al-brooks-course
01 - End of Day Traps
Raw transcript and slide notes for 01 - End of Day Traps.
Overview
- Slides: 22
- Transcript segments: 574
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Transcript 001
Time: 00:02
Bilingual Transcript
00:02 - 00:03
EN: I’m Al Brooks.
00:03 - 00:05
EN: Thank you for watching the Brooks Trading Course.
00:05 - 00:09
EN: This is a bonus video about end of day traps.
Slide 001
Time: 00:11
Bilingual Transcript
00:12 - 00:14
EN: I want to begin by discussing what I mean by a trap.
00:14 - 00:17
EN: A trap is simply a breakout that fails.
00:17 - 00:21
EN: The market breaks out and then goes the opposite direction,
00:21 - 00:23
EN: trapping people into the wrong direction.
00:24 - 00:27
EN: I’m going to be focusing on end of the day traps,
00:27 - 00:29
EN: traps that happen late in the day.
00:29 - 00:33
EN: I’ll first talk about bull traps: a bull breakout that fails and reverses down.
00:34 - 00:38
EN: Every pattern can fail, and a bull trap can fail.
00:38 - 00:42
EN: That means you can have a bull trap that looks like it’s reversing down,
00:42 - 00:44
EN: but in fact it becomes the start of a bull trend.
00:45 - 00:49
EN: Next I’ll talk about bear traps at the end of the day:
00:49 - 00:51
EN: a bear breakout that reverses up.
00:51 - 00:54
EN: Like a bull trap, a bear trap can fail as well.
00:54 - 00:57
EN: You can get a bear trap that starts to reverse up,
00:57 - 00:59
EN: but then the bear trend continues down.
01:02 - 01:03
EN: What is a trap?
01:03 - 01:06
EN: It’s simply a failed breakout.
Slide 002
Time: 01:05
Bilingual Transcript
01:07 - 01:08
EN: Take a look at these two charts.
01:09 - 01:11
EN: 4 bull bars, 4 bull bars.
01:12 - 01:15
EN: Every trend bar or series of bars is a breakout.
01:15 - 01:17
EN: These are two examples.
01:18 - 01:19
EN: What’s important is context.
01:19 - 01:22
EN: By context, I mean what do the bars to the left look like?
01:28 - 01:33
EN: My 80% rule on inertia says that market resist change.
01:34 - 01:36
EN: If you have a trend and a reversal,
01:36 - 01:39
EN: even if it’s a strong reversal, 80% of the time it’ll fail.
01:40 - 01:44
EN: If you have a Trading Range and a breakout, even if the breakout is strong,
01:45 - 01:47
EN: 80% of the time it will reverse.
01:52 - 01:54
EN: The market’s in a Trading Range.
01:54 - 01:55
EN: We have a bear breakout.
01:55 - 01:56
EN: We’re trying to get a bull breakout.
01:57 - 01:59
EN: A reversal is more likely than a breakout.
01:59 - 02:03
EN: Traders know that, so there are not really a lot of trapped traders here.
02:03 - 02:05
EN: I would not refer to these as traps;
02:05 - 02:08
EN: I would just refer to them as legs in a Trading Range,
02:08 - 02:10
EN: and I would expect them to continue
02:10 - 02:15
EN: and the market to continue to reverse – which it did.
02:15 - 02:17
EN: Finishes back in the middle of the range.
02:18 - 02:23
EN: On the other hand, if I see the same pattern
02:24 - 02:26
EN: but it’s coming in a very strong bear trend,
02:27 - 02:29
EN: chances are this is going to be a bull trap.
02:29 - 02:32
EN: There are traders buying the market as it’s going up,
02:32 - 02:35
EN: hoping for a bull trend or at least a second leg up.
02:35 - 02:39
EN: However, 80% of trend reversal attempts fail, even if they’re strong.
02:39 - 02:43
EN: This is strong enough so that a lot of traders would consider the market
02:43 - 02:45
EN: to be Always In Long, an early bull trend.
02:50 - 02:51
EN: The key is this.
02:51 - 02:55
EN: If there’s a bear bar, especially one closing on its low,
02:56 - 02:59
EN: this is more likely a trap than a bull trend.
02:59 - 03:02
EN: The bears will sell below a bear bar closing on its low.
03:02 - 03:05
EN: There were many opportunities for that here.
03:05 - 03:08
EN: The bulls who bought here found themselves trapped in.
03:08 - 03:12
EN: The bears who got out of shorts found themselves trapped out,
03:12 - 03:13
EN: and they had to sell again.
03:17 - 03:21
EN: We have a few bear bars here and here, and same thing.
Slide 003
Time: 03:20
Bilingual Transcript
03:22 - 03:23
EN: We have a bear breakout.
03:23 - 03:26
EN: Is it a trap or is it part of a Trading Range?
03:29 - 03:31
EN: Well, take a look at the bars to the left.
03:31 - 03:34
EN: If the market’s in a Trading Range and you get a bear breakout,
03:34 - 03:38
EN: it’s more likely to reverse and the Trading Range is more likely to continue.
03:39 - 03:43
EN: No one is really trapped because traders expect a bear breakout to fail,
03:43 - 03:45
EN: and they’ll expect a bull breakout to fail.
03:49 - 03:51
EN: This is the chart that I showed on the other slide.
03:51 - 03:54
EN: I used the bull breakout on that slide as an example.
03:55 - 03:58
EN: On the other hand, this is a very similar breakout,
04:00 - 04:03
EN: but it came in a strong bull trend.
04:03 - 04:06
EN: 80% chance this is not the start of a bear trend.
04:06 - 04:08
EN: It probably would have to enter a Trading Range first
04:08 - 04:10
EN: before it could become a bear trend.
