Brooks Price Action: Trading Opening Breakouts & Reversals

well I want to thank Terry for having me and I especially want to thank Big Mike in futures I oh I'm al Brooks and I'm going to be talking today about training the opening breakouts and reversals most of the slides come from my video training course and I also created a lot of other slides that I regularly show on my chat room so some of the slides would be familiar to people who are watching this I want to make some points during the presentation today a very important one is on the open the market often has a very strong breakout up or down and sometimes the breakout is in two different directions it's very important to realize that the market is searching for the initial direction and 50% of the time that initial breakout and that how strong it is will reverse also day traders know that the high or low of the day forms early in the day and by 8:30 California time suzan by 8 o'clock California time 90 minutes into the day there's a 90% chance that either the high or the low of the day already exists and that's important to know because it helps you with your trading throughout the rest of the day I'm going to talk about two kinds of breakouts that occurred during the open one is what I call a breakout Lord setup and then the other is a breakout of the range of the first 18 bars and then there's another pattern if I have time I'll talk about that as well and that is if the market trades above yesterday's high or low and reverses there are different ways to trade that especially if you have a second entry on the reversal and then finally again if I have time I'll talk about up failed reversal in other words the market on the rephrase that I'll talk about trend resumption if you get a reversal I fail so off the market trades above yesterday's high and tries to reverse down but fails to reverse down and the bull trend resumes you here are two charts again as I said the market on every day usually has some kind of a strong move up or down on the open and it looks convincing for example here let me put up the pointer the laser pointer no I'm not sure that it's going to allow me to do the laser point I'll do it manually anyway you can see a very strong bear breakout here and as strong as it was it led to a reversal up and here is the opposite we gap up and we rally strongly on the open and no matter how strong the breakout is this is a 50% chance that instead of leading to a continuation up you'll get a reversal down although you cannot see the bars to the left these breakouts are always a test of support if it's a sell-off or test of resistance on rally Shawn Soloff became the low of the day and his strong rally became the high of the day at the close of any bar of the day you can get an idea of whether or not the height of the day or the low of the day has already formed for example by the close of the first part of the day there's a 20% chance that it will remain the low of the day there's also a 20% chance that it will be the high of the day depending on context sometimes the probability can be as high as 30% but in general there's a 20% chance that the first part of the day will either be the mole of the day or the high of the day by bar 7 there is a 50% chance that this is going to remain the high of the day or this is going to remain below the day by Bart 12 the end of the first hour there's a 70% chance that you've either seen below of the day or the high of the day and in this day this was the high of there are eighty-one bars in the day in the emini bar 80 the next so last part of the day you know there's a 99.9% chance that you've either seen the high or low of the day and if the day is far below the high there's a 99.9% chance this will remain the high of the day only one chance in a thousand or one chance and many thousand that the market is going to go all the way back up to a new high and the final bar of the day however that does not help you as a trader you know big deal you know this is going to be the height of the day but that's not going to affect your training however knowing something about when a 90% chance of the higher or low the day has taken place is useful as a traitor and by the 18th bar of the day there's a 90% chance that either the low of the first 18 bars will remain the low of the day or the high of the first 18 bars will remain the high of the day and that does help you as a traitor for example if the market breaks below that 18 bar low there's a 90% chance the market is not going above the high of the day and that means there's a 90% chance that the day will either be a bear trend day or a training range day and the opposite is true if the market breaks above the 18 bar high then there's a 90% chance that the day will either be a bull trend day or a trading range day and knowing that encourage you to buy full x because you know that there's only a 10% chance the market is going to fall back below the low of the day there's nothing magical about bar 18 the more bars that you look at the higher the probability that you've seen the high level of the day so bar 23 it's better than a 90% chance that you've seen the high of the day or the low of the day if you get the breakout bar 16 it might be an 80% chance that if you break out of the 16 bar range you've already seen the high or low of the day what I like to use 18 because you know 90% chance is very very high and I want to know did I see the high or low of the day so I pay a lot of attention to what happens around bar 18 we want to talk about two types of breakouts on the open and the first one I called breakout mode and what I do is I look at the day at around the tenth bar of the day I want to see if there's a reversal down from a new high in other words the market goes above the high of the first bar and reverses down and I wanted to go below the low of the day and reverse off and that is a breakout mode situation if it reverses up after reversing down and it can happen either way it could reverse up and then down the markets in breakout mode and traders will look for some kind of a swing up if it breaks above at the top of that range or if it reverses up here and then breaks below it look for a swing down here there's a bull breakup and the breakup was strong it's also grounded a breakout of the night excuse me it's also around the breakout of the 18 bar range and once you get that breakout there's a 90% chance the day will either be a bull trend day or a trading range and you also look for around a measured move up and the market went more than a measurement about based upon the height of this opening range again this is Bart 18 and we're breaking above the 18 bar range and knowing that tells you that 90% chance this will remain below the day and therefore if you buy you can put a stop below that low 90% chance it won't like it hit you'll either go up or you'll go sideways and even if you go sideways you can buy more lower again putting your stop down here and having a high probability of making at least a scalp this is not a breakout load situation we went below below the first bar and reversed off we rallied and reversed down but this height did not go above the high of the day so this is not a classic