Video 53A (#1 of 2)

Losing Because
of Mistakes
Al Brooks
How to Trade Price Action
Brooks Trading Course
BrooksTradingCourse.com BrooksPriceAction.com
Main Points
Slide
 Beginners lose because of psychology 2
and false beliefs
 Bad management 14

BrooksTradingCourse.com BrooksPriceAction.com Slide 1

Beginners: Psychological Mistakes

Beginners lose most of their money I discuss how to handle good trades that go bad
by mistakes due to incorrect beliefs (Psychology) (Market Risk, which means bad luck) in the video
This video is on losing trades that beginners on Losing When Good Trade Goes Bad
make by mistake, and how to avoid or fix them

It is a shorter video because

traders lose more money from mistakes!

BrooksTradingCourse.com BrooksPriceAction.com Slide 2

Beginners: Lose Because of Ignorance

Ignorance does not mean low IQ Ignorance is barrier to making money

Means lack of information Easy to fix by simply spending time
Smart person can be ignorant of some being open to learning
ancient culture because he never studied it
or thought about it

Common ignorant beliefs that lead to losses:

1. Perfect setups exist
2. Noise exists
3. Most of time, either only bulls or bears can make money

BrooksTradingCourse.com BrooksPriceAction.com Slide 3

Beginners: Bad Management Decisions

Beginner buys
Beginner sells,
betting on
Buy Climax
Loses, despite good trade
Does not want much risk so
puts stop below signal bar

Beginners often make bad management decisions

Beginners are often wrong in picking entries, Even when they know what the right thing to do is,
usually because they focus too much on risk they conclude that this trade is an exception
and not enough on probability or reward that requires them to do something else

BrooksTradingCourse.com BrooksPriceAction.com Slide 4

Confused Goals: Plan to Swing, but Trade Like Scalp

Beginners often takes trade as swing, Upset by 2 bad follow-through bars

but manages as scalp Decides never really willing to risk to swing stop
Not enough risk when 50 - 60% probability Tightens stop to scalper's stop
of swing profit
Beginner buys
PB in bull trend

Loses, despite good trade

Preferred a small loss than to continue
to live in fear of big loss down at swing stop

Uses correct swing stop

below bottom of bull leg

BrooksTradingCourse.com BrooksPriceAction.com Slide 5

Confused Goals: Plan to Swing, but Trade Like Scalp

Lost his objectivity

Could not handle the anxiety of "What if?"
When enter as swing, manage as swing
No good reason to exit as scalp
Beginner buys
PB in bull trend

Uses correct swing stop

below bottom of bull leg

BrooksTradingCourse.com BrooksPriceAction.com Slide 6

Confused Goals: Plan to Scalp, but Trade Like Swing

Beginner often takes trade as scalp, Beginner buys bull BO of bull flag,
but manages as swing even though possible DT
Too much risk for too little profit Upset that next bar is bear reversal

Uses tight stop

Would be embarrassed to lose

Knew he bought high in weak rally, like a loser,
but does not want to feel like a loser
Lowers stop to swing stop to increase probability
Exits with loss that is 4x bigger than his profit goal

BrooksTradingCourse.com BrooksPriceAction.com Slide 7

Confused Goals: If Scalp, Manage Like a Scalp

When entering as scalp,

manage as scalp and take the scalp loss
Cannot make money scalping if have big losers

Uses tight stop

Incorrectly believed this was a

good Buy The Close (BTC) bull trend
Did not realize it was Buy Vacuum test
of high close of day and possible DT
Did not see that it was possible Wedge Top

BrooksTradingCourse.com BrooksPriceAction.com Slide 8

Market Cycle: 10% of Bars Are in Strong BO

From the Market Cycle, traders know that
10% of bars are in strong breakouts up or down
Strong enough bull BO on the open for
70% chance of Measured Move (MM) up
based on the size of the BO
Take profit at MM target
Very positive Trader's Equation
High probability of MM based on Initial Risk
Only need reward of 1x Actual risk