04:11 - 04:14
EN: So, at this point, 80% chance we’re either going sideways
04:14 - 04:18
EN: or it’s a bull flag and the bull trend will resume.
04:23 - 04:25
EN: The bears who sold down here are trapped.
04:25 - 04:29
EN: They’re trapped into a losing trade, and they have to buy back their shorts.
04:30 - 04:33
EN: They’ll buy back their shorts above 1 bull bar closing on its high
04:33 - 04:37
EN: or after 2 or 3 bull bars closing somewhere in the middle.
04:38 - 04:40
EN: The bulls are trapped out.
04:40 - 04:43
EN: Some bulls exited below these bear bars, and if they did
04:43 - 04:47
EN: and if they’re trading Always In, they have to get back in the market.
04:47 - 04:50
EN: They’ll buy again above a bull bar closing near its high
04:50 - 04:53
EN: - and there were many opportunities for bulls to buy again.
04:56 - 04:57
EN: End of the day bull traps.
04:57 - 05:01
EN: Traps can occur at any time during the day.
05:01 - 05:05
EN: Today I’m going to be focusing on those that occur at the end of the day.
Slide 004
Time: 05:05
Bilingual Transcript
05:10 - 05:13
EN: I said traps can occur at any point during the day.
05:13 - 05:15
EN: Opening reversals are often traps.
05:15 - 05:18
EN: Very often on the open, you’ll get a very strong move up
05:18 - 05:20
EN: and the market reverses down.
05:20 - 05:24
EN: Bulls are trapped buying the high, and then the day becomes a bear trend day.
05:24 - 05:27
EN: Or you’ll get a selloff for several bars on the open,
05:28 - 05:30
EN: the market will reverse up and trend up all day.
05:30 - 05:32
EN: That is a bear trap on the open.
05:33 - 05:37
EN: Today I’m talking about traps that occur in the last third of the day or so.
05:38 - 05:41
EN: Here we have a bear trend, here we have a Trading Range,
05:41 - 05:42
EN: and here we have a bull trend.
05:43 - 05:45
EN: In this bear trend, we have a series of bull bars.
05:45 - 05:46
EN: Pretty strong.
05:46 - 05:49
EN: We have 5 consecutive bull bars, several with pretty good bodies.
05:49 - 05:53
EN: The bulls are hoping this is a Lower Low Major Trend Reversal.
05:53 - 05:58
EN: Bear trend, bull breakout, Lower Low, and they’re hoping to get a second leg up.
05:58 - 06:02
EN: However, if you look to the left and there’s any possibility of a Double Top
06:02 - 06:05
EN: - here it’s a slightly higher Double Top; some computers will use that
06:05 - 06:10
EN: and say it’s a slightly lower Double Top, or this – and then you get a bear bar,
06:10 - 06:14
EN: especially one closing on its low, bulls should get out and bears will start
06:14 - 06:16
EN: to short below bear bars closing near their lows.
06:16 - 06:18
EN: They won’t sell every one of them,
06:18 - 06:20
EN: but they’ll sell at least one to get short again.
06:24 - 06:28
EN: Any time there’s a bear trend late in the day, there’s usually some profit-taking.
06:28 - 06:31
EN: If there’s enough of it, enough bears covering shorts –
06:31 - 06:34
EN: short covering – it can become a bull trend.
06:34 - 06:38
EN: But when the channel is fairly tight like this, the reversal is usually minor
06:38 - 06:41
EN: and you either get a Trading Range or a resumption of the bear trend.
06:44 - 06:49
EN: Bears will sell below a bear bar, especially one closing near its low.
06:51 - 06:54
EN: Here we have a Trading Range.
06:54 - 06:57
EN: We have a Triangle here, a bull breakout, a Wedge pullback.
06:57 - 07:00
EN: The bulls are hoping this is a resumption of the bull trend.
07:00 - 07:01
EN: Take a look.
07:01 - 07:03
EN: It really looks more like a Trading Range,
07:03 - 07:05
EN: and therefore there’s a risk of it being a bull trap.
07:05 - 07:06
EN: Look to the left.
07:06 - 07:08
EN: If there’s a possible Double Top,
07:08 - 07:12
EN: this might be simply a buy vacuum test of resistance,
07:12 - 07:14
EN: and then the bears will get a Double Top bear flag.
07:14 - 07:17
EN: If there’s a bear bar closing on or near its low,
07:17 - 07:22
EN: the bulls should get out and bears will start to sell, hoping to get a swing down.
07:26 - 07:29
EN: We have a bull trend and then we have a series of bull bars.
07:29 - 07:33
EN: Sometimes it’ll be simply 1 very big bull bar or 2 very big bull bars.
07:33 - 07:36
EN: Here it’s a series of 6 or 7 bull bars.
07:36 - 07:38
EN: Very climactic, very strong.
07:38 - 07:44
EN: Bulls are hoping the bull trend will continue, but strength late in a bull trend,
07:45 - 07:49
EN: especially 20 or 30 bars into the bull trend – an increase in strength,
07:49 - 07:53
EN: for example, weak bull trend here and then strong bull trend here
07:53 - 07:55
EN: - it’s more likely to be an exhaustive end of the trend
07:55 - 07:57
EN: and not the start of a new leg up.
07:57 - 08:02
EN: This is basically an Exhaustion Gap; an exhaustion Buy Climax.
08:02 - 08:04
EN: But I’m not talking about those today.
08:04 - 08:09
EN: I talk about those in the section of the course on bull Exhaustion Gaps.
08:09 - 08:13
EN: Today I’m talking about this: a bull breakout in a bear trend
08:13 - 08:15
EN: or a bull breakout in a Trading Range.
Slide 005
Time: 08:17
Bilingual Transcript
08:18 - 08:20
EN: We have a pretty good bear trend.