breakout load pattern however every day has 18 bars and you look for a breakout below the 18 bar range or breakout above the range and once you get that breakout below the range 90% chance this will remain the high of the day or excuse me this will remain the high of the day we pull back a little bit and then we broke strongly to the downside odds are we'll get it at least a measure move down or round a measure move down based upon the height of that 18 bar range bear break out of that 18 bar range so 90% chance you'll either get a swing down and a bear trend day or gonna remain their training today here we had a swing down the day became a reversal day however there was a good swing trade again as I said this is not a classic breakout move because this height did not reverse down from a new high of the I'm always paying attention to the high or low of the day and it usually forms it usually conforms early as I said again this is a breakout mode pattern after the first bar we went above the first bar and reversed down and then we went below the first bar and reversed off as soon as the market reverses up then we're in the breakout mood and theoretically there are computers spying on a stop just about the high and they will also place a stop to sell below the low and if they get filled on the stop to go along up here they'll place a protective stop on the low therefore trainers will buy on a stop above that high expecting a measure move off the barriers tried to reverse down they failed the board the bull is trying to reverse up and they're succeeding and theoretically the Bears have their stop right about the top of this bear leg and they'll give off and that's why the Bulls want to get along there they know the Bears are giving up but the Bears are giving up they're probably not going to sell again for many many bars again look for a measured move once you get the break-up once you have the reversal down and then you're at a new low the market starting to reverse up a lot of traders will bide the reversal up taking a chance that we will get the breakout above the top of the range in the rally up so you can also you can often enter early here we have three consecutive inside bars so it's an III a lot of traders will buy above this bull bar especially after this strong reversal front running the Bulls who'll buy the breakout through new high of the day that's okay first part of the day we broke below it reversed up we broke above it we've urged stem however the pattern does not have many bars at this point the reversal down took place on about the sixth bar or so and to me that's a less reliable breakout mode pattern I want the trading range to last ten bars or more once the market falls below that beer bar then you have a reversal down and theoretically you're in breakout mode except when the pattern is this small a lot of traders wait for the pattern to grow and then look to see if there it is and reversal them and a reversal up and then they create their breakout moon pattern so you can enter here but the initial range where the reversals work was small and it's a less reliable breakout trade here the market rallied installed that this minor lower high and formed the double top bear flag and there's a second entry micro double top we went up and down and then up and then we're turning down again and we have a decent bear bar and this is also a reasonable short selling a pullback from the breakout to the new once you get the beer break out especially if you get that second beer break out of a bigger opening range 90% chance the market is going to be either in a bear trend day or trading range day if it's in a trading range day you can sell rallies taking a chance that you'll get a break out knowing that the probability of the market going to new high is only 10% again when the initial range where the two reversals take place is small only six bars lot of traders ignore the first reversal and they start counting with the second reversal and then look for a third reversal so they might ignore this reversal up and then say this is the first reversal and then they look for a new low of the day and a reversal up and it creates a larger breakout moment pattern and traders then we look to sell I'm gonna stop just below that mole or buy on a stock just above that high and then we get short there again small pattern first part of the day we went to a new low reverse top new high reverse then only a four bar pattern traders are not going to be selling below the law or buying above the high on a stop this is a limit water market if anything they'll be buying below bars and selling above bar spending on reversals instead of breakouts traders will not trade breakout move unless the pattern has more bars and at this point now nine bars it's around ten bars and it's more reliable to sell below here it's still not a great breakout moving pattern they have a lot of small bars a lot of sideways bars with small bodies and big tails some limited water market traders were selling above bars and scalping buying below bars and scalping it's more of a limit order market here if they broke above the high I think that probably or more sellers above you have a seven bar tight trading range filled with doji bars bars with pigtails small bodies it's a limit one market probably more traders selling with limit orders above that are banned buying with stops above that bar you can see it reverse down then the bull breakout failed we got the beer break out after the first bar we reversed off from the new low and now down from new high 9 bars instead of 10 bars however I think it's a higher probability trade after a bigger pattern than just training and for a four bar pattern again when you have a tight training range like this buying with the stop at the top selling with the stop at the bottom is usually not the best way to enter it's better to wait to see if there's a strong break up and then sell or if there's a break up and then a pullback and then sell and your expectation will be less if the market has a lot of early trading range price action and there is a breakout the breakout is probably not going to go all that far we have a breakout Big Bear bar closing in it's low and a lot of traders will wait to see if the next bar is also a beer bar at least has a small bear body and then they'll sell that close as soon as that bar closes they'll hit sell in the market or some traders will sell a second before it closes if they think the bar will have a bear body small range about half of an average day's range and therefore traders will look for the range to double and that means they'll look for measured move down you can see a lunch in your spot right around a measured move some of these buyers aren't bears buying back their shorts others are Bulls buying expecting profit taking from the Bears and at least a tradable bounce after the first bar we have a new high and reverse down we have a new law and it reversed up with a decent-looking bull bar we broke two new hi can you buy with the stop up here you can I think it's reasonable it's also a break out of the 18 bar range and therefore we know at this point there's a 90% certain a 90 percent probability that the market is