What is the definition of ‘trade management’ according to Al Brooks?
It is what you do after you enter a trade, which involves following your plan or adapting it based on price action.
What is the flaw in the ‘Other People’s Money’ (OPM) concept in trading?
Once profit is in your account, it is your money, and treating it recklessly is a mistake.
When should a trader consider changing their initial trade plan?
When the price action is doing something other than what was expected and the original premise is no longer valid.
In the context of the Trader’s Equation, a trading action is acceptable if it results in a _____ outcome.
positive
What is the formula for the Trader’s Equation?
(Probability of Success * Reward) > (Probability of Losing * Loss)
If a trader buys a breakout but then sees a strong bearish reversal bar form before the target is hit, what should they do?
Exit the trade, as the probability of reaching the target has become much less.
When taking a trade, what is a mathematically sound profit target relative to your initial risk?
Two times your initial risk (2x IR).
A trader can make money over time even with only a 40% win rate if they consistently take profits at what level?
Two times their initial risk.
What is one way for a trader to reduce risk in a profitable, trending trade without exiting?
By tightening the stop, also known as trailing the stop.
In a bull trend, where is a common place to trail a protective stop?
Below the most recent major higher low.
If a trade’s open profit increases, the notional risk (distance from current price to initial stop) also increases. What is one way institutions manage this increased risk?
By reducing their position size (selling a portion of their longs).
Institutional profit-taking often occurs at what key price levels?
Support and resistance levels.
For a high-probability trade, such as a breakout in a strong trend, what is a common initial profit target traders might use?
One times the initial risk (1x IR).
After a strong bear breakout, where would a trader typically place their initial protective stop?
Above the major lower high where the breakout began.
According to Al Brooks, using a break-even stop is mathematically _____.
stupid
When scalping, if a trade gets very close to the profit target but reverses before hitting it, what will many traders do to avoid a loss?
Move their stop to break-even.
Trade management should be based on the current price action and not the _____.
entry price
If multiple traders enter short at different prices during a downtrend, what determines their exit point?
The same price action signal (e.g., a strong bull reversal bar), regardless of their individual entry prices.
What should a trader do immediately after taking a loss on a trade?
Look forward to the next trade and not dwell on the loss, to avoid missing the next opportunity.
If you are short and a strong bull reversal bar forms, what is the mandatory action?
You must exit the short position (buy back your shorts).
When a trade’s premise is no longer valid due to reversing price action, what is the correct action?
Exit the trade immediately, even with a loss.
In a high probability trade setup, is it necessary to hold for a profit of two times your risk?
No, you can get out with a profit of just one times your risk.
What is the difference between ‘initial risk’ and ‘actual risk’?
Initial risk is the distance to your planned stop from your entry, while actual risk is the smallest amount the trade went against you before moving in your favor.
While mathematically reasonable, why is taking profits at 1x or 2x ‘actual risk’ often not the best strategy?
Because the actual risk can be very small (a few ticks/pips), leading to a tiny profit when a much larger move is probable.
