now, look at this. 270 00:17:18,400 --> 00:17:23,580 We have a bull trend here and then a bear breakout to a broader bull channel. 271 00:17:23,980 --> 00:17:27,180 But you can look at this and say, bull trend, pretty strong bear breakout. 272 00:17:27,560 --> 00:17:31,014 If we go above that high or test that high, maybe 273 00:17:31,015 --> 00:17:33,840 we'll get a trend reversal into a bear trend. 274 00:17:37,150 --> 00:17:38,150 And that's what we have. 275 00:17:38,230 --> 00:17:40,610 We have a bull trend and then a bear trend. 276 00:17:41,670 --> 00:17:44,690 If a bull trend goes to a bear trend, it's a major reversal. 277 00:17:45,230 --> 00:17:49,850 If a bull trend just goes sideways and the bull trend resumes, it's a minor reversal. 278 00:17:50,750 --> 00:17:55,510 Even this is a minor reversal because the bull trend resumed. 279 00:17:59,380 --> 00:18:04,400 So minor reversal, the trend resumes and instead of reversing. 280 00:18:06,900 --> 00:18:08,680 Sometimes you'll see a bar like this. 281 00:18:09,420 --> 00:18:11,520 It's low is below the low of the prior bar. 282 00:18:11,800 --> 00:18:13,660 It's high is above the high of the prior bar. 283 00:18:14,280 --> 00:18:16,120 That is an outside bar. 284 00:18:17,660 --> 00:18:20,240 It does not have to be below. 285 00:18:20,500 --> 00:18:25,640 I call it an outside bar if the high is exactly at the high of the prior bar. 286 00:18:26,440 --> 00:18:28,780 And the low goes below the low of the prior bar. 287 00:18:30,300 --> 00:18:34,140 For example, over here, this bar did not go above that high. 288 00:18:34,340 --> 00:18:37,920 The two highs are at the same price, yet it's low went below. 289 00:18:38,500 --> 00:18:41,800 I would still call that an outside down bar, an outside bar. 290 00:18:45,150 --> 00:18:48,321 And an inside bar is a bar where it's high 291 00:18:48,322 --> 00:18:52,971 and low are within the range of the prior bar. 292 00:18:53,210 --> 00:18:55,810 This bar, the low is above that low. 293 00:18:56,330 --> 00:18:57,630 The high is below that high. 294 00:18:57,690 --> 00:18:59,550 So this black bar is an inside bar. 295 00:19:00,390 --> 00:19:04,910 And look at the next bar, this white bull body, it's inside of the black bar. 296 00:19:05,090 --> 00:19:08,990 It's high is below that high, and it's low is above that low. 297 00:19:12,820 --> 00:19:14,460 Same here, another inside bar. 298 00:19:14,840 --> 00:19:16,260 This bar is inside that bar. 299 00:19:16,560 --> 00:19:17,860 This bar is inside that bar. 300 00:19:18,000 --> 00:19:19,300 A small inside bar here. 301 00:19:19,820 --> 00:19:20,820 Here's an inside bar. 302 00:19:21,180 --> 00:19:25,340 The high is the same as that high, but the low is above that low. 303 00:19:25,460 --> 00:19:28,140 So I would still refer to that as an inside bar. 304 00:19:29,780 --> 00:19:34,760 That's why I say for an outside bar, the high is at or above the high of the 305 00:19:34,761 --> 00:19:37,980 prior bar, and the low is at or below the low of the prior bar. 306 00:19:38,320 --> 00:19:42,223 And an inside bar, the high is at or below the high of the 307 00:19:42,224 --> 00:19:47,200 prior bar, and the low is at or above the low of the prior bar. 308 00:19:49,680 --> 00:19:55,920 An outside bar here, outside bar here, and this is actually an outside bar as well. 309 00:19:56,060 --> 00:19:58,120 It's low was below the low of that bar. 310 00:19:58,600 --> 00:20:00,480 It's high was above the high of this bar. 311 00:20:03,340 --> 00:20:06,280 Here's the Australian dollar versus the U .S. 312 00:20:06,281 --> 00:20:08,420 dollar, a five-minute chart, forex chart. 