not going below here and it's either going to be a bull trend or a trading range and if it's a training range traders will buy pull backs knowing that there's a 90% chance it will not fall below here and they'll make money flying to pull backs again first part of the day we went below reverse up reversed up a second time when above the high today and reverse down breakout mode it's reasonable to sell below this bar you have a double top bear flag below the moving average for the decent bear bar and you have two legs down here and now we have a bull bar forming a high or low a very strong reversal up here two bars and you can call this a wedge bull flag three reversals up one two three it's reasonable to get out of shorts and to go long and front run the bull breakout up here a lot of times when you're looking for a breakout on the open you'll have to take two or three trades before you get a swing and that's okay you know the Bears are sold here they could stay short even hold short here and then get out on a stop above the top of the range up here or they could get out over here my personal pet I sold this I would get out and if I were a flattened at this point I would get long betting on a double bottom or a higher low major trend reversal bear trend bull breakout and then higher low alternatively you wait for the breakout and the clothes and simply buy the clothes looking for some kind of a measure to the ball break out more traders they can buy that bull break out especially since there's a big bull bar here another big bull bar here and we have a higher low so it's a type of double bottom we might break above the neckline and walk for a measured move as I said sometimes if you're looking for a breakout mode trade and your front-running entering before the breakout you have to take two or three entries before you get a swing so selling below here we reverse up reverse down sell single bar just full of the moving average a reasonable sell and then it failed we got a high or low and one of the Bulls will buy this trying to front run the breakout above here buying hoping that we get the wool breakout and then a measured move up now I want to talk about a breakout mode or a breakout of the 18 bar range now I was talking a lot about breakup mode sometimes breakdown mode is also a break out of the 18 bar range here we have an early reversal down and there's a second entry short with a decent bear bar here and again here this is a reasonable short and some traders will sell this hoping that we get an 18 bar range and then a bear breakout so it's reasonable to take the shore this is bar 18 and therefore by the close of this bar there's a 90% chance that either this will remain the low of the day or this will be the high of the day the Bears who took these short probably are going to buy back their short here may have a bull reversal bar we had terrible follow-through on the way down to bear bars bull bar a bear bar a big bull bar a bit breakout and a bull bar we have a double bottom bull flag after a gap up we have a gap up collectin moving average a week sell off probably a bear leg in our trading range and we have a double bottom and we're reversing up above below of the day on the 18th bar sometimes the reversal will be on the 16th or 17th bar sometimes the 21st of 22nd bar in any case if you're getting a reversal up from the low of the day especially when there's a reasonable chance that we're forming a low of the day we have a gap up and a bull flag of which both like and goodbye single are it's a really good buy because once you get that breakout above this low you're reversing out from the bottom of the 18 bar range your risk is small and your reward is big because if it breaks above the 18 bar high 90% chance this will remain the low of the day and it might go up for a measured move reward much bigger than risk some traders prefer to enter on a stop on the breakout above 18 bar range at this point once we went above that high 90% chance this remains the low of the day which means we're either going to go up or sideways and if it's sideways so you can buy pull backs and you can make it be some money this is the 18th bar of the day and therefore trainers will either buy on a stop above the 18 bar range sell on the stop below the 18 bar range or since we're near the high on Bauer 18 auto traders will look to sell on the reversal down especially if there's a small bubble top we have a micro don't hop here we have a bigger double top here and we have a beer bar plus it's a lower high after a sell off that began with yesterday's closed in - genophix closed so it's reasonable to sell on a stop here front running the breakout of the 18 bar range if it breaks above the range you can get out and take a loss or you could reverse the loan or if this is a strong breakup you get up on a stop just above the high and then you look to buy the close of the break-up bar or the follow through bar and if you're lucky this will be the high of the day or the high of the next several hours and you'll beginning a really good entry for a swing down very little risk big reward and decent probability and once it breaks below here 90% chance this will remain the high of the day sometimes here we got a slight new high late in the day sell the new low 90% chance that will remain the high of the day sometimes you get reversal days and here we have a strong brief bear breakout and then a higher low after a strong reversal ah this is a higher low major trend reversal but even then the sell-off is so big the market is unlikely to become a big bull trend a when you get a reversal day and the initial self is big usually the market does not go above the high or if it does go about the height it does not go far above however you can get a swing up for the remainder of the day you know you hear a reversal day and you think oh it's going to become a usable trend day usually not if the self is big like this and you get a reversal day usually the market has a hard time getting much about the initial high of the day however you can still get a decent swing up here we got a late high in the day and as I said most reversal days do not go far above behind what about this first part of the day we went up reversed down we went out we reverse down and we have a decent bull bar okay but this is bar 18 and by the close of this bar this is bar 18 right here by the close of this bar there's a 90% chance that this will be the low of the day or this will be the high of the day however this is a wedge bottom good bull bar here too good bull bars here good bull bar here and then bar 18 is a good bull bar a lot of traders will front run the brake on to the new high of the day because the context is good we have a really good buying and we have a good Boulevard here some symbols will buy a book this bar even though it's only about the 14th or 15th bar taking a chance that will break about the 18 bar range on the traders will simply look at it and say hey it's a winch bottom with a good bull bar and we have good buying pressure with these bull bars as well I'm just going to buy that you can wait to buy a breakout by on a stop above the top of the 18 bar range or you can buy pullback scale pullback here