08:26 - 08:29
EN: Late in the day you often get some short covering, some bears taking profits.
08:29 - 08:31
EN: We’re getting late in the day.
08:31 - 08:33
EN: The bears at this point know their stop is up here.
08:33 - 08:35
EN: It might be more than what they want to risk,
08:35 - 08:38
EN: so they’ll buy back some of their shorts and they get short covering.
08:38 - 08:42
EN: If the short covering goes on long enough and covers enough points,
08:42 - 08:45
EN: a lot of the bears will not sell again,
08:45 - 08:47
EN: and we could end up with a bull trend reversal.
08:48 - 08:52
EN: On the other hand, if the rally loses momentum,
08:52 - 08:55
EN: like the bodies shrinking or tails on the tops of the bars
08:55 - 08:59
EN: or stalling at resistance – for example, testing a prior high
08:59 - 09:01
EN: - this is a Double Top, a Lower High Double Top;
09:01 - 09:05
EN: it’s also a test of the Moving Average, just like this and like this
09:06 - 09:08
EN: - traders have to be thinking about a possible bull trap.
09:08 - 09:10
EN: If you’re a bull and you bought
09:10 - 09:14
EN: and then you get a bear bar closing near its low, you get out.
09:14 - 09:17
EN: If you’re a bear who bought back your shorts
09:17 - 09:21
EN: and you see a bear bar closing on its low and you have a possible Double Top,
09:21 - 09:24
EN: you’ll sell or you’ll take a second sell signal here.
09:31 - 09:34
EN: I know it does not look like a Double Top, but it is a Double Top.
09:34 - 09:36
EN: This is a test of that Lower High.
09:37 - 09:39
EN: Not perfect, but most Double Tops are not perfect.
09:40 - 09:41
EN: Then we got a bear bar.
09:41 - 09:45
EN: Then we have a second leg up – first leg up, pullback, second leg up
09:45 - 09:47
EN: - but it’s really more a second leg sideways.
09:47 - 09:49
EN: So, we have a Micro Double Top as well,
09:49 - 09:52
EN: and then another bear bar closing near its low.
09:52 - 09:55
EN: Bulls will get out below that, and bears will sell below that
09:55 - 09:58
EN: and definitely below this, a second sell signal.
10:04 - 10:07
EN: I said earlier that traps can come at any time.
10:08 - 10:11
EN: For example, opening reversals are very often traps.
10:11 - 10:14
EN: But I’m talking today only about traps that are occurring later in the day.
Slide 006
Time: 10:20
Bilingual Transcript
10:25 - 10:28
EN: I mentioned that if you have a strong bear trend late in the day,
10:28 - 10:30
EN: bears tend to take some profits.
10:30 - 10:31
EN: Short covering.
10:31 - 10:32
EN: Short covering rally.
10:32 - 10:36
EN: Any time you have a bear trend that reverses into a bull trend,
10:36 - 10:37
EN: it begins with short covering.
10:38 - 10:42
EN: What happens is if the short covering covers a lot of points
10:42 - 10:46
EN: and if the bars are strong enough, the bears are not going to look to sell again.
10:47 - 10:50
EN: It’ll become clear that the bears are getting out of their shorts,
10:50 - 10:53
EN: heavily getting out of their shorts, and bulls are starting to buy,
10:53 - 10:57
EN: and the result is instead of a bear flag, you have a bull trend.
10:57 - 11:02
EN: Traders, instead of selling rallies, are buying the market and buying pullbacks.
11:02 - 11:07
EN: Today this is an example of short covering that became simply a bear flag.
11:07 - 11:08
EN: A bull trap.
11:08 - 11:12
EN: Bulls got trapped into buying right below resistance.
11:12 - 11:16
EN: Moving Average, this high, and then the bear trend resumed into the close.
11:22 - 11:24
EN: Bears will sell below a bear bar closing near its low.
11:24 - 11:26
EN: There were many opportunities to do that.
11:26 - 11:29
EN: The bears are not going to take every one of these shorts,
11:29 - 11:32
EN: but if you’re trading Always In, if you’re trying to stay
11:32 - 11:35
EN: in the market most of the day, you should take at least one of those.
11:39 - 11:42
EN: We’re trending down below the Moving Average.
Slide 007
Time: 11:40
Bilingual Transcript
11:42 - 11:43
EN: We have 4 bull bars.
11:43 - 11:45
EN: This one’s even bigger, so we’re picking up momentum.
11:46 - 11:49
EN: However, we have not gone above a prior Lower High,
11:49 - 11:52
EN: so there’s a possibility of a Double Top bear flag.
11:52 - 11:55
EN: I don’t have the price scale drawn in here.
11:55 - 11:56
EN: I have the price scale hidden.
11:57 - 12:02
EN: But this range already today is about twice the size of a typical range,
12:02 - 12:05
EN: and this rally is almost as big as an average daily range.
12:05 - 12:07
EN: So, it’s a very big rally.
12:18 - 12:23
EN: If you get a bear bar closing on or near its low and if you bought,
12:23 - 12:26
EN: I would get out, especially since it’s at the Moving Average.
12:26 - 12:31
EN: We failed at the Moving Average here, here, and here as well,
12:31 - 12:34
EN: and bears will either take that short or they’ll wait for a second
12:34 - 12:37
EN: or third sell signal, and then they’ll sell that.
12:38 - 12:41
EN: The bulls who bought that breakout above the Moving Average
12:41 - 12:43
EN: and the bigger bull body are now trapped.
12:43 - 12:44
EN: So, it’s a bull trap.
12:44 - 12:48
EN: The bulls got trapped by the rally, and some bears got trapped out
12:48 - 12:50
EN: and they’ll sell again below a bear bar.
12:53 - 12:55
EN: Many opportunities to sell.
