Trading When a Market Is in a Bull Channel | Al Brooks

Well, for those who do not know, I am Albirex, and today I'm going to be talking about trading when a market is in a bowl channel. I'll begin by describing what I mean by bowl channel. It is basically a chart that begins in the lower left and goes up to the upper right.

And then I classify bowl channels. So there's the just a traditional bowl channel that everyone uses. And then I subdivide bowl channels into two other types of channels. One is a very tight bowl channel, which is a small pullback bowl trend, a trend where there are pullbacks. So it's not in a breakout phase, but the pullbacks are small. And then at the other extreme, there are bull channels that are so broad that they look more like trading ranges than like bull trends.

So this is a pretty typical bull channel. We have a series of higher highs and higher lows, and the chart begins in the lower left and it works to the upper right. And I think of every bull trend as beginning with some kind of a breakout. Here we have a breakout that is three bars tall. Sometimes the breakout can be one bar, sometimes it could be several bars. Sometimes the bars can be small, sometimes they can be big. But in my mind, I think every trend begins with some kind of a breakout. It's it's a it's a consensus, it's an agreement that the market is about to begin a trend, and the Bears are giving up and the Bulls are getting aggressive.

And at some point, you get a pullback. Once you get a pullback, the market is transitioning from a very strong bold friend, a bold breakout, into a channel. Also, I want to say one other thing about bull breakouts. I think of every trend bar, every bar with a bull body, for example, as a breakout. It can be a one-bar breakout and could be a multi-bar breakout. But not all trend bars are not all breakouts succeed; in fact, most do not.

A pullback, a pullback in a bowl trend, is when the low of a bar goes below the low of a prior bar. And once the a breakout starts to have pullbacks, I no longer no longer think of it as a breakout. I think the market is evolving into a channel. And sometimes you'll get a 1-bar pullback, and then the market goes up. Sometimes you get a 5 or 10-bar pullback, and you're looking for a higher low and then a higher high. And once you start to get higher lows and higher highs, you got a the market's in a bowl channel. And here we got a spike; another term for a breakout is a spike. Once you get a pullback, you're in a channel. And then once you get a series of higher highs and higher lows, it's obviously a bull trend, a channel, excuse me.

Typically, whenever I see a breakout and I think we have a higher low, we might be forming a channel. I'm always looking for three pushes up: one, two, three. It's pretty common that once you've had three pushes up, you'll start to attract some profit-taking. And any channel that has three legs up like that, I start to use the term wedge. Most of the time the lines are not convergent, but some some of the times they are. And I know a lot of people like to use the word wedge for channels where the lines are converging, but they don't have to be. It you know that's ideal, but very few things in trading are ideal. You know, signal bars don't look right, you know, channels don't look right, you know, wedges don't look right. Nothing is going you know, if you're looking for things that look right, you're never going to trade. So you got to be very very flexible with them, with what you're doing.

Anyway, breakout is the strongest form of a trend. Once you have to start to have pullbacks, you're in a channel, and that is a weaker form of a trend. And if the channel has legs down that are pretty far, even though it's a bull friend, you'll get bears selling as well as the bulls buying. Actually, this is not, let me do it this way. I'm sorry. What? Yeah, spike, you know, I call it a spike or a breakout, a wedge. No, but I mean the three bars alone, no. I would just, to me, I would look at that and say, huh, that's that's a surprise. And whenever I look at something and think of it as a surprise, I assume that there's a consensus that something has changed. And I'm whenever there's any kind of a surprise in the market, I'm always expecting that they'll be follow through, that there will be at least a second leg up.

And the reason for that is if you're short and you see this, what are you thinking? You think, I'm screwed, right? All right, you're thinking, I I hope that there's a pullback so I can get out and buy back my shorts with a smaller loss, right? So you get the Bears who are trapped into a bad trade hoping for any kind of a pullback that would allow them to get out with a smaller loss. So the Bears want to buy, okay? And if you're a bullish and you see this and say, darn, I missed it, right? What are you thinking, right? You're thinking, I really want a pullback so I can buy, all right? So the Bulls are hoping for any kind of a pullback to buy, the Bears are hoping for a pullback to buy, and the result is you're going to get a second leg sideways to up. Sometimes it's there sideways, but other times it can be up, okay?