couple legs down one pullback - I'll break out your new high couple legs down one pull back to full bar closing on its high reasonable stop entry by after the first bar we went to a new high reverse down we're going to new low reverse top but the pattern is too small and traders will not treat that as a breakout mode pattern so they will not buy on a stop above they will not sell on a stop away from a bigger pattern like another reversal even looking at this as a second reversal we went up we went down that is only about seven bars and that pattern is too small at this point it's a bigger pattern and traders are more willing to buy a breakout or had it going down they'd be more willing to sell below ten bar range now traders will start looking for second reversal or breakout moon all right so here's part 18 a lot of trading range trading sideways sideways a lot of prominent tails the rally is weak at lacs consecutive big bolts on water so we have a bull bar then a beer bar a bull bar the tail and then small bull bars that were sideways when you get the 18 bar breakout yes 90% chance this will remain below of the day however when there's this much sideways training chances are we're not going to have a bull trend chances are if the day will remain mostly a trading range day once the market gets to around bar 18 you know bar 15 bar 28 bar 25 somewhere around there if it's near the load the day traders will buy for a reversal up hoping to get a breakout above the 18 bar range if instead the market is near the high of the day around bar 18 they'll sell for reversal down hoping to get I break down below the low of the day and a measure move down or 18 but look at the day we went down we were not we went down we went up we down right is this likely to lead to a big breakout in a measured mood been probably not it's probably going to be a continued training range day and yes it's that 18 bar range but not a lot of traders will sell on a stop below the lobe not a lot of traders will buy on a stop above the high and that's because all of these reversals it's a training nation training which Dave traders prefer to buy low sell high and scalp and therefore if you're looking for a breakout you're not going to be selling on a stop below the low of the day they wait to see if there's a strong breakout and maybe a follow-through bar and then sell likewise you're not going to be buying on a stop at the high of the day you wait to see if there's a strong breakout and follow-through and we did not get that instead you'll be looking for reversals especially micro double bombers we sold off trying to reverse off sold off again so micro double bottom here's the neckline you buy above the Bulldog hoping that this failed breakout becomes the logo of a swing out which it did if you want you can call it an expanding triangle we have higher highs lower lows in a sideways pattern and trader some traders will buy it simply because of the expanding triangle not paying any attention to the 18 bar range it's a double bottom near the bottom of yesterday's range and testing yesterday's close now I want to talk a little bit about a failed breakup above yesterday's high or failed breakout below yesterday's low a really common pattern to look for on the open in the final minutes I just want to quickly go through some common open patters that everybody should look for they're important this is yesterday's hide this blue line and we reversed down we broke over yesterday's high reverse down a bad sell single bar we broke above yesterday's high a second time and now we're reversing down and this time with the good Bear bar closing on its low this is maybe a 60% chance on a swing down so it's a high probability short a second entry for failed breakout above yesterday's high first entry second entry and the opposite is true here this although you can't see all of yesterday this was yesterday's love we gaped below yesterday's low and reversed up not a goodbye single are we broke below yes a slow again and we're reversing up again this time with a decent full bar and a small double bottom this is a reasonable by 60% chance you'll get a swing up and the reward is going to be bigger than the risk usually twice as big as the risk all right this is a variation of it usually this nice high and we were first down below that beer bar we went up again and now we're going down this is an outside down bar did not go above that high but it reached that high so for me that that's a type of outside down bar and it's a micro double top we went up we went down we went up again and we're going down again and selling below this bull bar or below that beer bar is a second entry or a failed breakout above yesterday's high remember no matter how strong a rally is on the open there's a 50% chance it's going to fail when the rally is very strong a lot of traders who will not sell the first reversal don't wait for a second reversal so first entries below this beer bar we went to new high second entry below that bull bar or below the spare bar training range open we have a gap walk in a rally and then we have a second rally and now we have a good bye signal bar for a third rally this is a very common pattern we have a very strong breakup gap often very strong breakup reversed up a second time and now a third time this is a wedge bull flag this means it's a bull trend and now it's a wedge and a higher low so it's a wedge bull flag if you want you can call it a bull breakout and then a double bottom bull flag just looking at these two in any way in any case you got to buy you have a strong bull bar here strong bull bars here very strong rally here and in higher low is it an opening reversal and it's probably too late in the day to call it an opening and reversal but to me I would call it a wedge pullback from a strong rally and a gap up yesterday's hi actually next to these hi something that hide that black bar and we reversed down below yesterday's high and we reversed up high to up and then it's not a terrible buy here however with the doji bar far above the moving average all of this training range trading here I would not buy I love that bull doji I would instead be looking for a second reversal down especially below a beer bar a breakout above yesterday's high we're trying to reverse down we're still above yesterday's high in fact we went to new high of the day and we're reversing down again a second time with the Bear bar closing near its low that is a good train 60% chance you'll make make some money not necessarily that much but that second entry sell is a higher probability sell alright this is something that happens pretty frequently yesterday's high and we reverse down below Bulevar and you can say the second and trees below the spirit inside bar I don't know to me this is a better second entry cell we have a small double top I'm very good selling the bar but if you take this short and you're looking for a swing trade where's your stop probably one tick above behind this good-looking sell single arm and what happened right here well it did not get above that high and double tops with that high did not hit the song some traders might get off above this bull are hoping that it's a bull flag will break