313 00:20:09,400 --> 00:20:12,760 I distinguish trades into swing trades and scalps. 314 00:20:16,660 --> 00:20:19,660 A scalp means that I'm trying to take a quick profit. 315 00:20:19,900 --> 00:20:23,440 I usually exit within five bars and sometimes just one bar. 316 00:20:26,850 --> 00:20:30,685 A swing trade means I'm planning to hold onto my 317 00:20:30,686 --> 00:20:33,930 position as long as the trend is going in my direction. 318 00:20:35,530 --> 00:20:38,250 Let's look at this chart and let's talk about buying here. 319 00:20:40,070 --> 00:20:43,870 If I buy above the high of this bar, I get filled right here just above that high. 320 00:20:44,390 --> 00:20:49,110 And let's say I get out four or five bars later below the spare bar, right where 321 00:20:49,111 --> 00:20:51,570 this red box is, right below the low of that bar. 322 00:20:52,610 --> 00:20:53,650 To me, that's a scalp. 323 00:20:53,910 --> 00:20:56,070 I did not allow any pullbacks. 324 00:20:56,190 --> 00:20:59,627 I got out within one, two, three, four, five bars, 325 00:20:59,628 --> 00:21:02,250 and it did not matter to me that the trend continued. 326 00:21:02,251 --> 00:21:05,320 If I buy here and get out a few bars later 327 00:21:05,321 --> 00:21:08,110 and did not allow pullbacks, that's a scalp. 328 00:21:08,710 --> 00:21:11,810 On the other hand, what happens if I exit up here or up here? 329 00:21:13,770 --> 00:21:17,890 If I'm exiting up here at the end of the session, to me that's a swing trade. 330 00:21:17,970 --> 00:21:18,970 So I buy here. 331 00:21:19,110 --> 00:21:24,070 I don't worry about the pullback here or here or here or here or here. 332 00:21:24,250 --> 00:21:26,450 None of these look like major reversals. 333 00:21:26,670 --> 00:21:30,050 I'm willing to continue to hold despite all of the pullbacks. 334 00:21:30,430 --> 00:21:32,630 And then I look to exit at the end of the session. 335 00:21:33,390 --> 00:21:38,210 If you're holding through pullbacks and for a lot of bars, that is a swing trade. 336 00:21:41,350 --> 00:21:45,830 That last chart was a five-minute chart, and here is a daily chart. 337 00:21:46,510 --> 00:21:51,156 There are other terms to use when talking about scalping and 338 00:21:51,157 --> 00:21:54,690 swing trading on higher time frame charts, daily or weekly charts. 339 00:21:55,230 --> 00:21:59,950 So for example, let's say a bull trader bought here and he got out here. 340 00:22:00,050 --> 00:22:01,050 He's a scalper. 341 00:22:01,630 --> 00:22:05,170 You might call him a fast money trader or simply a trader. 342 00:22:05,930 --> 00:22:08,612 And if you get out here and this was a monthly 343 00:22:08,613 --> 00:22:10,710 chart, people would call him an investor. 344 00:22:11,170 --> 00:22:13,990 If it was a weekly chart, they might call him an investor. 345 00:22:14,450 --> 00:22:17,110 To me, I would call him a swing trader even on this chart. 346 00:22:17,430 --> 00:22:22,510 But in general, if you're taking quick profits on a daily chart, traders will 347 00:22:22,511 --> 00:22:25,930 call you a trader or a fast money trader or a scalper. 348 00:22:26,470 --> 00:22:28,450 But usually they use the term trader. 349 00:22:29,210 --> 00:22:35,450 And if a person is holding for a long time, 20, 30, 40 bars, you start to get 350 00:22:35,451 --> 00:22:41,071 into the realm of being an investor, especially if it's a weekly or monthly chart. 