12:55 - 13:00
EN: We collapsed here, far below a Tight Bear Channel, and it reversed up strongly.
13:00 - 13:03
EN: But look what happened when we got near the Moving Average.
13:03 - 13:06
EN: We have a Micro Double Top, and we have a bear bar here
13:06 - 13:09
EN: and then we have a bear bar closing on its low.
13:09 - 13:12
EN: This turned out to be an even bigger bull trap.
13:19 - 13:22
EN: This range is several times bigger
13:22 - 13:24
EN: than the average daily range, just in these 4 bars.
13:25 - 13:27
EN: So, it looks like it’s the start of a bull trend.
13:27 - 13:31
EN: Very often a bull trap is strong enough to make the market Always In Long.
13:31 - 13:34
EN: It is strong enough to make it likely that we’ll go higher.
13:34 - 13:38
EN: But if you start to see bear bars, especially a bear bar closing near its low,
13:38 - 13:42
EN: it’s more likely a bull trap, and traders will short.
13:43 - 13:45
EN: Many opportunities to sell.
13:49 - 13:53
EN: I said that the range today is much, much bigger than an average day.
13:54 - 13:58
EN: The bars are bigger as well, and therefore the stops are further away.
13:58 - 14:02
EN: You should never risk more than 2% or 3% of your account on any one trade.
14:02 - 14:07
EN: If the stop is so far away that you have to risk 4% or 5% of your account
14:07 - 14:10
EN: to take the trade, you do not take the trade.
14:10 - 14:14
EN: You simply wait until you can find a trade where the risk is acceptable.
14:14 - 14:17
EN: There’s nothing wrong with not taking trades.
Slide 008
Time: 14:19
Bilingual Transcript
14:20 - 14:24
EN: We have a strong rally in a Trading Range, and we’re starting to reverse up.
14:24 - 14:28
EN: We broke below the range, and then we’re reversing up.
14:28 - 14:30
EN: You can call it a Wedge bull flag.
14:30 - 14:33
EN: Leg down, leg down, leg down.
14:33 - 14:35
EN: A failed breakout below the Trading Range.
14:35 - 14:38
EN: Looks like Always In Long; it probably is.
14:38 - 14:39
EN: But look to the left.
14:39 - 14:42
EN: We have not gone far above prior Lower Highs, 00:14:41.582 —> 00:14:45.618 and therefore it could be another Lower High or a Double Top bear flag.
14:51 - 14:53
EN: If you bought, you have to be careful.
14:53 - 14:57
EN: If you start to see bear bars, especially bars closing on their lows,
14:57 - 14:58
EN: you have to get out.
15:03 - 15:05
EN: Here we have a bear bar closing on its low.
15:06 - 15:09
EN: You do not have to sell at that point, but I would get out of longs.
15:09 - 15:11
EN: It’s a possible Double Top.
15:11 - 15:14
EN: We might break below the neckline and fall for a Measured Move down,
15:14 - 15:19
EN: and once you start to get 2 or 3 bear bars, the odds are you’re going to go lower.
15:22 - 15:25
EN: Bears will start to sell below the low of bear bars.
15:25 - 15:27
EN: There were several opportunities to do that,
15:27 - 15:31
EN: and we fell for about a Measured Move down based upon the height of the range.
15:31 - 15:32
EN: So, bear reversal.
15:32 - 15:35
EN: Bull trend, Trading Range, bear reversal.
15:39 - 15:42
EN: We have a bear trend, a bull breakout,
Slide 009
Time: 15:40
Bilingual Transcript
15:42 - 15:45
EN: and then a Double Bottom with a very good buy signal bar.
15:45 - 15:48
EN: So, it’s a Double Bottom Major Trend Reversal,
15:48 - 15:50
EN: and we have 5 consecutive bull bars here.
15:50 - 15:51
EN: Always look to the left.
15:51 - 15:56
EN: You’re above this high – good – but you’re stalling at the top of the Sell Climax,
15:56 - 15:58
EN: and you might be forming a Double Top here.
16:07 - 16:12
EN: If there’s a bear bar closing near its low, I think the bulls should get out
16:12 - 16:16
EN: because it’s a possible Double Top, and bears will start to sell – either there,
16:16 - 16:18
EN: or they’ll take a second sell signal below here
16:18 - 16:21
EN: or below this neckline of this pullback.
16:21 - 16:22
EN: One, two, three.
16:23 - 16:26
EN: This is a Double Top bear flag.
16:26 - 16:29
EN: Bear trend, bulls tried to get a reversal – very strong rally,
16:29 - 16:35
EN: enough to make it Always In Long – yet it failed at a prior important high.
Slide 010
Time: 16:38
Bilingual Transcript
16:43 - 16:45
EN: Very impressive rally.
16:45 - 16:48
EN: We have a bear trend and we’re channeling down.
16:49 - 16:51
EN: Bear flag, new low.
16:51 - 16:53
EN: Bear flag, Higher Low.
16:54 - 16:57
EN: So, first leg up and then instead of a new low, we got a Higher Low,
16:57 - 16:59
EN: and then we started to accelerate up.
16:59 - 17:03
EN: We have 2 very big bull trend bars, but look to the left.
17:03 - 17:06
EN: We might simply be testing this high.
17:06 - 17:09
EN: The day has a lot of Trading Range price action.
17:09 - 17:13
EN: At this moment it’s clearly Always In Long and the odds favor higher prices,
17:13 - 17:16
EN: but if you’re testing a prior high and you get a bear bar closing
17:16 - 17:18
EN: at or near its low,
17:21 - 17:23
EN: I think it’s good to get out.
17:23 - 17:27
EN: This is a possible 2nd Leg Trap where the first leg was a bear flag
17:27 - 17:30
EN: and then the second leg was a very strong breakout,
17:30 - 17:32
EN: but we’re failing at the prior high.