out two legs down decent bull bar and that's reasonable you could get out but if you do get out and then you see the market not hit the stops or the Bears who did not get out and then we got a beer bar closing on its low again you'd go short again and for traders who did not do anything in here now they have a double top lower high Witsell single are here and good pattern here second pill break up yesterday's high and now they have another entry and the Bulls were unable to run the stops on these beers so we're probably going to fall for swing down yesterday we've broken off this high and reversed down low dujun bar not a great cell it looks like the kind of bar that you'd expect in a tight trading range however we broke again above your city's high and we're reversing down a second time and this time of the Bear bar closing there it's low that is a higher probability cell the Bears did not get a strong trend they probably would go above this bull bar two legs down one pullback tube in their training range but if they did they can look to sell again near the top of the range and here we have a wedge lower high well first push off reversal down second push third push or third push and then fourth push you know this is a wedge and it's part of a bigger wedge and you have a bear hi hi consecutive beer bars closing on their lows and a lower height it's a reasonable sell it might simply be a bear leg and a trading range but you're selling me over the top of a trading range and you had a good sell at the start of the day we're after bar 18 so at this point you know there's a 90% chance either this will remain below but this will remain the high and you're selling the right name of the high so there's not much risk in this pretty good reward which bottom head you sold you get out here on the second entry by it's a breakout below yesterday's low first reversal up and now a second reversal up with a good buy signal are and therefore if you're short you get out of the short and if you're not sure you can buy if you prefer you can buy after a strong rissalah be sold off reverse up and we have a pullback and it's not look like a pair reversal it looks like a bull flag after this Universal up so in a goodbye single bar again gap down below yesterday's low we were reversed up it failed and now we're reversing up again a second time so this is a second entry poor failed breakout below yesterday's low with a decent by Sigma bar if you want there's a third by single bar here if you did not take the second entry or if you want higher probability you wait until you get a couple of strong bull bars closing above their midpoints and then just by the market on the close of that second bar break below yesterday's low tried to reverse lop failed and now we're getting a second reversal up with the bull bar closing and it's high reasonable to buy how to stop above the high of that bar there are other things involved here as well the bottom of a better channel better channel is a bull flag and therefore we can call it a wedge bottom and it's also a double bottom with a low from two days ago and that increases the probability that you'll get a swing up then a small bull flag pullback from the initial rally and then in a wedge so reasonable to get out of lungs or too short there I wanna scroll through quickly because I want to make a point in the run out of time another second reversal out from below yesterday's low yesterday's low vs. reversal second reversal yesterday's low first reversal second reversal bigger bigger big down big confusion Martin's probably gonna go sideways for 10 or 20 bars maybe the rest of the day yes it is lo reversed up and the second river is law the Bears then had a wedged bear flag at the moving average they might sell below this bear inside bar looking for a swing down but if they did they would probably buy back the shorts here on a second entry by one pulled back to high or low major trend reversal if you want being bought in double bottom then we got a bigger double bottom later in the day okay I want to talk about one last thing before I take questions and that is trend resumption after you get a failed so this is yesterday we reversed down and now we have a second reversal here or here let's say you took that short what do you do well we're holding above the moving average now we have a triangle three legs down one pull back to pull back three a lot of the Bears who took that short we get out here and they definitely would get up at a new high today which would also be a breakout above the first 18 bars of the day hoping for a major move up this is a reasonable cell setup but instead of selling off the bull trend resumed and therefore you have to get out of shorts and you have to get long and then we're getting gaps this low that high this low of that high this is a small pullback bull trend day and it's probably going to go up a long way and therefore it's a swing by traders are looking to buy for any reason below bars above bars air closes bull closes and then we have a by climax late in the day with a beer bar closing of it slow traders would get out of here aggressive beers would sell here this is a by the close finish that started too early unlikely to make it to the end of the day and therefore traders lungs would get off a little bear bar and aggressive bears would sell for a scalp at the end of the day yesterday's high reverse down reversed down a second time but instead of going down we have a gap pop and it's a bull flag so it's a failed reversal and because we're not going down and instead are immediately reversing up beers we'll get out and both will start to lick to buy later in the day we have a reversal down second reversal down trying to get a third reversal down a lot of training range price action probably a bull like and what will become a training range and therefore traders will look to sell especially if you get a second entry first entry below a bull bar not good now we have a beer inside bar closing in its low higher probability for possibly to swing down sale breakdown below yesterday's low mediate reversal at the 60 minute moving average reasonable by and here's a second entry by yesterday's low reversed up second entry by but then look what happened here we're getting a wedge reversal at the moving average so the beer see this as a Bear Flag gap down and then a pullback and it's a bear flag at the moving average through the decent sell single are the Bulls have bought here or here will recognize that and they'll get out of Long's and Bears who are flat will look to sell net or possible swing down and instead we got a lower low major trend in Brussels you can call it a double bottom and the Bears would get out above this decent bull bar aggressive Bulls would buy or they're great for a couple strong bull bars and then buy a closed or buy a pullback all right so that's all I wanted to say I wanted to make an important point that on the open we would very often get a strong leg up or down but anytime you get a strong leg on the open 50% chance that first breakout will fail and reverse next the high or low of the day forms early in the day 90% chance that the high or low of the day will be present by the close of the 