351 00:22:41,930 --> 00:22:44,683 Some swing traders will hold far beyond a 352 00:22:44,743 --> 00:22:47,790 typical swing, which might be 10, 20 or 30 bars. 353 00:22:47,890 --> 00:22:50,461 They may hold indefinitely, sometimes for 354 00:22:50,462 --> 00:22:54,071 years or months, and that would be an investor. 355 00:22:54,470 --> 00:22:58,130 People would use the term investor instead of swing trader for that kind of a person. 356 00:23:01,210 --> 00:23:03,723 If you look at a chart, you see the market 357 00:23:03,783 --> 00:23:06,790 going up and down, up and down, up and down. 358 00:23:06,850 --> 00:23:10,370 And the smallest move up or down on a chart is a tick. 359 00:23:10,990 --> 00:23:13,390 So if it goes up one move, it's called a tick. 360 00:23:13,450 --> 00:23:15,850 If it goes up three or four, it's called three or four ticks. 361 00:23:16,350 --> 00:23:19,180 If you're looking at a Forex chart, people tend to use 362 00:23:19,181 --> 00:23:21,810 the term pip instead of a tick, but it's the same thing. 363 00:23:22,630 --> 00:23:27,550 And nowadays, pips are also subdivided into tenths or even hundredths, 364 00:23:28,130 --> 00:23:32,450 but I just refer to pips and I don't worry about the tiny, small divisions. 365 00:23:34,590 --> 00:23:37,410 A point is a group of ticks or pips. 366 00:23:37,870 --> 00:23:41,550 So for example, one point on the E-mini chart is four ticks. 367 00:23:42,130 --> 00:23:47,690 A corresponding move on the SPY, S-P-Y, ETF chart is 10 ticks. 368 00:23:49,430 --> 00:23:52,610 You'll sometimes hear traders talk about the lot size. 369 00:23:52,850 --> 00:23:55,927 I traded five lots, which means you traded five 370 00:23:55,928 --> 00:24:00,250 contracts or five shares or five units or five something. 371 00:24:01,490 --> 00:24:03,450 And a handle is a big round number. 372 00:24:03,890 --> 00:24:10,650 So if the SPY is trading at 202.50, you would say it has a 202 handle on it. 373 00:24:14,460 --> 00:24:18,080 When I talk about moving averages, I'm usually talking about a 20-bar 374 00:24:18,800 --> 00:24:20,080 exponential moving average. 375 00:24:20,700 --> 00:24:23,660 Whether it's a five-minute chart or a month chart, it doesn't matter. 376 00:24:23,740 --> 00:24:26,793 If you hear me say moving average and I don't qualify it, 377 00:24:26,794 --> 00:24:29,880 I'm talking about a 20-bar exponential moving average. 378 00:24:31,200 --> 00:24:35,500 Some people refer to it as an EMA, exponential moving average. 379 00:24:35,501 --> 00:24:37,560 I simply call it a moving average. 380 00:24:40,020 --> 00:24:43,440 This moving average is a 20-bar exponential moving average. 381 00:24:46,020 --> 00:24:51,741 Computers, you cannot get around the reality that they control all major markets. 382 00:24:51,880 --> 00:24:54,580 Most trading nowadays is automated. 383 00:24:55,480 --> 00:24:59,620 That means the orders are placed by computers and software programs, 384 00:25:00,120 --> 00:25:04,880 which are called algorithms, are making decisions about when to buy, when to sell, 385 00:25:04,881 --> 00:25:08,580 when to add on to positions, when to slightly reduce positions. 386 00:25:09,660 --> 00:25:12,500 Here's an example of a flowchart of an algorithm. 387 00:25:13,820 --> 00:25:18,580 You'll sometimes hear me talk about an institution, Bank of America, CalPERS, 388 00:25:18,840 --> 00:25:22,813 the pension fund for state employees in California, Fidelity 389 00:25:22,913 --> 00:25:26,200 Investments, those are all institutions, Goldman Sachs. 390 00:25:27,140 --> 00:25:30,820 An institution could be a bank, it could be a hedge fund, a high-frequency 391 00:25:30,821 --> 00:25:37,760 trading firm, a pension fund like CalPERS, mutual funds like Fidelity, any large 392 00:25:37,761 --> 00:25:42,740 entity is an institution, and that includes large individual traders. 