Buy close of consecutive big bull bar

Closed on its high and above neck line of DB
Could wait to buy close of follow-through bull bar

BrooksTradingCourse.com BrooksPriceAction.com Slide 9

Market Cycle: 90% of Bars Are in Channel or TR

During the 10% of bars that are in a strong BO, Bear sold at prior high
usually difficult to make money trading If bear decided to stay short and
in the opposite direction try to manage to get a profit,
he might sell more below 1st bear reversal bar

Might change goal and just try to avoid loss

Exit at average entry price

BrooksTradingCourse.com BrooksPriceAction.com Slide 10

Market Cycle: 90% of Bars Are in Channel or TR

Never fell to 1st entry price

Running out of time
Difficult to hold short for 40 bars during bull trend Exit at average entry price on reversal up to
Missed many buying opportunities get out breakeven on entire trade
to make money

BrooksTradingCourse.com BrooksPriceAction.com Slide 11

90% of Bars: Can Buy or Sell and Make Money

90% of the bars are in channel or TR From Trader's Equation, trader knows that
40 – 60% chance direction will continue or reverse even with only 40% probability,
Probability for bulls and bears is between 40 – 60% it is winning strategy to exit with reward
during 90% of the bars on every chart at least 2 times Actual Risk

Bad management is the major cause of losses

Must manage position size, risk, and reward
If fail at any step, you will lose money

BrooksTradingCourse.com BrooksPriceAction.com Slide 12

Main Points
Slide
 Beginners lose because of psychology 2
and false beliefs
 Bad management 14

BrooksTradingCourse.com BrooksPriceAction.com Slide 13

Bad Management: Causes Most Losses

From Trader's Equation, trader knows that

even with only 40% probability,
it is winning strategy to exit with reward
at least 2 times Actual Risk

This means that during 90% of the bars,

both bulls and bears can make money
by managing trades correctly
The reason for most losses is bad management
When managed well, 90% of time can get out
breakeven (without a loss)

BrooksTradingCourse.com BrooksPriceAction.com Slide 14

Good Management: Can Save Most Bad Trades

During 90% of bars,

even buying at top or selling at bottom
can be managed to avoid loss
Stop

Sell BO below neck line of DT Exit shorts with small profit on reversal up
Sell more below from Micro DB test of 1st entry
bear reversal bar

BrooksTradingCourse.com BrooksPriceAction.com Slide 15

Good Management: Can Scale In to Avoid Loss

During 90% of bars, Buy BO above ioi Bull Flag,

even buying at top or selling at bottom even though far above MA
can be managed to avoid loss Buy more on BO of High 2 Bull Flag
Stop Exit with small profit at 1st entry

Stop
Sell BO below neck line of DT Exit shorts with small profit on reversal up
Sell more below from Micro DB test of 1st entry
bear reversal bar

BrooksTradingCourse.com BrooksPriceAction.com Slide 16

Lose Money: Experts Lose, but Are Quick to React

Experts also lose money by taking bad trades,

where it is difficult to structure strong Trader's Equation
This means hard to make money over time
Usually do not realize it until soon after entering
Experts minimize the loss
by managing the losing trade well

Bear sells strong bear close

Failed BO above yesterday's high
Micro DT, close below low of day
Higher probability to wait for bear follow-through,
which never came

BrooksTradingCourse.com BrooksPriceAction.com Slide 17

Enter By Mistake: Get out Immediately

Buy close of consecutive strong bull bar after:

Bear Trap
High 2 Opening Reversal up from MA
2 big bull Give-up bars
More than made up for loss

Disappointed by bull follow-through bar

Tried to get out breakeven on next bar,
but not filled
Exit with small loss on reversal up

BrooksTradingCourse.com BrooksPriceAction.com Slide 18

Bad Trade: Bad Trader's Equation

Buy High 2, failed BO below low of day Beginner loses money

Signal bar has bear body,
but close above midpoint so reversal bar
Signal bar not big so risk is small
H1
by doing something he should not do
Beginners take many bad trades
These are trades where the Trader's Equation is bad
Either the probability or risk/reward is too low
to result in a profitable strategy

Stop
H2

BrooksTradingCourse.com BrooksPriceAction.com Slide 19

Bad Trade: Also Need to Consider Reward and Probability

Beginners like to scalp because risk is less,

but reward is also less
Can win 60% of time and lose money!