18th bar and by the end of the 18th bar traders are trying to look for a break out of that 18 bar range I also talked about a break out mode setup which means after the tenth mark if you have a new height of the day that reverses down a new low of the day that reverses up either one can come first traders will look to enter on a break out of that initial range and then I tried about failed breakouts above BSA's high or from below yesterday's low especially if you get a second entry by up from below yesterday's low or a second entry sell from down from above yesterday's high it's a high probability trade 60% that you're going to make money if you manage it correctly and finally any pattern fails so if you're getting a reversal from above yesterday's high or up from below via Siuslaw you can fail if it does fail you'll probably end up getting a trend I'm al Brooks thank you again for watching the webinar and also want to thank Terry and again I want to thank Big Mike in futures IO now I will take questions armed with more and more of the es volume being traded by computers do you think the decreased volatility we've had for the last four months as a new normal no yeah that's funny that you talked about that new normal you know I've been trading for over 30 years and I cannot tell you how many times I've seen some professorial expert on television announced it's a new normal the markets are different and it's just total nonsense right there are subtle changes that take place but if anything the markets are just becoming more perfect traders long before computers we're training rationally and the computers are not more rational they're just faster so if anything they make the Penner's that were present forever more perfect and and this low volatility that we've had over the past month to me is usually a precursor to very big volatility and because the weekly chart and monthly charts are so climactic it's much more likely that we'll get a surprise down than a surprise up so I think the low volatility that we had is going to change the market goes through cycles where as very low volatility very high volatility and it's going to end what's going on for a long time and now we've had 12 months where every mole on the monthly chart is above the low prior look and it's only happened once before in the past 50 years in the S&P that was it led to a huge bull trend 13 months bar owners and languaging on 13 months with every low at or above the low of the prior month and got a pullback about a 10% pull that and then resumption off the point I'm making is that now we're at 12 or 12 months the longest in the past 50 years was 30 months 13 months how much longer do you think the current behavior is going to continue I don't think it's going to continue much longer in fact there are other things going on right now that makes me think we're probably going to get a big surprise by sella certainly by the end of the year and possibly within the next few weeks even if we do it'll still be a bull flag but weekly and monthly charts yes their climactic but they're so strong the eyes are bulls will by the break out the buckles and by the reversal so if we do get a correction or probably will only last one two or three months so sorry about that long-winded winded answer I tell you what you have next all right let's see all of the bars on your charts are 5 minutes yes let me make one other point about that when I was as young as all of you for years I traded one minute charge to minute charts and three minute charts I cannot convince myself that I make any more money trading those charts compared to a 5 minute chart and it was much more stressful so for me I prefer just to trade 5-minute charts what account size would you recommend to start with for trading one contract in swings only look at that that's a common question and you know the correct answer is as much money as you possibly have every trader starts starting out has limited capital now they work really really hard to save up the money and they want to know you know what's the smallest amount I can have that will allow me to trade and have a shot at becoming a professional trader and realistically if you can if you have $25,000 it's better but I know mother you're starting out don't have that but they usually have about five thousand maybe ten thousand dollars and even that is a little bit tricky you know if I had a five thousand dollar account I would trade forex markets instead of the e-mini and I would just look at the euro versus the dollar for X mark chart five minute chart and and trade that and you know I trade forex markets I'm pretty bonds you know try to take at least one forex trade every day and the advantage of the forex market is you can trade any size so you can you know trade 10,000 units 50,000 units you can trade really really small yes you cannot get rich you know trading 10,000 units or 50,000 units however you know kilometer to stay in the game a lot longer so if you're losing you can go you can last a lot longer trading the forex markets then you can trading the emini so back to your question you know I think it's probably not worth trading unless you have at least $5,000 and then emini trading it up let's see 18 5-minute bars is 9390 it's or 23 percent of the trading day is the first 23 percent of larger time frames tradable in the same way yeah I think I think that's true you know markets are fractal and that simply means that it basically behaved the same on all time frames and so if you're looking at a daily chart and you see on any 18 bar trading range it's going to be the same thing right if you get a breakout of an 18 bar trading range you know you have at least a 60% chance of some kind of a swing up or down Richard Dennis back in the 80s was a big time trader I want to say up front I might have this wrong Richard ma I don't know if you've heard of the turtles Linda wretzky was one of the Turtles Richard Dennis had a Pygmalion theory that he could teach anybody to trade and Linda raske is one example of a turtle trader and he called his students Turtles and Richard Dennis was famous as a breakout trader so he was always looking to buy new highs of anything new highs of a range new all-time highs sell new lows new lows of range and and specifically bringing up Richard Dennis he managed hundreds of millions of dollars but I believe that twice he had funds that went broke or bust or became untrainable or you know he lost so much money with that style of training that he ended up closing the funds and again I could be completely wrong about that you know you're asking an old guy me to remember things that took place 30 years ago but that's my memory but go back to your question charts are fractal so you can use the same general ideas on any time frame awesome thank you are you using trend lines on the first 18 bars and looking for a break of the trendline I am always putting lines on my chart and I'm putting lines on most of the lines turn out to be useless and I end up removing them and a lot of what I do is I do visually I don't even put the lines down because I you know I know where the lines are for example if I see what appears to be a channel you know a lot of times I will draw the