17:32 - 17:34
EN: So, I call that a 2nd Leg Trap.
17:34 - 17:36
EN: First leg, pullback, and then second leg.
17:36 - 17:37
EN: Very strong breakout.
17:38 - 17:40
EN: Bear bar closing on or near its low.
17:41 - 17:45
EN: Bulls get out below that bear bar and bears start to sell,
17:45 - 17:47
EN: hoping that we’re getting a bear trend.
17:47 - 17:50
EN: Higher probability, wait for a second sell signal.
17:50 - 17:52
EN: But it’s reasonable to get out of longs.
17:52 - 17:55
EN: If you do get out of longs and the market forms a pretty good bull bar,
17:55 - 17:57
EN: you could always buy again.
18:00 - 18:05
EN: The bears have a second short below this bear inside bar.
18:05 - 18:08
EN: They’ll sell below any bear bar closing on or near its low.
18:12 - 18:16
EN: Sometimes you can have what appears to be an end of the day bull trap,
18:16 - 18:19
EN: but in fact it does not reverse down.
18:20 - 18:21
EN: You get a bull trend.
Slide 011
Time: 18:23
Bilingual Transcript
18:25 - 18:29
EN: Very strong bear trend, and then bears are taking profits late in the day.
18:30 - 18:32
EN: Their stop is either up here or up here.
18:32 - 18:37
EN: They don’t want to give back too much profit, so they start to buy back shorts.
18:37 - 18:40
EN: But look – we have a bear bar closing near its low.
18:40 - 18:43
EN: A lot of bears will sell again below that bear bar,
18:43 - 18:46
EN: and the bulls who bought will get out below that bear bar.
18:49 - 18:52
EN: Possible end of the day bull trap.
18:56 - 18:59
EN: But it did not fall below that bear bar.
18:59 - 19:01
EN: It went up a little bit.
19:01 - 19:03
EN: It fell below this bar, but it’s a doji bar.
19:03 - 19:06
EN: Most bears will not sell again below that bar.
19:06 - 19:10
EN: This bar went below that bar, but it’s too many bars afterwards.
19:10 - 19:13
EN: The bears want the next bar to go below that bar,
19:13 - 19:15
EN: or maybe 2 bars later to go below that bar.
19:15 - 19:18
EN: They don’t care if it’s 4 bars later.
19:18 - 19:23
EN: So, we have a possible end of the day bull trap that never triggered,
19:23 - 19:26
EN: and then we have a pair of bull bars closing near their highs.
19:26 - 19:29
EN: We’re probably Always In Long at this point.
19:29 - 19:33
EN: So instead of looking to sell rallies, traders will look to buy pullbacks.
19:41 - 19:46
EN: Remember, every bull trend begins with bears taking profits.
19:46 - 19:50
EN: We have one strong profit-taking bar, short covering bar.
19:50 - 19:53
EN: Weak follow-through, but then it’s persistent.
19:53 - 19:54
EN: The market just kept going up.
19:54 - 19:56
EN: The bears kept buying back their shorts,
19:57 - 20:02
EN: and that’s how bull trends begin when you have a bear trend and short covering.
20:02 - 20:06
EN: If the short covering just continues and the bears are unable
20:06 - 20:09
EN: to push the market down below pretty good bear bars,
20:09 - 20:11
EN: you can get a bull trend reversal like that.
20:14 - 20:15
EN: End of the day bear trap.
20:15 - 20:19
EN: Sometimes you get a selloff late in the day that reverses up.
Slide 012
Time: 20:20
Bilingual Transcript
20:25 - 20:28
EN: We have a bull trend, a bear breakout.
20:28 - 20:29
EN: It failed.
20:29 - 20:31
EN: We have a Trading Range, a bear breakout.
20:31 - 20:32
EN: It failed.
20:32 - 20:36
EN: And we have a bear trend with a bear breakout, and it failed.
20:40 - 20:41
EN: Whenever you have a bull trend,
20:42 - 20:44
EN: you typically will get some profit-taking late in the day.
20:45 - 20:47
EN: The bulls are liquidating part of their position.
20:48 - 20:51
EN: This is the phrase for the opposite of short covering.
20:51 - 20:55
EN: In a bear trend when the bears cover their shorts, it’s called short covering.
20:55 - 20:58
EN: In a bull trend when the bears cover their longs,
20:58 - 21:01
EN: sell out of their longs, it’s called long liquidation.
21:01 - 21:02
EN: Both are profit-taking.
21:02 - 21:06
EN: This is liquidation of longs, profit-taking on the part of the bulls.
21:06 - 21:10
EN: If you get a bull bar closing near its high, the bulls will buy again.
21:14 - 21:18
EN: It trapped bears into hoping it was a bear trend.
21:18 - 21:19
EN: We have a channel.
21:19 - 21:23
EN: We broke above it, we reversed down, but instead of the beginning of a bear trend
21:23 - 21:28
EN: and a series of Lower Highs and a series of legs down, we quickly reversed up.
21:28 - 21:32
EN: Bulls will start to buy above a bull bar closing near or on its high.
21:35 - 21:37
EN: Here we have a Trading Range, a very strong breakout,
21:37 - 21:41
EN: but a test of this low, and it’s still in a Trading Range.
21:41 - 21:43
EN: In fact, it’s an Expanding Triangle.
21:43 - 21:47
EN: We’re down, we’re up, we’re more down, we’re more up, we’re more down.
21:47 - 21:51
EN: Bulls will buy back their longs here or take a second entry buy here,
21:51 - 21:54
EN: and the bears need to get out of their shorts
21:54 - 21:57
EN: above a pretty good bull bar closing near its high.
