al-brooks-course
51A - Losing Because of Mistakes
Raw transcript and slide notes for 51A - Losing Because of Mistakes.
Overview
- Slides: 13
- Transcript segments: 369
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Transcript 001
Time: 00:02
Bilingual Transcript
00:02 - 00:03
EN: This is Al Brooks.
00:03 - 00:06
EN: Thank you for watching the Brooks Trading Course.
00:06 - 00:10
EN: This is the first of four videos about losing because of mistakes.
Slide 001
Time: 00:12
Bilingual Transcript
00:14 - 00:16
EN: One of the common reasons that beginners lose is
00:16 - 00:20
EN: because of psychology and false beliefs.
Slide 002
Time: 00:21
Bilingual Transcript
00:27 - 00:29
EN: Most of the money that beginners lose is
00:29 - 00:32
EN: because they have incorrect beliefs about the market.
00:32 - 00:36
EN: They try to apply logic that works outside of trading
00:36 - 00:40
EN: into the trading world, and they discover that it doesn’t work
00:40 - 00:43
EN: - that if you do what everybody else is doing,
00:43 - 00:45
EN: you’re probably doing the wrong thing.
00:52 - 00:55
EN: I want to talk about common mistakes that beginners make
00:55 - 00:58
EN: and how to avoid them or how to fix them.
01:03 - 01:05
EN: Every trader, no matter how good,
01:05 - 01:08
EN: is going to lose money sometimes because good trades go bad.
01:08 - 01:11
EN: There’s no 100% certain trade.
01:11 - 01:13
EN: I’m going to talk about those in the videos on losing
01:13 - 01:15
EN: when a good trade goes bad.
01:19 - 01:24
EN: That series of videos is shorter because traders lose much more money
01:24 - 01:27
EN: from mistakes than they do from good trades going bad.
Slide 003
Time: 01:30
Bilingual Transcript
01:37 - 01:38
EN: Beginners are ignorant.
01:38 - 01:40
EN: By ignorant I don’t mean a low IQ.
01:40 - 01:43
EN: For example, I’m ignorant of lots of things around the world,
01:43 - 01:46
EN: especially cultural things in countries where I have not visited.
01:46 - 01:49
EN: Ignorant simply means a lack of information.
01:55 - 01:58
EN: However, ignorance as a trader is a problem,
01:58 - 02:02
EN: but it’s easy to fix by simply spending time and being open to ideas
02:02 - 02:05
EN: that you would not have otherwise considered.
02:11 - 02:14
EN: Common ignorant beliefs that lead to beginners losing money?
02:14 - 02:16
EN: Perfect trades.
02:16 - 02:19
EN: Beginners always believe there’s some kind of a perfect setup,
02:19 - 02:21
EN: and they get mad at me for not telling them my perfect setup.
02:22 - 02:24
EN: Perfect trades cannot exist.
02:24 - 02:28
EN: Every trade is a combination of risk, reward, and probability,
02:28 - 02:33
EN: and a perfect trade has great profit, great probability, and very little risk.
02:33 - 02:35
EN: That cannot exist.
02:35 - 02:39
EN: If a trade has really good risk/reward, it has low probability.
02:39 - 02:43
EN: If a trade has very high probability, it has very bad risk/reward
02:43 - 02:46
EN: (usually very low profit, a scalper).
02:47 - 02:51
EN: Another thing that you sometimes hear is “noise.” Noise is a terrible term.
02:51 - 02:54
EN: It implies that the market is behaving randomly.
02:54 - 02:57
EN: The market never behaves randomly.
02:57 - 02:59
EN: It may be making moves that are too small
02:59 - 03:01
EN: for you to trade, but somebody’s trading them.
03:01 - 03:04
EN: For example, right here you might not want to trade,
03:04 - 03:06
EN: but there are lots of computers trading.
03:06 - 03:10
EN: Some for 1 or 2 tick or 1 or 2 pip scalps, but they’re trading.
03:10 - 03:13
EN: High frequency trading firms are trading, and other institutions
03:13 - 03:16
EN: are simply trading because they’ve determined
03:16 - 03:18
EN: that this is a good price where they should be selling.
03:18 - 03:21
EN: Just because the market is making moves that look too small
03:21 - 03:24
EN: for you to make money, does not mean that they are random.