lines in my chat room long times I'll draw it to illustrate points so people can see what I'm talking about but as a trader I typically do not put lines on the chart or if I put them on I erase them within a second I just want to confirm that the market is at a line and or if it's not at is it closed and I typically if it's a a beer channel I think of it as a bull flag 75% chance you're going to get a bull breakout above a beer channel I'm looking for the breakout and if it's reversing up from the bottom of the channel and there's a decent i signal bar and the context is pretty good I'd rather bide the reversal up from the bottom of the channel before the breakout or book the top of the channel however if the breakout about the top of the channel is strong for example if it has too big bolt from bars closing on the heist if I'm not long I'd like to buy at the market right around the close of that second bar but as far as buying on a stop one tick above the top of a channel I usually do not do that I usually in an earlier or get in later what is the second line on your chart not the twenty bar SMA there's another blue line and that is the 60-minute twenty bar exponential moving average and I created a formula some of my websites that allows me to plot exactly where the 60 minute exponential moving average the 20 bar exponential moving average on the 60-minute chart I can plot it on the 5-minute chart and 16 I think the 60 minute moving average is really important to support and resistance and it gives me more trades when looking at the five-minute chart so you know I pay attention to how the market behaves at the 5 minute 20 bar exponential moving average and how it behaves at the 60 minute 20 bar exponential moving average when you trade an interposition and the trade goes against you do you add to the position to average in or do you just hold them wait can you elaborate on averaging in and out and what is your opinion of it I think that's a good question and depends on if I believe my premise is still valid if I believe that my trade is still good and they're simply pulling back I'll very often look to add-on on the other hand if I think that it's a reversal and my premise is no longer good I'll get out for example let's say I buy I buy a breakup and then it has three consecutive decent-sized beer bars closing on their lows I'm going to assume the reversal is stronger than my breakout and that my premise is no longer valid and I'll get out let me say one other thing about that a lot of hedge fund trainers a lot of the big name traders average in Carl Icahn is a good example you know I admire Carl Icahn I think is a really smart guy he's in his 80s he makes me feel young and you know he averages in regularly you know I haven't seen him on Fast Money in a lot of months but I intention to one of the things that he said a lot of the trades that he's taken and they make really good sense so for example I don't know it was a year and a half ago when freeport-mcmoran was falling and everyone was talking about possibly going under because of all its debt kind of iconic Carl Icahn bought it at $10 and it fell to just below $5 a lot of times he'll add on 5 or 10 times to a trade and while he did not say he bought more at $5 I would be shocked if he did not so he bought it at $10 and then lost 50% of its value down to $5 and instead of selling out in a panic I'm sure he'd want more and then it rallied to over $15 so he ended up making a triple on his $5 buy and a 50% profit on his $10 buy now that's typical of value traders they'll scale in if you're a momentum trader for example the stock market right now is a big momentum market everybody knows it no one's gonna buy the first reversal down right if it starts to break to the downside people are not going to be scaling in because people are buying now because it's going up not because it's cheap and if it starts to go down they're gonna say oh I bought because it's going up it's not going up I gotta get out they're not gonna say I'm going to buy more on the other hand if a market is selling off and funds are buying it they're buying because it's cheap and therefore if it sells off more they're gonna buy more so you tend to scale in and a value trade not in a momentum trade you don't want to be scaling in when the market is in a buy climax in reversing what percentage of the time do you place at full full-size trade as opposed to scaling in or is it just based on market conditions oh you know that's once you've traded a long time you tend to have a whole bunch of accounts yeah you know I have I don't know how many coats I have accounts with all kinds of different brokers and I don't think too much about the position size you know I have some default positions that I typically use and sometimes I'll scale in you know beyond like my average scale in well now if I'm entering a trade I'm expecting it to go my way you know not thinking that I'm gonna have to scale in I'll trade regular size if I'm entering a trade and I think I may get a deep pullback but my premise will still be valid and my stop does not get hit a lot of times I'll trade smaller and then scaling you know for example if we're talking about buying you know I talked today about a bull breakout of the 18 bar range and I said something very important if you get that bullet breakout 90% chance the day is either going to be a bull trend day or a trading range day and therefore if I'm buying that breakout I could be buying the beginning of a bull trend or I could be buying at the top of a trading range but only a 10% chance it's going to hit my stop bull at the bottom of the range and that kind of a trade if I'm buying high I'm more inclined to trade smaller in case it becomes a trading range instead of a bull trend if it becomes a trading range I doubt that it's going to become a bear trend and therefore I feel comfortable scaling in lower you briefly talk in your video course about converting swing trades of the scalps is it possible to do the opposite and convert a scalp into a swing I'm usually anything is possible right it's very common for swing traders to say now this is disappointing it's not turning out the way I want them to turn out I'm just going to scalp out you know maybe take a small profit maybe a small loss I'm going to get out I'm gonna scalp out that's very common it's very unusual for a scalper to take a trade and then the market runs quickly in his direction he says oh I'm gonna pull this trade and turn it through the swing sometimes that will happen the only times I do that is if I'm taking a trade that I think will be a mess if I'm buying but I think will be a minor reversal and I have a profit taking limit water in there a lot of times I'll put the limit or extra far out if I think there's a chance that the reversal could be very strong so most of the time if I'm entering as the scalp I'll get out as a scalp only rarely will I enter as the scalp and convert it into a swing usually if I think there's a reasonable chance of a swing trade I'd rather think of it as a swing trade and scalp our part and leave the remainder on for a swing does it make sense to use this similar approach on other futures markets and not just the es