Markets in a bull channel; it's going to be easier to make money buying, and the stronger the channel, the the more you should be focusing in on buying, okay? And you look at anything, know what, how do I get long? All right, everybody, if it's in a trainer, buddy wants to get long, the single easiest way to get long in a trend is to buy with a stop above a bull bar closing near its high. All right? So you just look, and these are many examples; you you're not gonna take all of these, but at some point you're saying, gosh, it's going up, it's forming higher lows, it's forming higher highs, I got to get long. What do I do? Okay, the single easiest way to do it is just be ready and look for a bar closing on or near its high and place a stop to buy one tick, or if it's a your in this case it's the euro versus the dollar, one pip above the high of the prior bar. And once you're long, you look at a swing low, the most recent swing low, and that's where your stop goes, and you can hold for a swing or you can scalp out.

So no matter where you buy, the stop goes below the most recent swing low. And if you walk down here and now the market's up here, your stop is here. Once the market starts to resume up reasonably strongly, you raise your stop to below the most recent swing low. And that has nothing to do with your entry price, whether you bought here or down here. Once the market is up here, you stop is down below the most recent high or low. And if you have pretty good drops on the pullbacks, you can also sell, right? Especially if you have a second sell signal. Here's the first below that bar, here's a second below this bar, but I'd rather sell below a bar closing on or near its low. You have a higher probability of making money. So it's a bull trend, higher highs, higher lows, but easier to make money looking to buy. Sometimes you can make money selling if the legs down are deep enough. Most of the if you're selling in a bull trend like this, you're looking for scalps, right? You're not looking for the market to convert into a trend; you're simply looking for relatively quick profits. The Bulls who buy can buy either for a scalp or for a swing, okay?

Now I said in a bold friend it's easier to make money buying, and what are the things of things that you look to see on a chart that make you think, maybe I should only buy and not think about selling, right? If most of the bars are above the moving average, here in the past 20 bars, most of the bars were above the moving average, it's usually better only to be looking to buy, okay? And then when you have pullbacks, do the pullbacks only go a little bit below the moving average, right? And if the pullbacks are not going very far below the average price, the market is not spending much time below the average price, you should only be looking to buy. And then also, if a pullback, even if it has a lot of bear bars, if it ends and the market starts to resume up from a higher low, easier to make money looking to buy. Also, I always pay attention to trend bars, especially consecutive trend bars, especially consecutive strong trend bars. And if I'm in a bold friend and I start to see big bear bars like this, I pay I I do not want to see a second consecutive big bear bar, all right? Because if you start to get the Bears controlling two, three, four bars in a row, they're taking control over the market. And so if you're not seeing consecutive big trend bars, bear trend bars, it's usually better, it's easily easy to make money only looking to buy. This kind of this bar right here is I think pretty interesting, all right?

So here we have five consecutive bear bars, and everybody's wondering, is the market going to form a bear trend, right? And when you see this bar and you're thinking about shorting, you're probably thinking, I really need one more bar like that, and if I get it, I'm going to short, okay? And that happens a lot in trading where you look at the chart and you're thinking, that's turning into a bear trend, I got five beer bars right there, but I really you know it's still a higher low, it's still about a 50% pullback, I really want one more bar, right? And whenever I think that to myself, what am I gonna do? I'm gonna buy, all right? Because if the Bears need one more bar, it's a bull trend. What is the probability, is the probability that they're going to get their one more bar and the bull trend is going to become a bear trend, or is the probability that the market is going to continue to do what it's been doing? Your markets have inertia; they tend to continue to do what they've been doing. If the market's going sideways, it's probably going to continue sideways. If it's going down, it's probably going to continue down. If it's going up, it's probably going to continue up. And whenever it's doing something, it's always trying to do something else. So if it's in a bull friend, it's always going to be trying to convert into a bear trend, but you have to bet that every time it gets really close to becoming a bear trend, it's not going to become a bear trend. So if you see something particularly bearish and the market's in a bull trend and you're deciding, do I do I buy or sell, you know, I'm always looking to buy. So if I see a bar like that, it's a lot of times I'll simply buy the market as soon as the bar closes. Other times I'll wait for a reversal up and then buy above the reversal.