03:25 - 03:27
EN: Everything that happens, happens for a reason.
03:28 - 03:31
EN: Another common false belief that beginners have is
03:31 - 03:35
EN: that either the bulls are making money or the bears are making money.
03:36 - 03:40
EN: Well, 90% of the time both the bulls and the bears can make money
03:40 - 03:44
EN: if they use wide stops, scale in, and manage their trade appropriately.
Slide 004
Time: 03:50
Bilingual Transcript
03:52 - 03:56
EN: One of the problems that beginners often have is they focus on risk,
03:56 - 03:59
EN: and they ignore probability and reward.
03:59 - 04:02
EN: That results in them sometimes picking bad entries.
04:03 - 04:07
EN: Beginners often have small accounts, and because they have small accounts,
04:07 - 04:09
EN: they don’t want to lose their money.
04:09 - 04:11
EN: They equate losing the money in that account
04:11 - 04:15
EN: as the death of their dream of being a profitable trader,
04:15 - 04:18
EN: and therefore they’re desperate to not lose that money.
04:18 - 04:21
EN: Also, their spouses will get mad at them if they lose money.
04:22 - 04:26
EN: There is therefore a lot of pressure on them to focus on risk
04:26 - 04:30
EN: - and unfortunately the result is all they see is risk.
04:30 - 04:34
EN: To trade profitably, you also have to consider probability
04:34 - 04:36
EN: and reward and not simply risk.
04:36 - 04:40
EN: If you only look at one variable, you’re probably going to lose money
04:40 - 04:43
EN: because you need the other two variables as well.
04:48 - 04:50
EN: For example, let’s say a beginner sells here,
04:50 - 04:53
EN: thinking that “Oh, it’s a pair of big bars.
04:53 - 04:54
EN: It shouldn’t be doing that.
04:54 - 04:57
EN: We’re reversing up and down, up and down, up and down.
04:57 - 04:58
EN: This should reverse down.
04:58 - 05:01
EN: I’m going to sell this, betting that it’s a Buy Climax
05:01 - 05:02
EN: and it’s going to reverse.”
05:10 - 05:13
EN: If he took that short, at some point in the next bar
05:13 - 05:16
EN: or two he’s going to decide that, well,
05:16 - 05:19
EN: maybe he bought a breakout that’s going to succeed.
05:19 - 05:22
EN: However, a lot of times beginners will hold onto the trade,
05:22 - 05:25
EN: hoping that this is the exception.
05:25 - 05:29
EN: He knows at this point or this point the probability is we’re going higher,
05:29 - 05:33
EN: but he’ll hold knowing that nothing is 100%, and that means
05:33 - 05:37
EN: he has a real probability that the market will eventually go his way.
05:37 - 05:40
EN: He knows the probability is small, but it exists.
05:40 - 05:44
EN: It’s real, and therefore he’ll ignore the reality that’s in front of him
05:44 - 05:47
EN: - that he took a bad trade and he needs to get out,
05:48 - 05:50
EN: but he’s hoping that the market will go his way.
05:51 - 05:53
EN: That’s one of the other problems that beginners have.
05:54 - 05:56
EN: It’s natural that people are hopeful.
05:57 - 06:01
EN: If you think about it, it’s genetically bred into all of us to be hopeful.
06:01 - 06:04
EN: Thousands of years ago, if you did not have food in front of you
06:05 - 06:09
EN: and you were not hopeful that you could find a deer to shoot
06:09 - 06:13
EN: and feed your family, you’d just sit around and you would eventually go extinct.
06:14 - 06:19
EN: Whereas another person who was out there aggressively looking for food,
06:19 - 06:21
EN: confident and hoping that he’d find the food
06:21 - 06:24
EN: and he keeps persisting, he’s going to survive.
06:24 - 06:27
EN: So being hopeful is a survival skill.
06:28 - 06:30
EN: However, it’s horrible as a trader.
06:30 - 06:32
EN: You cannot make money hoping.
06:32 - 06:36
EN: You have to objectively evaluate what’s going on, and if you fall back
06:36 - 06:40
EN: on your natural tendency to be hopeful, you will lose money.
06:40 - 06:43
EN: Selling here and watching the market go up,
06:43 - 06:47
EN: hoping that it will reverse – that is the wrong thing to do.