393 00:25:43,300 --> 00:25:48,080 So, for example, the smallest position size in the e-mini is one contract. 394 00:25:48,400 --> 00:25:54,660 If a trader is trading 100 contracts or 200 contracts or more, I would consider 395 00:25:54,661 --> 00:25:57,180 them to be as significant as an institution, 396 00:25:57,181 --> 00:25:59,721 even if they're trading for their own account. 397 00:26:03,300 --> 00:26:07,680 You'll often hear me talk about setups, and it's a chart pattern, it's something 398 00:26:07,681 --> 00:26:11,700 on the chart, and it makes me believe that there will be a profitable trade. 399 00:26:12,100 --> 00:26:14,900 Sometimes the setup is one bar, sometimes it's three or four bars, 400 00:26:15,220 --> 00:26:16,880 sometimes it's 20 or 30 bars. 401 00:26:19,420 --> 00:26:23,220 So, for example, we have a bull trend, and it's pulling back for a few bars, 402 00:26:23,800 --> 00:26:27,110 and as it's pulling back, traders are placing buy stops one 403 00:26:27,111 --> 00:26:29,880 tick above the high of the prior bar, did not get filled. 404 00:26:29,881 --> 00:26:36,021 A new bar closes, they place a buy stop one tick or one pip above the high of that bar. 405 00:26:36,500 --> 00:26:38,920 And in this case, the trader did get filled. 406 00:26:39,360 --> 00:26:43,475 This is the bar when they enter their trade, so it's the 407 00:26:43,476 --> 00:26:46,360 entry bar, and this is the bar that signaled the entry. 408 00:26:46,820 --> 00:26:48,883 When they saw this bar, they thought, huh, if it 409 00:26:48,884 --> 00:26:51,620 goes above the high of this bar, I want to get long. 410 00:26:52,820 --> 00:26:57,400 This is the signal bar, and traders get in on the entry bar. 411 00:26:57,740 --> 00:26:59,920 The signal bar is the reason to take the trade. 412 00:27:00,080 --> 00:27:02,080 It's the signal to look to enter. 413 00:27:04,320 --> 00:27:05,820 So here's the signal bar. 414 00:27:06,500 --> 00:27:09,480 We're with the trend, we're trading in the direction of the trend. 415 00:27:10,420 --> 00:27:13,800 Buying above this bar is buying with trend. 416 00:27:15,680 --> 00:27:17,720 Counter trend means doing the opposite. 417 00:27:18,620 --> 00:27:22,737 For example, we have a bull trend, and if I'm selling 418 00:27:22,738 --> 00:27:26,420 below that bar right here, it's a counter trend trade. 419 00:27:27,420 --> 00:27:30,740 So I'm trading in the direction opposite to the trend. 420 00:27:33,100 --> 00:27:36,080 Context, you'll often hear me talk about context. 421 00:27:36,420 --> 00:27:38,840 Is it a buy setup or a sell setup? 422 00:27:39,220 --> 00:27:45,401 I'm always interested in the context, and context means all the bars to the left. 423 00:27:45,800 --> 00:27:48,740 If I see this bar, I want to know what took place before it. 424 00:27:48,780 --> 00:27:49,780 Do I want to buy here? 425 00:27:50,020 --> 00:27:51,320 Maybe it's better to sell here. 426 00:27:51,520 --> 00:27:55,540 I want to know what the bars to the left look like, and those bars to the left 427 00:27:56,100 --> 00:27:57,180 provide the context. 