yeah the e-mini is based upon rational decisions and all trading is based upon rational decisions it doesn't matter what market doesn't matter if you're trading real estate market it doesn't matter if you go to a flea market and trade it's all going to be based upon rational decisions and therefore the patterns are going to be the same the patterns are just reflection of rational human behavior trades would you take on an average day well I mean when I was your age I would take a whole bunch you know it would be unusual for me to take fewer than 20 trades a day and now you know I'm finding myself taking fewer but an average day I might take about 10 trades sometimes someone will ask me out how many trays you take today and I'll say one oh five or six and then I'll count them up and I found out it was 11 or 12 so invariably I ended up taking more than what I think was taking but in general I take around 10 you know some days 5 like when volatility is very small as it has been lately somebody's even only 2 or 3 in the e-mini but usually it's between 5 or 10 and closer to 10 and if there are really big big days with you know I might take 20 or more but then that's unusual are any of these stats and methods covered in any of your books yeah everything I said you you know I I pulled most of these slides from the training course and then I pull a lot others from a file that I used in the chat room I have a file with you know hundreds and hundreds of might have a thousand slides in it right now to illustrate things that I'm seeing during the day so I see patterns and I annotate the charts and a lot of these slides are directly from that example over the file that I have in the chat room however everything that I said here is in the video course there's a tie-in to the question on the number that you take how many are the trades would you say our swing versus scalps depends on the context if the day early on looks like it's going to be a very quiet day in the majority if not all the trades all scalp if the days are really tiny like today I'm scalloping for one point I nearly him the market is moving pretty well you know I tend to try to scalp more anybody who tells you two things right that they take ten trades a day or more and that they often win ninety percent of the time one more they're also telling you a third thing that they're not saying and that is that they're scalping most of the time because the reality is if you're taking a lot of trades you're not swing trading many of them and if you have a very hard winning percentage 80 or 90 percent then you're scalping and that has to be the case because any time you have a very high probability of winning in other words a very high winning percentage you have to have a bad risk reward ratio and that usually means that the reward is small compared to the risk so hand in hand high probability means small reward and that means scalping there's a question on out of the following trade Titans Wyckoff Gann down Merrill or Elliott who is your favorite or I guess who would be somebody that you look up to whenever you get in started trading well the one that would definitely ignore totally well actually you get several I would even or pretty much every every one of those especially again and Elliott I think it's I think they're fairy tales wouldn't pay any attention to them at all I would rather have someone read Warren Buffett you know some or carleton stuff and call icon you know they really understand human behavior and they understand rational human behavior and I think you'll stand to learn much more about how markets work and how people behave listening to them and I think the other stuff you know Wyckoff had some good ideas but you know again I think Dan and Elliot are both idiots or were I think both of them were idiots and they were teaching religion in that science do you still only trade manually in discretionary or have you trade any gets automated trading since your early days I don't know how long about 15 20 years ago 25 years ago I used to you know when automated training came out I did it a lot I spent I don't know maybe 10,000 hours you know writing systems and testing systems and training systems and and invariably I was always overriding the systems because I could see exceptions that were not programmed into the system and so I I do not have the kind of personality that would allow me to trade automated training so I think I'd be very good at working for a hedge fund a high-frequency trading fund and giving them training ideas that they could program but for me personally to do it I'm washing every tick all day long and I'm thinking all day long about probabilities risk and reward in trying to structure trades and I personally could not sit there while a system was unfolding because I always see exceptions and how to trade it better a really good discretionary trainer is always going to be better than a really good system a really good automated system okay and this help make the last question what is your opinion on trading stuff like Bitcoin and the new these new items and things that are coming out I think it's fascinating it's really interesting you know Jamie Dimon says it's gonna crash you know China says it's going to be a flop but yeah I don't think so however I've looked at it myself and you know I from a little that I know about about this stuff I am uncomfortable about it because you know yeah I don't like the idea of having to carry around with me a long password to my wallet to get my bitcoins out because if my house burns down or something happens suddenly there's just too much risk that something bad could happen and I could not recover my money it's not like if you have the money in you know our brokerage account you know that if something bad happens you know you're gonna get some or all of it back as time goes on I think what's gonna happen is there is already an ETF or Bitcoin I think the symbol is gbtc like George boy Tom Charlie gbtc it still has low volume but I think that as time goes on and Bitcoin becomes more accepted it'll be like the GLD the ticker for gold and a lot of people trade GLD and I think when the crypto currencies become really widely accepted there's going to be tremendous training in the ETF's the cryptocurrency ETFs and I will feel much better doing that then I will other than I do right now training the cryptocurrencies themselves but will they stay around forever the logic seems reasonable but my general theory in life is if you can't explain to me in one sentence what you're doing in a way that I understand it there's something wrong and for me to explain cryptocurrency it would take a lot of sentences and even then I'm not entirely certain that ever get it right so for me that for me there's something wrong with them I'd rather wait until they become each I do have accounts cryptocurrency accounts but I'm very eager to have ETFs from the equivalent of the GLD come out that much rather trade them I feel much more secure with that thank you for the webinar for the information and as always most importantly thank you for your time tonight we welcome Terry and think I want to thank everyone for being here I also want to thank Big Mike in futures IO