06:50 - 06:52
EN: Let’s say a beginner buys here.
06:52 - 06:56
EN: He sees a bull trend, a pullback, a breakout of this bull flag,
06:56 - 06:58
EN: and a pullback from the breakout.
06:58 - 07:01
EN: A good-looking buy signal bar; a reasonable buy.
07:05 - 07:07
EN: However, he’s only thinking about risk.
07:07 - 07:10
EN: He doesn’t want to take a chance on losing any money,
07:10 - 07:14
EN: and therefore he uses a tight stop right below the buy signal bar, right here.
07:15 - 07:16
EN: That is wrong.
07:16 - 07:20
EN: If you’re taking this trade, there’s only one appropriate stop,
07:20 - 07:23
EN: and that’s down below the bottom of the original leg up.
07:23 - 07:25
EN: This is the major Higher Low.
07:25 - 07:27
EN: This is a minor Higher Low.
07:27 - 07:31
EN: The market could easily fall below this low in a two-legged pullback
07:31 - 07:35
EN: - one, pullback, two – and it did – and simply become a High 2 bull flag.
07:36 - 07:39
EN: Two legs down – one, pullback, two – and the bull trend resumed.
07:39 - 07:41
EN: You cannot use a tight stop like that.
07:45 - 07:48
EN: The beginner took the good trade, bought above the bull bar,
07:48 - 07:52
EN: but used a bad stop, and he got stopped out.
07:53 - 07:56
EN: It’s a small loss, but if you do it two or three times
07:56 - 08:00
EN: in the course of a day, you’re going to end up losing a lot of money.
Slide 005
Time: 08:05
Bilingual Transcript
08:08 - 08:11
EN: Another problem that beginners often have
08:11 - 08:15
EN: is they’ll take a trade as a swing, but manage it as a scalp.
08:16 - 08:18
EN: The problem with that is if you’re taking a swing trade,
08:19 - 08:22
EN: the probability of success, the probability of making a profitable swing,
08:22 - 08:24
EN: is usually only about 40%.
08:25 - 08:27
EN: We have a very strong rally here.
08:28 - 08:31
EN: Traders buying for any reason and using the appropriate stop
08:31 - 08:34
EN: have maybe a 50% to 60% chance of making a profit.
08:38 - 08:42
EN: If a trader buys above this bull bar, he has to use the appropriate stop
08:42 - 08:45
EN: to get that 50% to 60% probability of success.
08:49 - 08:53
EN: This is a major Higher Low, a strong breakout to a new high.
08:53 - 08:56
EN: We have breakouts above minor highs here,
08:56 - 08:59
EN: but not strong breakouts lasting many bars,
08:59 - 09:03
EN: and therefore this is a minor Higher Low and the market could fall
09:03 - 09:05
EN: below it and still be in a strong bull trend.
09:10 - 09:15
EN: A beginner who took this buy above this bull bar and used this stop initially
09:16 - 09:19
EN: might become upset by the bad follow-through here and decide
09:19 - 09:24
EN: that he doesn’t want to risk the appropriate amount, and he uses a tighter stop,
09:27 - 09:31
EN: maybe below the bottom of the buy signal bar, and gets out here.
09:37 - 09:40
EN: He ends up losing on a good trade simply
09:40 - 09:43
EN: because he did not use the appropriate stop.
09:43 - 09:45
EN: He decided to convert it into a scalp.
09:45 - 09:49
EN: But for a scalp you probably need 70% or 80% probability of success,
09:49 - 09:53
EN: and this is not a 70% to 80% buy using that stop.
09:54 - 09:58
EN: The probability of making money buying above this bull bar,
09:58 - 10:02
EN: getting filled here, and putting a stop below here? I would say it’s 50/50,
10:02 - 10:07
EN: and therefore if you tighten your stop there, you’re going to lose money.
Slide 006
Time: 10:10
Bilingual Transcript
10:13 - 10:16
EN: What happens sometimes is the beginner takes the trade and then
10:16 - 10:19
EN: - let’s say this is a 5-minute chart – he has 5 minutes,
10:19 - 10:22
EN: 10 minutes to think about it, and he begins to wonder,
10:22 - 10:24
EN: “What if it goes against me? It could go all the way back down here,
10:24 - 10:29
EN: and I don’t want to risk that much.” Well, if he is unwilling to risk this much
10:29 - 10:33
EN: he cannot take that trade, because this is where the appropriate stop goes.