22:01 - 22:05
EN: Then finally we have a bear breakout in a bear trend, and we reversed up.
22:06 - 22:11
EN: That is an exhaustive Sell Climax, and I’m not going to be discussing those today.
22:11 - 22:16
EN: I talk about those in the course on the section on bear Exhaustion Gaps.
Slide 013
Time: 22:18
Bilingual Transcript
22:19 - 22:24
EN: We have a gap up – the Moving Average is down here – and a pretty good bull trend,
22:24 - 22:26
EN: and then we have a bear bar, pair of bear bars.
22:26 - 22:31
EN: The bears hope it’s a Wedge – one, two, three – and a reversal down.
22:31 - 22:34
EN: However, whenever you have a very Tight Bull Channel,
22:34 - 22:38
EN: selling a reversal is usually not a very good idea.
22:38 - 22:42
EN: Usually a reversal down from a very Tight Bull Channel is going to be minor.
22:42 - 22:47
EN: Either the bull trend will resume or we’ll go sideways and then it will resume.
22:54 - 22:57
EN: Some bears did take the short, hoping that we have a Wedge Top.
22:57 - 22:59
EN: Bull trends are always forming Wedge Tops.
22:59 - 23:02
EN: Bear trends are always forming Wedge Bottoms.
23:02 - 23:05
EN: But if the channel is tight, if the Wedge channel is tight,
23:05 - 23:09
EN: usually it’s only a minor reversal, and you don’t want to be selling
23:09 - 23:12
EN: hoping for a bear trend because you’re going to get trapped.
23:12 - 23:13
EN: You’ll be part of the bear trap.
23:14 - 23:18
EN: Bulls will buy back their longs above bull bars closing near their highs,
23:18 - 23:21
EN: and the bears who sold should get out of shorts.
23:22 - 23:24
EN: If there’s a bull bar closing near its high,
23:24 - 23:26
EN: they’ll buy back their shorts just above that bull bar.
23:33 - 23:34
EN: I always look to the left.
23:34 - 23:38
EN: If there’s a possible Double Bottom, like here or like here
23:38 - 23:42
EN: - this is a Higher Low Double Bottom; it’s also a test of the Moving Average
23:42 - 23:44
EN: - that’s another good reason to be suspicious
23:44 - 23:50
EN: that this reversal down is probably a bear trap, a Double Bottom bull flag.
23:50 - 23:51
EN: Double Bottom with this low.
23:51 - 23:54
EN: Other computers would say Double Bottom with that low.
23:54 - 23:56
EN: Spike, pullback, channel.
Slide 014
Time: 24:00
Bilingual Transcript
24:08 - 24:09
EN: It’s very common.
24:09 - 24:11
EN: Most of the time if you have a bull trend,
24:11 - 24:13
EN: you’ll get some kind of reversal late in the day.
24:13 - 24:14
EN: Profit-taking.
24:14 - 24:16
EN: Bulls want to reduce their risk.
24:16 - 24:19
EN: If you’re long and your stop is down here or down here,
24:20 - 24:22
EN: you’ll sell out of part of your position.
24:22 - 24:25
EN: But if you discover that the market’s not falling very far,
24:25 - 24:27
EN: you’ll be quick to buy back your position.
24:28 - 24:33
EN: So, the bulls get trapped out briefly, and they buy back their longs,
24:33 - 24:36
EN: and the bears get trapped into what they hope is a bear trend,
24:36 - 24:41
EN: and they have to buy back their shorts above bull bars closing near their highs.
24:44 - 24:47
EN: So, a late bear trap, strong reversal down.
24:47 - 24:51
EN: Weak bears sell hoping for a bear trend, but we resumed back up,
24:51 - 24:54
EN: and there were many opportunities for the bulls to buy
24:54 - 24:56
EN: above bull bars closing near their highs.
Slide 015
Time: 25:00
Bilingual Transcript
25:02 - 25:03
EN: Bull trend.
25:03 - 25:04
EN: Very strong selloff.
25:04 - 25:07
EN: Consecutive big bear bars, but look at the next bar.
25:07 - 25:11
EN: Bull bar closing near its high, and then another selloff here,
25:11 - 25:14
EN: but next bar, bull bar closing near its high.
25:15 - 25:18
EN: This is probably enough to make the market Always In Short,
25:18 - 25:20
EN: but it immediately reversed up.
25:20 - 25:22
EN: The bears who sold are trapped.
25:23 - 25:25
EN: Maybe they’ll wait for consecutive bull bars,
25:25 - 25:29
EN: but they have to buy back their shorts – and the bulls who exited,
25:29 - 25:33
EN: if they’re trying to trade Always In, if they’re trying to be in the market all day,
25:33 - 25:37
EN: they have to buy back their longs above bull bars closing near their highs.
25:41 - 25:43
EN: Lots of opportunities to get long.
25:43 - 25:46
EN: You don’t take every one, but if you’re a bull,
25:46 - 25:48
EN: you’ve got to take at least one of them.
25:48 - 25:50
EN: If you’re a bear, it’s better to get out
25:50 - 25:53
EN: above the first bull bar closing near its high.
25:54 - 25:57
EN: Possible Double Bottom here, possible Double Bottom here,
25:58 - 25:59
EN: possible Double Bottom here.
26:00 - 26:01
EN: Higher Low.
26:04 - 26:06
EN: Another bull trend.
Slide 016
Time: 26:05
Bilingual Transcript
26:06 - 26:07
EN: A bear breakout.
26:07 - 26:11
EN: Close below the low of the past 20 bars, close below the Moving Average.
26:11 - 26:15
EN: Bears sell hoping for a bear trend, but if you get a bull bar
26:15 - 26:18
EN: closing near its high, this is probably a bear trap
26:18 - 26:21
EN: and you should buy back your shorts, and the bulls will buy back their longs.
