Terms

Question 1

Always In

Answer 1

If you have to be in the market at all times, either long or short, this is whatever your current position is (always in long or alway in short). If at any time you are forced to decide between initiating a long or a short trade and are confident in your choice, then the market is always-in mode at that that moment. Almost all of these trades require a spike in the direction of the trend before traders will have confidence.

Question 2

Barbwire

Answer 2

A trading range of three or more bars that largely overlap and one or more is a dojo. It is a type of tight trading range with prominent tails and often relatively large bars.

Question 3

Bar Pullback

Answer 3

In an upswing, a bar pullback is a bar with a low below the low of the prior bar. In a downswing, it’s a bar with a high above that of the prior bar.

Question 4

Bear Reversal

Answer 4

A change in trend from up to down (a bear trend).

Question 5

Blown Account

Answer 5

An account that your losses have reduced below the minimum margin requirements set by your broker, and you will not be allowed to place a trade unless you deposit more money.

Question 6

Breakout

Answer 6

The high or low of the current bar extends beyond some prior price of significance such as a swing high or low, the high or low of any prior bar, a trend line, or a trend channel.

Question 7

Breakout Bar (or Bar Breakout)

Answer 7

A bar that creates a breakout. It is usually a strong trend bar.

Question 8

Breakout Mode

Answer 8

A setup where a breakout in either direction should have follow through.

Question 9

Breakout Pullback

Answer 9

A small pullback of one to about five bars that occurs within a few bars after a breakout. Since you see it as a pullback, you are expecting the breakout to resume and the pullback is a setup for that resumption. If instead you thought that the breakout would fail, you would not use the term pullback and instead would see the pullback as a failed breakout. For example, if there was a five-bar breakout above a bear trend line but you believed that the bear trend would continue, you would be considering shorting this bear flag and not looking to buy a pullback immediately after it broke out to the downside.

Question 10

Breakout Test

Answer 10

A breakout pullback that comes close to the original entry price to test a break even stop. It may overshoot it or undershoot it by a few ticks. It can occur within a bar or two of the entry or after an extended move or even 20 or more bars later.

Question 11

Bill Reversal

Answer 11

A change in trend from a downtrend o an uptrend (a bull trend).

Question 12

Buying Pressure

Answer 12

Strong bulls are asserting themselves and their buying is creating bull trend bars, bars with trails at the bottom, and two-bar bull reversals. The effect is cumulative and usually is eventually followed by higher prices.

Question 13

Candle

Answer 13

A chart representation of price action in which the body is the area between the open and close. If the close is above the open, it is a bull candle and is shown as white. If it is below, it is a bear candle and is black. The lines above and below are called tails (some technicians call them wicks or shadows).

Question 14

Chart Type

Answer 14

A line, bar, candle, volume, tick or other type type of chart.

Question 15

Climax

Answer 15

A move that has gone too far too fast and has now reversed direction to either a trading range or an opposite trend. Most climaxes end with trend channels overshoots and reversals, but most of those reversals result in trading ranges and not an opposite trend.

Question 16

Countertrend

Answer 16

A trade or setup that is in the opposite direction direction from the current trend (the current always-in direction). This is a losing strategy for most traders since the risk is usually at least as large as the reward and the probability is rarely high enough to make the trader’s equation favorable.

Question 17

Countertrend Scalp

Answer 17

A trade taken in the belief that there is more to go in the trend but that a small pullback is due; you enter countertrend to capture a small profit as that small pullback is forming. This is usually a mistake and should be avoided.

Question 18

Day Trade

Answer 18

A trade where the intent is to exit on the day of the entry.

Question 19

Directional Probability

Answer 19

The probability that the market will move either up or down any number of ticks before it reaches a certain number of ticks in the opposite direction. If you are looking at an equidistant move up and down, it hovers around 50 percent most of the time, which means that there is a 50-50 chance that the market will move up by X ticks before it moves down X ticks, and a 50-50 chance that it will move down X ticks before it moves up X ticks.

Question 20

Doji

Answer 20

A candle with a small body or no body at all. On a 5 minute chart, the body would be only one or two ticks; but on a daily chart, the body might be 10 or more ticks and still appear almost nonexistent. Neither the bulls nor the bears control the bar. All bars are either trend bans or nontrend bars, and those nontrend bars are called dojis.

Question 21

Double Bottom

Answer 21

A chart formation in which the low of the current bar is about the same as the low of a prior swing low. That prior low can be just one bar earlier or 20 or more bars earlier. It doesn’t have to be at the low of the day and it commonly forms in bull flags (a double bottom bull flag).