10:38 - 10:42
EN: If he’s entering as a swing, he has to be using the appropriate stop,
10:42 - 10:44
EN: and he only gets out if his stop is hit
10:44 - 10:49
EN: or if the market clearly becomes bearish – which it did not.
Slide 007
Time: 10:51
Bilingual Transcript
10:57 - 11:01
EN: The opposite is another common problem that beginners have.
11:01 - 11:05
EN: They take a trade as a scalp, and then they manage it as a swing trade,
11:05 - 11:09
EN: which means far too much risk for too little profit.
11:10 - 11:14
EN: Also, beginners should not be scalping because to scalp profitably
11:14 - 11:17
EN: you have to be able to win 70% or 80% of the time.
11:17 - 11:19
EN: Beginners simply cannot do that.
11:26 - 11:29
EN: The bulls have a breakout and the market went higher.
11:29 - 11:31
EN: Another breakout, a pullback.
11:31 - 11:33
EN: Let’s say a beginner buys this close,
11:33 - 11:35
EN: hoping that it’s the start of another leg up.
11:36 - 11:38
EN: Maybe he bought it even though he knows
11:38 - 11:42
EN: it might be a Double Top and a Wedge – one, two, three.
11:43 - 11:45
EN: Then the next bar is a bear reversal bar.
11:46 - 11:49
EN: The beginner who bought that close and sees this bar
11:49 - 11:51
EN: is now probably going to be upset.
11:54 - 11:57
EN: Let’s say initially he was planning on putting a stop right
11:57 - 12:00
EN: below his buy signal bar, which is right here.
12:07 - 12:11
EN: He was surprised by this bear bar, and now he’s frozen.
12:11 - 12:15
EN: He’s paralyzed, and he’s thinking that, “Well, if I take the loss
12:15 - 12:18
EN: and get out where my stop is hit, then I’ll lose money.”
12:19 - 12:22
EN: He knows that if he’s scalping he has to win most of the time,
12:22 - 12:24
EN: and therefore he’s afraid to take losses.
12:24 - 12:28
EN: So instead of exiting where he should exit, he’ll use a wide stop
12:28 - 12:30
EN: and try to convert his scalp into a swing trade.
12:31 - 12:34
EN: But then he will not manage the swing trade correctly
12:34 - 12:36
EN: and he’ll end up losing much more than he expected.
12:37 - 12:41
EN: When he bought that bull close, he knew the probability was not high,
12:41 - 12:44
EN: but he was hoping that the momentum up would lead to a profitable trade,
12:45 - 12:48
EN: and he was shocked to see that bear reversal bar.
12:48 - 12:50
EN: Once he saw it, he looked to the left and said,
12:50 - 12:53
EN: “Uh oh, maybe it’s a Double Top, maybe it’s a Wedge Top.
12:53 - 12:55
EN: Maybe I took a bad trade.”
12:59 - 13:03
EN: He decides that, “Well, swing traders usually can make money
13:03 - 13:07
EN: if they use wide stops and scale in, and therefore I’ll use a wider stop.
13:07 - 13:10
EN: Maybe I’ll put it below the bottom of the most recent bull leg.”
13:10 - 13:13
EN: Even though this is really a minor Higher Low
13:13 - 13:16
EN: - the breakout does not have enough bars, did not go up high enough,
13:16 - 13:20
EN: and therefore it could simply be a bull leg in a Tight Trading Range.
13:20 - 13:24
EN: The market can fall below it and the market could still remain Always In Long.
13:24 - 13:27
EN: The most recent major Higher Low is at this point.
13:27 - 13:33
EN: If a trader takes that buy on that close, he has to be using a stop down here.
13:37 - 13:39
EN: He eventually finds himself stopped out
13:39 - 13:42
EN: at the bottom of the most recent bull leg.
13:42 - 13:46
EN: He ends up exiting with a loss that’s four times bigger
13:46 - 13:49
EN: than the minimum scalp he was hoping to get when he bought that close.
13:50 - 13:53
EN: If you’re losing four times bigger than what you’re winning,
13:53 - 13:56
EN: you have to be right 80% of the time to break even.