26:27 - 26:28
EN: Lots of opportunities.
26:28 - 26:32
EN: I always look to the left any time I see any kind of reversal.
26:32 - 26:34
EN: This looks like it’s a breakout test of this high.
26:35 - 26:40
EN: A brief, strong selloff, and the bulls immediately bought aggressively
26:40 - 26:44
EN: just about that high, so we have an opening gap – this low, that high.
26:45 - 26:47
EN: The bull trend started here.
26:47 - 26:49
EN: We’re testing the breakout point here.
26:50 - 26:52
EN: The pullback held above the breakout point.
26:52 - 26:55
EN: This might be a Measuring Gap, so we may go up for a Measured Move,
26:55 - 26:59
EN: and if the market starts to go up, traders will become more confident
26:59 - 27:02
EN: of reaching the Measured Move and they’ll buy more aggressively,
27:02 - 27:05
EN: and you can get vacuumed up to the target pretty quickly.
27:08 - 27:11
EN: Here’s the beginning of the first leg.
27:11 - 27:14
EN: Possible Measuring Gap, and you can see the market,
27:14 - 27:17
EN: when it started getting near the Measured Move target, it raced up.
Slide 017
Time: 27:20
Bilingual Transcript
27:20 - 27:25
EN: Bull trend, Wedge Top – one, two, three – and very strong reversal down.
27:25 - 27:29
EN: You could also draw the Wedge one, two, three
27:29 - 27:31
EN: and look at this as a failed breakout above the Wedge.
27:31 - 27:34
EN: 3 big bear bars closing on their lows.
27:34 - 27:36
EN: Possible start of a bear trend.
27:36 - 27:40
EN: It’s Always In Short; however, it may be a breakout test of the top
27:40 - 27:44
EN: of this Sell Climax, and it’s also about a 50% pullback of that rally.
27:44 - 27:49
EN: If the bulls get a decent bull bar, the bulls will buy back their longs
27:49 - 27:51
EN: and the bears will get out of their shorts.
27:55 - 27:59
EN: You can call the whole thing a Wedge, or you can simply say it’s a Wedge here
27:59 - 28:03
EN: and a failed breakout above the Wedge and a reversal down.
28:06 - 28:08
EN: Look at how strong this bull bar is.
28:08 - 28:10
EN: A very big bull bar closing on its high.
28:10 - 28:14
EN: The bears have to buy back their shorts, and bulls will start buying
28:14 - 28:17
EN: - either the first bull bar or above a second or third bull bar.
28:18 - 28:19
EN: End of the day bear trap.
28:20 - 28:25
EN: Even though it’s very strong, it’s still simply a trap testing support.
28:26 - 28:28
EN: A breakout point here, a 50% pullback.
Slide 018
Time: 28:30
Bilingual Transcript
28:32 - 28:33
EN: Bull trend.
28:34 - 28:37
EN: Very strong spike, pullback, and now we’re getting smaller bars,
28:37 - 28:38
EN: so something of a channel.
28:38 - 28:41
EN: Small Pullback Bull Trend starting right here.
28:49 - 28:52
EN: Later in the day if you have a Small Pullback Bull Trend,
28:53 - 28:57
EN: there’s normally a pullback that is 50% to 100% bigger
28:57 - 28:59
EN: than the biggest earlier pullback.
28:59 - 29:03
EN: Once the Small Pullback Bull Trend began, this was the biggest pullback.
29:03 - 29:06
EN: The height of this blue box is the same as this one.
29:07 - 29:11
EN: Later in the day, traders are going to look for a pullback
29:11 - 29:14
EN: that’s 50% to 100% bigger, and this is 100%.
29:14 - 29:16
EN: It fell a little bit more than 100% and reversed up.
29:17 - 29:20
EN: Very strong selloff, but big bar with a bull body.
29:21 - 29:25
EN: I think most bears will get out of shorts above that bull bar,
29:25 - 29:28
EN: especially since there’s a Micro Double Bottom – we went down and up,
29:28 - 29:32
EN: and down and up, and it’s around a 50% pullback of the entire trend
29:32 - 29:36
EN: - and aggressive bulls will buy, hoping for a test of the high.
Slide 019
Time: 29:38
Bilingual Transcript
29:40 - 29:41
EN: Trading Range day.
29:42 - 29:43
EN: Lots of reversals.
29:47 - 29:49
EN: Very strong selloff.
29:49 - 29:50
EN: 5 consecutive bear bars.
29:50 - 29:51
EN: Bears will sell.
29:51 - 29:52
EN: We have a Micro Double Top.
29:52 - 29:55
EN: We went up and down, up again and down.
29:55 - 29:57
EN: The low of that bar is the neckline.
29:57 - 29:59
EN: Some traders will sell below the low of that bear bar.
29:59 - 30:01
EN: Others will wait for a couple bear bars
30:01 - 30:03
EN: or a bear bar closing near its low and they’ll sell.
30:03 - 30:06
EN: But they’re only looking for a test somewhere to the bottom of the range.
30:07 - 30:09
EN: Therefore, they’re not expecting a bear trend.
30:09 - 30:13
EN: If they get a bear trend, fine, but if they see a bull bar closing near its high,
30:13 - 30:16
EN: the bears will get out and bulls will start to buy,
30:16 - 30:19
EN: betting on a reversal up at the bottom of the range
30:19 - 30:20
EN: - especially if there’s a second buy signal.
30:20 - 30:23
EN: Here we have a Higher Low Double Bottom,
30:23 - 30:25
EN: and it’s also an Expanding TriangleTriangle.
30:25 - 30:28
EN: We went down, we went up, we went more down, we went more up,
30:28 - 30:31
EN: we went more down, and this low is above that low.
30:31 - 30:33
EN: Very strong bull bar.