428 00:27:57,660 --> 00:28:01,880 So for example, if there's a strong bear trend, do I really want to be buying here? 429 00:28:02,320 --> 00:28:04,100 No, it's a bull reversal bar. 430 00:28:04,440 --> 00:28:07,880 It's a buy signal, but it's a buy signal that I would not take. 431 00:28:08,300 --> 00:28:10,180 If anything, I'm looking to sell. 432 00:28:10,900 --> 00:28:14,560 When there's a very tight bear channel like this, I don't care if there's a good 433 00:28:14,561 --> 00:28:17,300 bull reversal bar and a good follow-through bar. 434 00:28:17,680 --> 00:28:20,296 It's more likely the reversal will fail, and 435 00:28:20,297 --> 00:28:23,621 this bull reversal will end up as a bear flag. 436 00:28:23,840 --> 00:28:25,700 This is a low one sell signal bar. 437 00:28:25,940 --> 00:28:30,400 Traders will sell just below its low, expecting the reversal to fail, 438 00:28:30,860 --> 00:28:33,440 become a bear flag, and for the bear trend to resume. 439 00:28:37,460 --> 00:28:39,600 I often talk about always in. 440 00:28:40,220 --> 00:28:42,240 That is the direction of the current trade. 441 00:28:43,120 --> 00:28:46,120 For example, here I would say the market's always in long. 442 00:28:46,420 --> 00:28:51,000 So if I had to be in the market this instant, would I rather be long or short? 443 00:28:51,540 --> 00:28:55,134 If I had to be always in the market at this point, I 444 00:28:55,135 --> 00:28:58,720 would be long because odds are the market's going higher. 445 00:29:04,060 --> 00:29:07,280 In a bear trend, the market's always in short. 446 00:29:08,100 --> 00:29:10,580 At this moment, do I want to be long or short? 447 00:29:10,700 --> 00:29:15,180 If I had to be in the market this instant, if I had to be always in the market and 448 00:29:15,181 --> 00:29:17,720 it's right at this instant, I want to be short. 449 00:29:18,460 --> 00:29:23,940 The market's always in short here, and somewhere in here it became always in long. 450 00:29:23,941 --> 00:29:29,721 Traders thought it was better to be long, easier to make money being long than short. 451 00:29:35,450 --> 00:29:37,190 I pay attention to context. 452 00:29:37,890 --> 00:29:40,450 The context here is that we're in a bear trend. 453 00:29:40,550 --> 00:29:42,410 We're getting lower highs and lower lows. 454 00:29:42,730 --> 00:29:47,330 We're starting to get a lot of two-sided trading, tails below bars, some bull bars, 455 00:29:47,870 --> 00:29:49,590 smaller bars, sideways bars. 456 00:29:50,110 --> 00:29:55,030 It's still always in short, but it looks like it's evolving into a trading range, 457 00:29:55,670 --> 00:29:59,850 which means that it may soon reverse into always in long. 458 00:30:03,740 --> 00:30:07,941 Three big bear bars, a bear channel with about 459 00:30:07,942 --> 00:30:11,621 eight or 10 bars, but tail on the bottom of the bar. 460 00:30:12,380 --> 00:30:14,440 That's weakening, a weakening trend. 461 00:30:16,620 --> 00:30:19,280 Another big bear breakout, but a big tail below. 462 00:30:19,660 --> 00:30:24,160 And the close of this bar, the bottom of that black box, is above the breakout point. 463 00:30:24,720 --> 00:30:26,460 There are problems with this bear trend. 464 00:30:27,300 --> 00:30:31,360 Another breakout, a close just around the breakout point instead of far below. 465 00:30:32,560 --> 00:30:36,080 Bulls are buying prior lows and they're making money. 466 00:30:36,860 --> 00:30:40,551 And that usually means that a bear channel is 467 00:30:40,552 --> 00:30:43,480 in the process of evolving into a trading range. 468 00:30:43,900 --> 00:30:48,081 And once it's in a trading range, traders will start to look for trend reversals. 469 00:30:51,040 --> 00:30:55,280 So we have a fairly tight bear channel and we have a bull trend bar breaking above 470 00:30:55,281 --> 00:30:59,360 the high of the channel, breaking above the top of the channel. 471 00:30:59,920 --> 00:31:01,560 Trend lines are rarely perfect. 472 00:31:01,740 --> 00:31:05,660 You can see I'm using this high and then this series of highs. 