13:56 - 13:59
EN: You probably have to be right better than 90% of the time
13:59 - 14:03
EN: to have a profitable strategy, and that’s simply unrealistic.
14:03 - 14:07
EN: Very few really good traders win 90% of the time,
14:07 - 14:09
EN: day in, day out, every day of the year.
14:09 - 14:13
EN: For a beginner to expect that, it’s just not going to happen,
14:13 - 14:15
EN: and therefore his strategy is wrong.
14:15 - 14:16
EN: It’s a losing strategy.
Slide 008
Time: 14:20
Bilingual Transcript
14:25 - 14:29
EN: If a beginner takes a trade as a scalp, he has to manage it as a scalp.
14:29 - 14:31
EN: This is a bad trade.
14:31 - 14:34
EN: It became clear when the bears had that reversal bar
14:34 - 14:37
EN: that beginners should simply get out, either below that bear bar
14:37 - 14:40
EN: or below the buy signal bar, and take the loss.
14:45 - 14:50
EN: In fact, any time a trader takes a trade and decides the trade is not good,
14:50 - 14:54
EN: he should get out immediately, and therefore a beginner who bought this bull close
14:54 - 14:57
EN: could get out at the close of this bear bar
14:57 - 15:00
EN: without waiting for the market to trade below the low of that bear bar.
15:00 - 15:03
EN: He had to know at the close of that bear bar
15:03 - 15:07
EN: that this was not a high probability bet that he’ll make money.
15:13 - 15:16
EN: A more experienced trader would have realized
15:16 - 15:20
EN: that this was probably a buy vacuum test of that close.
15:20 - 15:22
EN: The bulls had a reasonably good bull trend here.
15:22 - 15:24
EN: Some are buying closes all the way up.
15:24 - 15:29
EN: Some became disappointed here, held long, betting that the selloff
15:29 - 15:32
EN: would be a leg in a Trading Range and we’ll get back up to that close.
15:32 - 15:34
EN: So they’ll buy more lower.
15:36 - 15:40
EN: Those bulls who bought, used a wide stop, and scaled in lower are hoping
15:40 - 15:43
EN: the market will get back to their high close, where they could sell.
15:44 - 15:46
EN: That’s what exactly happened here.
15:46 - 15:50
EN: Buy The Close bulls bought more lower, and when it got back to their high close,
15:50 - 15:53
EN: their last entry price, they sold.
15:54 - 15:58
EN: Therefore this rally was probably a buy vacuum test of resistance
15:58 - 16:00
EN: at the high close and the high of the day,
16:00 - 16:02
EN: and not the start of a new Buy The Close rally.
16:03 - 16:05
EN: Bulls were selling here.
16:05 - 16:08
EN: The bulls who bought here are relieved to be able
16:08 - 16:11
EN: to get out breakeven, and now you have bulls selling.
16:11 - 16:14
EN: That’s not a good location for you to be buying.
16:18 - 16:21
EN: It’s also the third push up – one, pullback, two, pullback, three
16:21 - 16:25
EN: - and the pushes up are getting smaller, so it’s a Wedge Top.
16:25 - 16:27
EN: Again, a bad location to be buying.
Slide 009
Time: 16:30
Bilingual Transcript
16:35 - 16:38
EN: If you look at a chart and you have 100 bars on the screen,
16:38 - 16:43
EN: only about 10% of them are in a very strong breakout up or down.
16:43 - 16:45
EN: Here we have a reasonably strong breakout.
16:45 - 16:47
EN: It’s about 10% of the bars on the screen,
16:47 - 16:51
EN: and when you have a very strong breakout, you have 60%, 70%,
16:51 - 16:54
EN: sometimes 80% chance of getting a Measured Move up
16:54 - 16:57
EN: based upon the bars in the breakout.
16:57 - 16:59
EN: For example, the open of the first bar to the close
16:59 - 17:02
EN: of the final strong bar in the breakout,
17:02 - 17:05
EN: probably 70% chance the market’s going to go up for a Measured Move.
17:11 - 17:14
EN: You can see what happened when it got to that Measured Move target.
17:14 - 17:18
EN: The market stalled, in part because bulls were taking partial profits.
