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Hello.
In the attached slide, suppose a trader only sees the strong bull bar that closes at point 1 (without the grey area to the right).
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Is it reasonable in Brooks’ method to:
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Buy the close of that bull bar, or
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Place a buy stop above its high, expecting a further move up?
If yes, the logical protective stop is far below, around point 2.
If the trader waits, that stop will eventually be hit and the trade becomes a loss.
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Once the next bar (and maybe the next 1–2 bars) turn into a strong bear reversal, is that already a sign that the original long premise failed, so it is better to exit early instead of waiting for the original stop at point 2?
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Finally, when that big bull bar is forming, is buying somewhere around point 3 a reasonable entry, or is it too close to resistance and better to wait?”
Thanks,
Rafael
It is reasonable to buy at the closing price of the bull-bar or with a stop order above its high. The next candle was not a follow-through bar so traders had much less certainty that there was going to be a break above the range. Since most breaks from ranges fail, technically, it is unreasonable to buy at the high of the range according to Dr. Brooks' method. However, it is a breakout-bar and eventually the price breaks from ranges. Notice the upper-wick of the third bear-bar after the bull-bar. It had a range which included the closing price of the bull-bar. Many traders who were long flattened at their entry price. Many traders reversed their positions. The strength of the bear-bars indicated that there was not going to be a successful second-leg up. It's better to exit as early as possible and as Dr. Brooks approximately says when one's premise requires them to exit with a small loss they usually can earn more than what they lost by reversing their position. Buying at the price level of "point 3" is not reasonable since that is still buying near the high of a range.