30:33 - 30:34
EN: Big bull body closing on its high.
30:41 - 30:45
EN: So, a bear trap in a Trading Range day, Expanding Triangle,
30:45 - 30:47
EN: and a Double Bottom Higher Low.
30:48 - 30:53
EN: Bears exit, bulls start to buy here, or they’ll wait for 2 consecutive bull bars,
30:53 - 30:57
EN: or they’ll take a second buy above some kind of a Double Bottom.
30:57 - 30:59
EN: We have a Higher Low Double Bottom there.
Slide 020
Time: 31:00
Bilingual Transcript
31:02 - 31:04
EN: Here we have a bull trend and a Wedge.
31:04 - 31:09
EN: Three pushes down – down, up, down, up, down, and trying to get up.
31:10 - 31:14
EN: Therefore, this is a first leg down, and we broke below it,
31:14 - 31:16
EN: so this is a second leg down.
31:20 - 31:21
EN: Very big bar.
31:21 - 31:25
EN: Bears are hoping that this is the start of a bear trend, but look to the left.
31:25 - 31:27
EN: We’re still above these lows.
31:27 - 31:29
EN: We’re not far below them.
31:29 - 31:31
EN: This might be a 2nd Leg Trap.
31:31 - 31:34
EN: Second leg bear trap where the first leg was a Wedge bull flag.
31:35 - 31:38
EN: Instead of a bull breakout of the bull flag, we have a bear breakout
31:38 - 31:42
EN: of the bull flag, and we’ve already fallen about a Measured Move
31:42 - 31:44
EN: based upon the height of the bull flag.
31:44 - 31:47
EN: The bears need follow-through and the bulls want a reversal.
31:50 - 31:55
EN: If we get a bull bar, especially one closing near its high, the bears will give up.
31:55 - 31:58
EN: They’ll buy back their shorts, and the bulls will buy as well,
31:58 - 32:01
EN: betting that it’s a bear trap in a Trading Range day.
32:01 - 32:05
EN: Lots of opportunities to buy above a bull bar closing near its high.
32:09 - 32:13
EN: Sometimes you’ll have a bear trap, but instead of the market reversing up,
32:13 - 32:15
EN: it becomes the start of a bear trend.
Slide 021
Time: 32:16
Bilingual Transcript
32:18 - 32:21
EN: Very strong bull trend, an attempt at a Wedge Top.
32:21 - 32:22
EN: We have a reversal down here.
32:22 - 32:24
EN: Bear bar closing near its low.
32:27 - 32:29
EN: Consecutive bear bars.
32:29 - 32:31
EN: Maybe we get a second leg down.
32:31 - 32:32
EN: We got a second one here.
32:32 - 32:37
EN: Maybe we get a third leg down to a Wedge – one, pullback, two, pullback, three.
32:38 - 32:42
EN: Bulls are hoping it’s simply a bear trap and that the bull trend resumes,
32:42 - 32:46
EN: but the channel is pretty tight and the bull bar is not closing near its high.
32:47 - 32:51
EN: Remember I said bears will get out above a bull bar closing near its high,
32:51 - 32:54
EN: and bulls will buy again above a bull bar closing near its high.
32:54 - 32:56
EN: This is not closing near its high.
32:56 - 33:00
EN: Plus, it’s a small body compared to several of these bear bars,
33:00 - 33:03
EN: so we may have to go sideways more before the market can go up.
33:09 - 33:10
EN: Can you buy above that bar?
33:10 - 33:13
EN: I would not, but I think it’s okay to get out of shorts,
33:13 - 33:17
EN: and you can always short again if you get a bear bar closing near its low.
33:24 - 33:27
EN: We never went above a good size bull body closing near its high,
33:27 - 33:30
EN: so there never was a good reason for the bulls to get long.
33:31 - 33:33
EN: If they did buy or if the bears get out,
33:33 - 33:38
EN: they could sell below a very good size bear bar closing on its low,
33:38 - 33:40
EN: or they can wait for consecutive bear bars.
33:40 - 33:43
EN: Once you have consecutive big bear bars closing near their lows,
33:43 - 33:47
EN: you’re probably going to get a Measured Move down – and we did.
33:47 - 33:51
EN: From this high to that low, this is more than a Measured Move down.
33:52 - 33:56
EN: These consecutive big bear bars closing near their lows
33:56 - 33:58
EN: are caused by bulls giving up.
33:58 - 34:00
EN: The bulls did not get a very good buy.
34:00 - 34:04
EN: The ones who did buy gave up, and the bears took control.
34:05 - 34:08
EN: So instead of this being an end of the day bear trap,
34:08 - 34:10
EN: it became the start of a bear trend.
34:14 - 34:16
EN: I began by talking about traps.
Slide 022
Time: 34:15
Bilingual Transcript
34:16 - 34:18
EN: A trap is simply a failed breakout.
34:18 - 34:21
EN: I next talked about end of the day bull traps:
34:22 - 34:25
EN: a rally that reverses down at the end of the day.
34:26 - 34:28
EN: Next I talked about failed bull traps:
34:29 - 34:31
EN: a rally that looks like it’s going to fail,
34:31 - 34:34
EN: but instead becomes the start of a bull trend.
34:35 - 34:39
EN: Bear traps: you have a selloff late in the day that reverses up,
34:40 - 34:42
EN: and sometimes you have a selloff late in the day.
34:42 - 34:45
EN: Instead of reversing up, it becomes the start of a bear trend,
34:45 - 34:47
EN: so a failed end of the day bear trap.
34:52 - 34:53
EN: I’m Al Brooks.
34:53 - 34:54
EN: Thank you for watching the Brooks Trading Course.
34:54 - 34:58
EN: This is the end of the bonus video on end of the day traps.