17:22 - 17:24
EN: You can buy the close of any of these bars
17:24 - 17:28
EN: and take partial or full profits at the Measured Move target.
17:28 - 17:30
EN: 70% chance it’s going to get there.
17:37 - 17:41
EN: We have a close on the high well above the neckline of this Double Bottom,
17:41 - 17:45
EN: and we have a follow-through bar closing with a bull close as well.
17:45 - 17:48
EN: 70% chance we’re going up for at least a second leg.
17:48 - 17:52
EN: Probably at least a Measured Move based upon the height
17:52 - 17:53
EN: of the strong part of the breakout.
17:57 - 18:01
EN: Reasonable to take profits, partial profits, full profits,
18:01 - 18:04
EN: at a Measured Move target based upon the height of that breakout.
18:11 - 18:13
EN: The Actual Risk was small.
18:13 - 18:16
EN: If you bought that close, the Actual Risk is 1 or 2 ticks
18:16 - 18:18
EN: or 1 or 2 pips, but very, very small.
18:19 - 18:24
EN: High probability you can exit at simply one times Actual Risk
18:24 - 18:27
EN: if your profit is at least as big as a minimum scalp.
18:28 - 18:32
EN: Here, if the Actual Risk is only 2 ticks or 2 pips,
18:32 - 18:36
EN: one times Actual Risk is 1 tick or 1 pip, 1 or 2,
18:36 - 18:38
EN: and that is not as big as a minimum scalp.
18:39 - 18:42
EN: So if you’re trading the Emini you have to hold for at least 4 ticks
18:42 - 18:45
EN: (1 point, a minimum scalp), and if you’re trading the Forex markets
18:45 - 18:48
EN: you have to hold for at least 10 pips (a minimum scalp).
18:48 - 18:54
EN: However, if this Measured Move target is two to three times the minimum scalp,
18:54 - 18:58
EN: it’s reasonable to hold for two to three times the size of a minimum scalp.
Slide 010
Time: 19:01
Bilingual Transcript
19:06 - 19:10
EN: I said that 10% of the bars on any chart are in a strong breakout.
19:10 - 19:12
EN: That means there’s a high probability of some kind
19:12 - 19:14
EN: of a Measured Move in the direction of the breakout.
19:14 - 19:16
EN: Here, up.
19:16 - 19:19
EN: It also means that it’s very difficult to make money selling
19:19 - 19:21
EN: when the market’s in a strong breakout.
19:25 - 19:28
EN: If you sold this high, very difficult to make money.
19:28 - 19:32
EN: If you use a wide stop and scale in higher, you can avoid a loss,
19:32 - 19:34
EN: but very difficult to make money selling here
19:34 - 19:36
EN: and holding short as it’s going up.
19:43 - 19:47
EN: Some bears who sold here would be disappointed by the extent of the rally.
19:47 - 19:50
EN: They’ll sell more below a strong bear bar that is at least
19:50 - 19:55
EN: two to three times the size of a scalp higher, and then they’ll either hold,
19:55 - 19:58
EN: hoping the market gets back to their original entry price,
19:58 - 20:01
EN: getting out breakeven on their first sell and with a profit
20:01 - 20:07
EN: on their second sell, or they might decide that 30 or 40 bars up is so extreme,
20:07 - 20:11
EN: maybe it’s better simply to get out between the two entry prices
20:11 - 20:13
EN: and get out breakeven on the trade.
20:13 - 20:15
EN: Small loss here, small profit here.
20:21 - 20:23
EN: They sold this high.
20:23 - 20:26
EN: If they held through all of this, they could sell more below this bear bar,
20:26 - 20:29
EN: get filled here, and this is their average entry price.
20:29 - 20:33
EN: If they exit here, they lost money on their first sell,
20:33 - 20:35
EN: they made money on their second sell,
20:35 - 20:38
EN: and they get out breakeven on their entire position.
20:39 - 20:42
EN: Or they could hold, hoping it gets down here.
20:42 - 20:46
EN: If it makes a couple reversals up with bull bars just above their target,
20:46 - 20:48
EN: they would get out on the reversal up
20:48 - 20:51
EN: - which would be around breakeven on the entire trade.
Slide 011
Time: 20:55
Bilingual Transcript
20:57 - 21:00
EN: It never fell below the first entry price.