H1

H2

If risk is greater than reward,

60% probability is not enough
to have positive Trader's Equation

BrooksTradingCourse.com BrooksPriceAction.com Slide 20

Bad Trade: Opposite Trade Is Often Good!
Low risk usually means low probability
Minor reversal means low reward
Math is better to sell
Experts sell the close of bear follow-through bar
or above high of bear bar (buy signal bar)
BrooksTradingCourse.com BrooksPriceAction.com
Bad trade:
Buy signal bar was reversal bar
(close above middle), but bear body
8 bars without bull body so no Buying Pressure
Tight Bear Channel so minor reversal at best
Bear follow-through bar after big bear BO
so Sell The Close bar
Slide 21
Bad Trade: Beginners Manage Badly

Beginners also manage bad trades badly

Buy more on 2nd signal

Beginner exits long with

big loss on double size position

BrooksTradingCourse.com BrooksPriceAction.com Slide 22

Lose Money: Bad Trade Selection

After watching trend for 10 – 20 bars,

beginner waits for the strongest trend bar,
believing momentum will have follow-through

Beginner buys close

of big bull bar

He is entering when now

low probability and big risk (stop is far) Beginner sells close of
Math is better to bet against consecutive big bear bar

BrooksTradingCourse.com BrooksPriceAction.com Slide 23

Lose Money: Buys Too High and Sells Too Low

Beginner is so afraid of loss, Although he is aware that it

that he wants very high probability might be a climactic end of the trend,
When he sees big bar late in trend, the bar just looks too strong
he thinks it is confirmation that trend is strong Surely Goldman Sachs will give
him at least a little profit

BrooksTradingCourse.com BrooksPriceAction.com Slide 24

Lose Money: By Not Doing What You Need to Do

Beginner loses money by Before he enters, he knows the probability is low

not doing something he should do
Beginner buys High 2
Stop
because of no bull bars for 8 bars,
and the obvious bear trend
Does not immediately exit
Does not exit below Micro DT
Does not put stop in market
Only keeps it in his head
Does not exit as market falls,
below his mental stop

BrooksTradingCourse.com BrooksPriceAction.com Slide 25

Lose Money on Good Trades: Bad Management

Beginners manage great trades badly
Sells bear follow-through bar,
after strong bear breakout,
into Always In Short bear trend
Stop
After thinking about how far his stop is,
he gets scared of losing too much money
Beginner only thinks about risk and
he ignores probability and reward

Places an appropriate stop

in the market

Stop is 3 times bigger than usual,

so trade only 1/3 usual size

BrooksTradingCourse.com BrooksPriceAction.com Slide 26

Lose Money on Good Trades: Use Appropriate Stop

Always use an appropriate stop

in the market that is not too tight
Trade small enough position size so that if stop is hit,
loss will not be too big
Stop

BrooksTradingCourse.com BrooksPriceAction.com Slide 27

Lose Money on Good Trades: Exits Too Soon

Beginner looks for credible excuse to exit

because too painful to wait
Convinces himself that logic is good
to take small loss above High 2 buy signal bar
Stop

Buys back his great short exactly where

expert bears are selling, expecting a bear trend

BrooksTradingCourse.com BrooksPriceAction.com Slide 28

Review
Slide
 Beginners lose because of psychology 2
and false beliefs
 Bad management 14

BrooksTradingCourse.com BrooksPriceAction.com Slide 29

 End of Video 53A (#1 of 2)

Losing Because
of Mistakes
Al Brooks
How to Trade Price Action
Brooks Trading Course
BrooksTradingCourse.com BrooksPriceAction.com 30