473 00:31:06,460 --> 00:31:09,117 The market looks like it's turning down every 474 00:31:09,118 --> 00:31:12,261 time it hits an imaginary line at that point. 475 00:31:12,420 --> 00:31:15,220 I would extend the line from here all the way here. 476 00:31:15,440 --> 00:31:17,964 I could draw it from this high across that high, or I 477 00:31:17,965 --> 00:31:20,420 could simply use a small trend line from here to here. 478 00:31:20,840 --> 00:31:24,040 In any case, we're getting a bull breakout of a bear channel. 479 00:31:24,900 --> 00:31:28,880 And that means traders will start looking for possible trend reversals. 480 00:31:30,080 --> 00:31:32,300 So we have a low here, we reversed up. 481 00:31:32,540 --> 00:31:34,360 We have a lower low, we reversed up. 482 00:31:34,680 --> 00:31:40,301 And here the bears are trying to resume back down, but this is forming a higher low. 483 00:31:40,740 --> 00:31:46,520 This setup, this buy setup here, is called a higher low major trend reversal. 484 00:31:47,000 --> 00:31:50,320 Higher low with the potential of reversing into a major trend. 485 00:31:50,880 --> 00:31:52,400 It's also a head and shoulders bottom. 486 00:31:52,900 --> 00:31:55,890 This would be the left shoulder, this is the 487 00:31:55,891 --> 00:31:58,020 head, and this would be the right shoulder. 488 00:31:58,480 --> 00:32:00,240 So it's a reversal setup. 489 00:32:00,720 --> 00:32:04,700 Not a high probability buy at this point, but once you start to get three or four 490 00:32:04,701 --> 00:32:08,880 bars with big bull bodies closing on their highs, the bar is getting bigger. 491 00:32:09,160 --> 00:32:15,180 At some point, the market becomes always in long for everybody, which means that 492 00:32:15,181 --> 00:32:17,391 traders can buy for any reason, expecting that the 493 00:32:17,392 --> 00:32:21,160 market will be higher as more bars become visible. 494 00:32:23,140 --> 00:32:26,780 Another breakout, we have a small breakout here, and now we have three bull bars, 495 00:32:27,400 --> 00:32:31,623 and traders might buy this far as it moves above that 496 00:32:31,624 --> 00:32:35,400 high, the neckline of the head and shoulders bottom. 497 00:32:35,820 --> 00:32:39,800 They may simply buy the close, arguing that it's the third bull close, 498 00:32:40,080 --> 00:32:43,060 very little overlap between the bars, and the bodies are getting bigger, 499 00:32:43,460 --> 00:32:46,260 and it's following a higher low major trend reversal. 500 00:32:49,650 --> 00:32:53,811 Over here, the tails are starting to become prominent, the bodies are getting small. 501 00:32:54,270 --> 00:32:58,150 Each doji is a one bar trading range, and here it's forming a pullback. 502 00:32:58,590 --> 00:33:04,630 A pullback means that when I refer to an attempt at a reversal as a pullback 503 00:33:04,631 --> 00:33:07,658 instead of a trading range, that means I believe 504 00:33:07,659 --> 00:33:10,951 the trend will resume instead of reverse. 505 00:33:11,330 --> 00:33:14,945 Each one of these bars is a one bar trading range, a doji 506 00:33:14,946 --> 00:33:17,710 bar, and together they form a slightly bigger trading range. 507 00:33:19,690 --> 00:33:23,950 Somewhere in here, traders concluded that the market became always in long. 508 00:33:24,310 --> 00:33:26,290 It was always in short all the way down here. 509 00:33:30,120 --> 00:33:32,807 This is Al Brooks, and thank you for watching 510 00:33:32,808 --> 00:33:35,060 this video in the Brooks Trading Course. 511 00:33:35,380 --> 00:33:37,780 This video was on terminology.