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Hello, friends!
On video 33C, about protective stops, Mr. Brooks explains the importance of using a correct price action stop, usually bellow a major higher low or above a major lower high. But at minute 18, he gives an exemple where the stop is placed jsut bellow the entry bar, as soon as the order is filled - before a new high or a strong move. Could you please help me to formulate a rule to this exception? It would be great to understand the cases when price action allows the use of tighter stops.
Thanks in advance,
Leonardo.
In that example, Al explains that the context is exceptionally good for that stop placement, i.e. double bottom High 2, breakout pullback, strong bull reversal bar after a prior strong bull signal bar, etc.. So basically, the stronger the context, the more reasonable to put the stop tighter. I don't know if Al mentions it in that video, but he does in other videos that the tighter the stop, the lower the probability. So even though the context is good in that example, I would argue, and I think Al would too, that the probability is still better to put the stop below the last major higher low. There's always a possibility that market gets another push down before going higher, so the wider stop gives more wiggle room.