I want to say one other thing about these bull friends. I also pay attention to the pullback and compare it to the breakout point. Here we got to break out to new highs, so this is the breakout point. The market reversed down, so but we continued up, so this is a pullback. So we have a breakout point and a pullback. I always look at the bottom of the pullback and the top of the breakout point. If they overlap like this, then I'm more willing to sell new highs, okay? So I call that a stairs pattern. There's stairs pen, we're stepping up, but if I see a pullback and it ends here and the bull trend continues up and the pullback does not fall below to the breakout point, okay, that's a sign of a very strong bull trend because there are always Bears who are shorting, and that means during this breakout here, there are bears who are going to sell this high and they're going to sell more higher because most of the time if you're getting a deep pullback like this, you'll get other deep pullbacks. So if you sell it this high and it goes above this bar, one or two things that's going to happen: it's going to go down and you make a profit, or it goes up, you sell more and you know it's going to come back down and you can make a profit on the second time you sold expecting it to fall below the breakout point. So if a trend is not pulling back below breakout points, it's a very strong trend and you should only be looking to buy. Here we're pulling back the low breakout points, so bears are selling. So if the pullbacks are relatively big, the Bears can sell; they're not looking for a trend, they're not looking for a swing, they're looking for a scalp.

This is what I was talking about. Here we broke out to a new high, but we pulled back below the old high, and once that happens, I start referring to this as a stairs type of channel. And if the market is stair stepping up like that, it's always easier to make money buying, but you can make money selling. A bear will sell at the prior high and sell more higher expecting pullbacks to fall below the breakout point. He can get all break-even on his first sell and with a profit on this higher sell. In general, if I see this, that's a pretty such a surprise, surprisingly strong breakout, I'm not going to be selling there. However, if I see this, a pullback below the breakout point, I probably will start to look to sell at a new high. So breakout point, if it keeps going up, you sell more expecting it to pull back below the breakout point, same thing. So bears, if they see deep pullbacks, they'll place a limit order to sell at the prior high, depending on if the breakout will be profitable. If they sell it, they can sell more higher. For example, they might sell, this is the euro versus the dollar, they might sell more 10 or 20 pips higher. If this is a daily chart, they might sell more 50 or 100 pips higher, confidence that there's going to be a pullback and it will fall below the breakout point and that will allow them to get out break-even on their first sell and with a profit on their higher sell. So a bull friend, but bears can short here.

We have a breakout that is not nearly as strong as in the other example, but we have a series of seven bull trend bars, a couple of them with decent-sized bodies, several bars closing on their highs. So you look at that and you say, yeah, that's that's pretty surprisingly strong. And if it's surprisingly strong, you're expecting at least a small second leg on, even though it doesn't really look like a breakout, we have small bodies and tails. I would still call that a breakout, and it makes me think that at some point we'll have a pullback, and once we have a pullback, we'll start getting other pullbacks, and the market will be in a bowl channel. We have a bear bar here; it's low is below the low of the fire bar, so the breakout phase has probably ended. And when the breakout phase ends, you have to assume you're entering a channel phase, and then you'll get a series of higher highs and higher lows. You can call this a wedge, bull flag; it's a pullback in a bull trend. We have three legs down, a bear applause, a couple more bear bars, a pause, and then a third bear bar, and now we have a pair of bull bars. So it looks like a breakout above the bull flag, probably the start of a channel. And this isn't a I think this is an important point: you have a breakout; at some point, the trend weakens into a channel. So a bull breakout and a bolt channel, so it's a weaker type of trend. And 75% of the time if the market's in a bowl channel, I think of it as a bear flag, all right? 75% of the time if you see a bull channel, you're going to get a bear breakout below the bull trend line, and you get a swing down. And what typically happens is you have a bull trend, a channel, a break below the bull channel, and then a conversion into a trading range. And then once it's in a trading range, traders start to think, what comes next? Is it going to be a resumption of the bull trend, or are we going to get a transition or trend a reversal into a bear trend? So this song, when I see a breakout, I'm expecting it a channel, and I know there's a 75% chance at some point will break below the bull channel and convert into a trading range. And once we start to trade down, I will look back at this and say that bull channel was a bull leg and what was to become a trading range. So every time I see a bull channel, I always assume that it's the start of a trading range. So every bull channel that I see, I always assume it's a bull leg and what will become a trading range, even though as it's forming it's still a bull trend. At some point, I'm expecting a bear swing that will reverse almost the entire channel. A lot of times it reverses the entire channel or even a little bit more. And then in hindsight, you'll look at this rally and you'll say that it was a bull leg and what was to become a trading range.