21:00 - 21:03
EN: They therefore could not get out breakeven on their first entry.
21:08 - 21:12
EN: They should just get out on a reversal up late in the day, late in the session.
21:20 - 21:25
EN: Can a beginner take that sell and sell more higher? Not realistic.
21:25 - 21:27
EN: That’s one of the problems that beginners have.
21:28 - 21:32
EN: They have the right idea; they know what they need to do to avoid a loss
21:32 - 21:35
EN: or to make money, but they don’t have the ability to do it.
21:36 - 21:41
EN: In this case, can a beginner hold onto a short through a rally
21:41 - 21:44
EN: that lasts 30 or 40 bars, and is his account big enough
21:44 - 21:48
EN: so that he can sell more here? Probably not.
21:48 - 21:52
EN: It makes more sense for the beginner to get out of his short
21:52 - 21:54
EN: on the close of the second or third or fourth bull bar
21:54 - 21:58
EN: and then buy the bull flags in a bull trend.
21:58 - 22:02
EN: He would more than make up for the small loss that he originally took.
Slide 012
Time: 22:05
Bilingual Transcript
22:13 - 22:15
EN: One of the main reasons why beginners lose money is
22:15 - 22:18
EN: because they don’t know how to manage trades properly.
22:18 - 22:22
EN: To manage traders properly, you have to make decisions about the position size,
22:22 - 22:26
EN: the risk (where your stop is), and the reward (where to take profits).
22:26 - 22:29
EN: If you make a mistake with any of those three things,
22:29 - 22:31
EN: you’re probably going to lose money.
22:34 - 22:36
EN: I said only 10% of the bars on any chart
22:36 - 22:39
EN: are in a strong breakout – in other words,
22:39 - 22:42
EN: high probability of making money betting the trend will continue.
22:42 - 22:46
EN: 90% of the bars on any chart are either in a bull channel,
22:46 - 22:48
EN: a bear channel, or a Trading Range.
22:49 - 22:50
EN: Here we have all three.
22:50 - 22:53
EN: Every Trading Range has a leg up and a leg down.
22:53 - 22:55
EN: Here we have a bull channel and a bear channel and a Trading Range.
22:56 - 22:57
EN: This is typical.
22:57 - 23:00
EN: 90% of the bars are either in a bull channel,
23:00 - 23:02
EN: a bear channel, or a Trading Range.
23:06 - 23:11
EN: When that’s the case, buying or selling at any instant within the range,
23:11 - 23:15
EN: you have between a 40% and 60% chance of making a profit,
23:15 - 23:20
EN: 40% to 60% chance that the market will soon go against you.
23:25 - 23:28
EN: On every bar on the chart, if you buy you have
23:28 - 23:31
EN: between a 40% and 60% chance of making a profit.
23:32 - 23:35
EN: If you sell, there’s between a 40% and 60% chance of making a loss.
23:35 - 23:40
EN: You do not have a 70% trade when the market’s in a Trading Range.
23:48 - 23:52
EN: From the Trader’s Equation, you know that this is all you need to make money.
23:52 - 23:55
EN: As long as you have at least a 40% chance of making money
23:55 - 24:00
EN: - and you do, buying and selling at any point in a channel or in a Trading Range
24:00 - 24:03
EN: - as long as you have at least a 40% chance of making money,
24:03 - 24:05
EN: you have a winning strategy if you exit
24:05 - 24:08
EN: with at least two times your Actual Risk.
24:14 - 24:18
EN: Beginners lose money mostly because of psychology and false beliefs.
Slide 013
Time: 24:15
Bilingual Transcript
24:18 - 24:21
EN: For example, they believe perfect trades exist.
24:21 - 24:23
EN: They also believe that the market often moves randomly,
24:23 - 24:27
EN: with no rational trading going on behind it.
24:27 - 24:30
EN: They also believe that low probability events
24:30 - 24:33
EN: can save them when they make bad decisions.
24:33 - 24:34
EN: They cannot.
24:34 - 24:37
EN: Once you see that you’re wrong, you should get out.
24:41 - 24:42
EN: I’m Al Brooks.
24:42 - 24:44
EN: Thank you for watching the Brooks Trading Course.
24:44 - 24:48
EN: This is the first of four videos on losing because of mistakes.