The Ideal Set-ups for New Traders
Clear signals, favorable risk/reward parameters, and well-defined entry and stop levels make these two set-ups the "best" ones for less-experienced traders, says veteran Al Brooks.
My guest today is Al Brooks. We’re talking about what constitutes a “best” trade when you’re first starting out. So Al, what is a best trade for a new trader?
I think when everyone starts out trading, they obviously can enter with stop orders, limit orders, or market orders, but a person starting out should begin with stop orders because at least the market is going in their direction. So a best trade for a beginner begins with a stop order.
It next has both a protective stop and a profit-taking limit order. In terms of the two best choices for a trader starting out, they should look for major trend reversals, in general.
That means if you’re in a bear trend, the market has to rally at least five or ten bars above the bear trend line, and preferably at least to some moving average like a 20-bar exponential moving average.
Then you wait for a pullback that tests the bear trend low. The pullback can be in the form of a higher low, a lower low, or a double bottom. Then you look for a signal bar—a bull reversal bar—and then you buy above that bar.
What is the signal bar? What does that look like?
It’s a bar that has a close above its open; preferably well above the open.
If you’re buying a lower low, for example, let’s say the pullback drops to below the bear low, I don’t want it to drop three or four bars below the bear low; one bar or two bars.