Okay, here we have a bar with a low above the high of the prior bar, and in fact, we have fourteen consecutive bars where every low is at or above the low of the prior bar. I call that a microchannel, and within it we have a breakout, and then we have a smaller bar, we have another breakout, another smaller bar, and then a series of bars, another breakout. So we have three legs up and a very tight pull trend, and when that's the case, I call it a parabolic wedge. So this is a parabolic wedge, and earlier I said that if you have a channel and it has three legs up in it, it's a wedge. So even though this does not have a wedge shape, we have a bull channel, we have higher lows, higher highs, three legs up: one, two, three. So I would call this a wedge rally, a wedge bolt channel, even though it does not have a wedge shape, and within it the third leg up subdivided into a parabolic wedge. So you've got a parabolic wedge nested within a bigger wedge that is very very climactic and it's going to attract profit-taking. I don't know if anybody was in the chat room this week on Tuesday; I said this is the end of Tesla, you know, it was a parabolic wedge. And I noticed I haven't I didn't trade Wednesday or Thursday, but I just knew Tesla was going to be down. And in fact, I debated shorting Tesla on Tuesday, and the easiest way to do it would have been with put spreads, but it was so overdone, I was really tempted to just short it, but if I did, you know, and I would be thinking about it the whole time, and I wanted to be in Disney Disneyland, I wanted to be in you know Universal Studios yesterday, and I just didn't want to be thinking about it. But uh, I was so confident that Tesla was gonna go down. But anyway, whenever you have a bull channel, you have to be assuming a 75% chance you're going to break and break through the downside. And if you have a breakout above a bull chance, a 75% chance the breakout's going to fail within about five bars.

So you look at this and say, wow, this is a really strong bull trend, right? Maybe it's going to continue up into a much stronger bull trend. It might, but 75 only 25% chance that will 75 percent chance if you're breaking above the top of a bull Shannon like this, the breakout's going to fail within five bars, and at a minimum you'll pull pull back to the minimum to the middle of the channel. Usually you pull back to the bottom of the channel, and sometimes you reverse below the bottom of the channel. So you see a very strong breakout above the top of both channel, I'm looking for a reversal. I don't want to be selling below a bull bar. And when a trend is that strong, I typically will not sell the first reversal down like below that Bear bar. However, if we get a second reversal down with a bare body closing at its midpoint or below, I will start to short. So to me, I was short below that bear bar or below this bear bar. Here we have four bars without a bull body or below that bar. I'm gonna get short, taking a chance that we're gonna get a couple legs down. It could be one pullback, two, or it could be one pullback, two. This is more like about half as many bars as there were here. Now I said earlier that if the market's in a bull channel and you get a bull breakout, a 75% chance that's going to fail within 5 bars and you'll get a reversal down and a break below the bottom of the channel. All right, there's one exception to that rule, and this is it. When I see a bull channel, but the pullbacks are small and brief. Here two bar black, one bar pullback, one bar pullback, all right? And then here, no pullbacks at all, okay? I call that a small pullback bull friend, and if you have a small pullback bold friend and you get a breakout above the top, it's not a 75% chance to the breakout will fail; it's more like 50/50. In general, if you have a a bowl channel and a breakout above, in general, a 25 percent chance you're going to get much even stronger trend up, a swing up, and a 75 percent chance you'll get a reversal down, except on a small pullback bull trend, it's more like 50/50. In general, if the market's in a small pullback bull...

Trend: I'm not looking to sell. I only want to buy. And remember, I said every trend bar I think of, every trend bar, as a breakout. So this bar is a breakout. And in order to break out of—well, a couple of things: it broke out above the high of this bar; it closed above the high of that bar; it closed above the top of the channel; and then the bar after the breakout bar has a bull body, and a bull body closing on its high. So you have a two-bar breakout—one a big bar, second one a bull body. This breakout is probably going to have a swing up. So breakout and a bull follow-through bar.

And if ever I see a bull channel, and I see a wedge—you can call it a wedge—a bull channel and a breakout, a bug, and I'm looking for a couple of legs up. I'm looking for more than that. I'm typically looking for a measured move up. And this breakout, I consider it a gap, and it often is a measuring gap. And the measured move is from the breakout point; I look back to the start of the channel; and I'm expecting the market to rally for about that same distance. And as soon as I see this breakout, and I'm seeing it's breaking above the bull channel, I draw that line in because I know that's where the market is trying to go. And any time it's trying to reverse, I'm thinking, "I might be a reversal," I bet it's going to go up here. So anytime it starts to sell off, I'm looking for the sell-off to fail, and I'm looking to buy again, expecting it to get up to that measured move target.