Question 22

Double Bottom Bill Flag

Answer 22

A pause or bill flag in a bill trend that has two spikes down to around the same price and then reverses back to a bill trend.

Question 23

Double Bottom Pullback

Answer 23

A buy setup composed of a double bottom followed by a deep pullback that forms a higher low.

Question 24

Double Top

Answer 24

A chart formation in which the high of the current bar is about the same as the high of the prior swing high. That prior high can be just one bar earlier or 20 or more bars earlier. It doesn’t have to be at the high of the day and it commonly forms in bear flags (a double top bear flag).

Question 25

Double Top Bear Flag

Answer 25

A pause or bear flag in a bear trend that has two spikes up to around the same price and then reversed back into a bear trend.

Question 26

Double Top Pullback

Answer 26

A sell setup composed of a double top followed by a deep pullback that forms a lower high.

Question 27

Early Longs

Answer 27

Traders who buy as a bill signal bar is forming rather than waiting for it to close and then entering on a buy stop at one tick above its high.

Question 28

Early Shorts

Answer 28

Traders who sell as a bear signal bar is forming rather than waiting for it to close and then entering in a sell stop at one tick below its low.

Question 29

Edge

Answer 29

A setup with a positive trader’s equation. The trader has a mathematical advantage if he trades the setup. Edges are always small and fleeting because they need someone on the other side, and the market is filled with smart traders who won’t allow an edge to be big and persistent.

Question 30

Entry Bar

Answer 30

The bar durning which a trade is entered.

Question 31

EMA (exponential moving average)

Answer 31

The charts in these books use a 20-bar exponential moving average, but any moving average can be useful.

Question 32

Fade

Answer 32

To place a trade in the opposite direction of the trend (for example, selling a bill breakout that you expect to fail and reverse downward).

Question 33

Failed Failure

Answer 33

A failure that fails, resuming in the direction of the original breakout, and therefore a breakout pullback. Since it is a second signal, it is more reliable. For example, if there is a breakout above the trading range and the bar after the breakout is a bear reversal bar, if the market trades below that bar, the breakout has failed. If the market then trades above the high of a prior bar within the next few bars, the failed breakout has failed and now the breakout is resuming. This means that the failed breakout became a small bill flag and just a pullback from the breakout.

Question 34

Failure (a failed move)

Answer 34

A move where the protective stop is hit before a scalper’s profit is secured or before the trader’s objective is reached, usually leading to a move in the opposite direction as trapped traders are forced to exit at a loss. Currently, a scalper’s target in the Emini of four ticks usually requires a six-tick move, and a target in the QQQQ of 10 ticks usually requires a move of 12 cents.

Question 35

False

Answer 35

Failed, failure.

Question 36

Five-Tick Failure

Answer 36

A trade in the Emini that reaches five ticks beyond the signal bar and then reverses. For example, the breakout of a bull flag runs five ticks, and once the bar closes, the next bar has a low that is lower. Most limit orders to take a one-point profit would fail to get filled since a move usually had to go one tick beyond the order before it is filled. It is often a setup for a trade in the opposite direction.

Question 37

Flat

Answer 37

Refers to a trader who is not currently holding any positions.

Question 38

Follow-through

Answer 38

After the initial move, like a breakout, it one or more bars that extend the move. Traders like to see follow-through on the next bar and on the several bars after that, hoping for a trend where they stand to make more profit.

Question 39

Fractal

Answer 39

Every pattern is a fractal of a pattern on a higher time frame chart. This means that every pattern is a micro pattern on a higher time frame and every micro pattern is a standard pattern on a smaller time frame.

Question 40

Gap

Answer 40

A space between any two price bars on the chart. An opening gap is a common occurrence and is present if the open of the first bar of today is beyond the high or low of the prior bar (the last bar of yesterday) or of the entire day. A moving average gap is present when the low of a bar is above a flat or falling moving average, or the high of a bar is below a flat or rising moving average. Traditional gaps (breakout, measuring and exhaustion) on daily charts have intraday equivalents in the for of various trend bars.

Question 41

Gap Bar

Answer 41

See moving average gap bar

Question 42

Gap Reversal

Answer 42

A formation in which the current bar extends on tick beyond the prior bar back into the gap. For example, if there is a gap up open and the second bar of the day trades one tick below the low of the first bar, this is a gap reversal.