This chart—I like this. This is the 1987 crash. This is when I started trading. And what I like about this is we have a bull channel, a fairly tight bull channel, and you can call it a wedge, and and then we started to get bull bars—two, three, four bull bars. And not only bull bars, they're closing on their highs. All right, so something's going on in here. The price—these bars are different from all of these bars here. We're getting bull, bear, bull, bear, bull, bear. Okay, here we have two, three, four, five bull bars closing on their highs. So something is happening. It's something different from what has happened for the past, you know, many years. And you're getting a bull breakout above a pretty tight bull channel. And this is, I think, the most dramatic example of a bull breakout above a bull channel, and that led to a successful trend. And you can see this is when the Republicans took over Congress in 1995, and this was a tremendous, tremendous bull trend of up, breaking above a wedge channel. I remember on a tractor, the idiot wave theory guy was talking a lot about how this is a major top, and the stock market was gonna lose 90%. And at the time, you know, I was still a relatively new trader, and I'm looking at—I say, "Was he—I don't understand why is he saying that? You know, it looks like it wants to go up to me." And then—and it was an incredible rally. Okay, so at some point you have to decide that this is going to be a successful breakout. And usually once you start to get three or four bull bars closing on their highs, you have to assume it's a bull breakout. So where do you—do you buy with a stop above the high of any of these bars, and you just hold on. There were plenty of opportunities during that rally from 1995 to get long. And the easiest way to get long, if you're a trader, you simply place a stop to buy above the high of the higher bar.

I talked about, you know, this is your garden type of bull channel. You can buy and sell if the pullbacks are pretty small. You only want to buy if there are no pullbacks. You know, you cannot sell. And then sometimes you have a bull channel like this. We have higher highs and higher lows, but it looks mostly sideways. It's basically a trading range that's tilted up a little bit. You trade it like a trading range. Okay, a bull channel—you had pullbacks that last a few bars that you retrace about half of the prior leg up. You can make money selling, but it's better to buy. You can sell on reversals down for scalps, limit order bears will sell at prior highs, expecting it to retrace about half of the prior leg, and they can scalp on. But like this, when the pullbacks are small and brief, you can call it a tight bull channel—a small pullback bull trend on a higher time frame chart—that is a micro channel on a higher time frame chart, and you're not gonna be making money selling. So if you're ever in my chat room, sometimes you hear me say, "Oh, that's a small pullback bull," right? If it's in a small pullback bull trend, I know it can last a long time, and I'm not—I'm not going to sell. I'm only looking to buy. So the more our trend looks like this, the more inclined I am only to buy. And if it's extreme like this, with no pullbacks—every low at or above the prior low—yes, it can be climactic, and you can get a reversal, but I'm only looking to buy that until we get an obvious reversal. And then the more it looks like a trading range, even though it has higher highs and higher lows—yes, it's a bull channel, but it looks like a trading range—I'm gonna trade it like a trading range. So the more it looks like this or this, I only want to buy. The more it looks like this, I'll buy or sell. And if it looks like this—where the pullbacks retrace about half of the prior rallies—I will sell, but I'd rather buy.

Okay, bull channel. We have a breakout—breakout above what? Well, breakout above a bear channel, and we also broke above that lower high and the bear trend, and then we're pulling back about half of the rally, giving it back, and I'm starting to get a bull bar. So I'm gonna be looking to buy with the stop. This might be a higher low after a higher high, and it could be the start of a bull channel. Whenever there's a breakout, I'm looking for a pullback and then a conversion into a channel. And a channel would be a series of higher highs and higher lows. This is stair-stepping up. We're breaking out; we're pulling back a little. Breakout points—you could sell as well, but I'd rather be buying. And easiest way to buy: you simply look for any kind of a pullback, and then look for a bull bar closing on or near its high, and then buy with the stop above the bar—above the prior bar. So here we have a pullback. This bar went above that bar. I'm not going to take that buy because it does not have a bull body. Here, on this bar went above that high, but bear bar—I'm not going to buy that. Here we have a bull bar. So as soon as I see a bull bar closing near its high, I am going to be ready to put a stop to buy above the high. And you just do that all day. You don't have to—you don't have to take every trade, but you have to get long at some point. And these are reasonable buys. And then when it gets up to the prior high, you can either hold long or you can look at the price action and say, "Yeah, that's not really very strongly bullish. Maybe I'll exit at or above the prior high."

So if I'm seeing a trend that looks like this—a lot of trading range price action, a lot of times going sideways—I'll typically buy and scalp out around the prior high. Another thing you can do is once you think you're in a bull trend, if you're aggressive and experienced, you can also buy the close of every bear bar, betting that the attempt to reverse into a bear trend will fail. Or you can simply buy at the average price, but that most of the bars are going to be above the average price, and that the average price is going to go higher. Another thing that I like to do is buy with a limit order below a bull bar. So the market's starting to reverse down, probably in a bull trend, right? So anytime I see a bull bar like that, I tend to place a limit order to buy with a—at the low of the prior bar, betting that it's a bad sell setup and learn a bull trend; therefore, they're probably more buyers than sellers below those bull bars. Bears—they'll scalp, as I said. They'll sell at the prior high; they'll sell—more—higher, you know, get out break even when it comes back to their original entry price; they'll also sell on reversal down. When you have lots of bars with prominent tails—lots of bear bodies—you'll get some bears looking to scalp on the way down. Yeah, we're gonna do a barter. They might sell below that. They prefer to sell below a bear bar like that, or bear bar like that, or a bear bar like that. And they're just looking for scalps; they're trying to take quick profits. So they'll sell at the prior high; they'll sell on a reversal down below a bear bar; and we'll look for a very quick profit. Sometimes they'll sell; it doesn't fall far enough for a profit, and then it's starting to resume up again. If it's a second reversal up—here's the first, here's a second—especially if you have a bull bar like that, the bulls are going to buy that. And if the bulls are going to buy—if you're a short, if you're short, you have to get out. So that's a high one, a high two, and a bull trend—a bull bar near the moving average. If you're short here, and you did not make enough money for a scalp out, you—you get out here on the resumption up—type old friend. When I'm looking at this, I look at the moving average. I'm always looking at the moving average. It's a twenty-bar exponential moving average. And they're saying, you know, we're getting reversals, but they're not going below the moving average, and they're not lasting many bars. Here are one-bar pullback—the bull trend tried to resume—a one-bar pullback. You can say three bear bars, yeah, but only a one-bar pullback, you know, only one bar—main or new low. So when I'm looking at this, I'm thinking this could be a small pullback bull trend, and it could last five or ten bars; it could last all day. But whenever I'm seeing something that looks like it could be a small pullback bull trend, my inclination is to buy. And the easiest way to buy: I look for a bull bar closing near its high, especially near the moving average, and you just buy on a stop above the height of the bull bar.

Yes, a lot of trading reduced price action, but why is every bar above the moving average? So—and why are the pullbacks lasting only one bar, right? You know, I—of attention to that. So even though we're mostly sideways here, the pullbacks are small, and they're brief; they only last a bar or so. And then look at this—a couple of bull bars. We have a breakout, and then look at the pullback from the breakout. Okay, it did not fall below the breakout point, and that means bears have sold at this high, did not make money, and I had to buy back the shorts. Here we pull back a little bit below the breakout point, but the bodies of the pullback do not overlap the bodies of the breakout point. So if this were a line chart, there would still be a gap. I call that a body gap. It's another sign of strong bulls. It's not as strong as an open gap like this, where the pullback stays above the breakout point, but it's still a sign of very strong bulls. And again, a pullback last only one bar, right here—no pullback at all. We have bear bars, but no pullback—very strong bull runs—a small pullback bull trend. I only want to look to buy. In fact, here from this bar to there—how many pullbacks do you see? How many bars fall below the low of the prior bar? Zero. That's a 25-bar bull microchannel, even though the bull bodies are small, and there are a lot of bear bars—that is extremely strong buying. And if this is a five-minute chart, and looked at the 30-minute chart, this is what you see. And if you see this, are you thinking, "Oh my gosh, I gotta sell anything?" You know, I'm not gonna sell it. All right, so a small pullback bull trend is always going to be a strong breakout on a higher time frame chart. And you know it's a strong breakout on a higher time frame chart, even though you have a lot of bear bars, and most of the bull bars look weak—it's part of a very, very strong bull trend. So you cannot look at the bars and say, "Oh, they're—they look crummy." You got to look at the pullbacks and say, "The pullbacks are really small." It's going to be a breakout on the next higher time frame. You only—you can—you can only buy. It's impossible to make money selling. All right, any time you look at a chart, and you—and it's impossible to sell, you should only be looking to buy. At some point, there's gonna be a profit-taking.

At the end of the day, I want to say one of the point about this: okay, if you're just looking at this, you know, it looks like it's a weak rally, and it looks like it's a low-probability bet for the bulls to buy, but it keeps working higher. All right, and you also look at it and say, "I was probably not much potential for a reward here." So the reward is probably small. So if you're buying anywhere in here, the risk is pretty big. You're thinking, "Now, the reward is small; the probability is low," but that's not true. Remember, it's a small pullback bull trend; it's a breakout on a higher time frame chart. So in fact, the probability of making money is much higher than you think, and the reward is much greater than you think. So it's not a terrible risk-reward with low probability, and in fact has a high probability and a very big reward. So it's a—you know, when you look at this, you've got to be thinking, "It's the bars look crummy," but it's—it's not. All right, there's actually a very high probability of making a lot of money when you see a small pullback trend. Again, just buy with the stop above the high of the prior bar. You can also buy bear closes, betting that the reversals will not get very far. You can buy at the market; you can buy with a limit order below the low of the prior bar, again betting that the pullbacks will not last very long.

Broad bull channel. I don't want to spend a long time on it, plus I'm running out of time, but broad bull channel—when you're looking at it—looking at it here—the first hundred bars, it was a trading range, and within the trading range there were smaller trading ranges, and you trade it like a trading range. You're looking to buy low, sell high, and scalp, even though it's a bull trend—higher high, higher high, higher high, higher high, higher high, higher low above that low, higher low, higher low. So strictly speaking, it's a broad bull channel; it's a bull trend, but it's mostly sideways, and I trade it like a trading range, and looking to buy low, sell high, and scalp. I don't want to spend on time—line this. This is more trading range trading, plus I'm running out of time, but you're looking to buy reversals up, and you're looking to take quick profits. And even though it's a bull channel, it's so much more of a trading range than a bull trend, you're also going to be selling reversals down, and you're taking quick profits. Bottom line: the more a trend looks like this or this, you only want to buy. The more it looks like this, you can buy or sell. And if it looks like this—your common type of bull trend—easier to make money buying, but you also can sell. So small pullback bull trend, or a small pullback bull trend with no pullbacks at all, you only want to be buying. If the pullbacks retrace about half of the prior leg, you can buy and sell, but it's easier to make money buying. And if it's basically a trading range, even though it's a bull channel, you can buy and sell, but you're scalping; you're looking for quick profits.

So I began by talking about a bull channel. It's a series of higher lows and higher highs, and then I talked about types of bull channels. And if a bull channel is a very tight bull channel—small bull—dike bull trend—you only want to be buying. If it's very, very broad, the more broad it is, the more you can buy and sell. All right, I made it to the finish line. We take a few questions, but I'll have to clear off to let the next person in. Yes, do I trade them? I try—I do—I do. It's exactly the same thing that—you know, it doesn't matter if it's a five-minute chart, daily chart, monthly chart, yearly chart. That back in the beginning of January, I used—showed an example of a yearly chart, and I'll be running more about this soon. Well, I think the—this year, at the beginning of the year, I said that this year would probably spend a lot of time being sideways—that might even be an inside year. Well, now it's not going to be. We went above last year's high, but I think this year is going to be a trading range between 3,000 and 3,500 for the entire year. So even though we went to a new high this week, I think we've begun the trading range, and there's not much left on the upside. I'm sorry, what? Let me see—one—get back there—this line—like way up here—yeah, where do you do with that bear bar? I think—if I think the rally is weak, and I see a reversal down, I'll get off—a little bear bar closing on or near its low. If this were a five-minute—let's talk about—let's say it's an e-mini chart, and puts an e-mini chart, I will get out for four or five or six ticks below any bar—even a bull bar. Okay, and then if the market starts to go back up, I'll look to buy again above the high of a bull bar closing on its high—for this bar. A lot of times I'll buy the close—I'll just buy the market—just buy the market. And then if the next bar is also a bear bar—[Music]