Chapter 27
Entering on Stops
A price action trader is looking for a reason to enter, and the bar that completes the setup is called a signal bar. The bar when you actually enter is called the entry bar. One of the best ways to trade using price action is to enter on a stop, because you are being carried into the trade by the market's momentum and therefore are trading in the direction of at least a tiny trend (at least one tick long). This is the single most reliable entry approach, and beginners should restrict themselves to it until they become consistently profitable. For example, if you are shorting a bear trend, you can place an order to sell short at one tick below the low of the prior bar, which becomes your signal bar after your order is filled. A reasonable location for a protective stop is at one tick above the high of the signal bar. After the entry bar closes, if it has a strong bear body, tighten the stop to one tick above the entry bar. Otherwise, keep the stop above the signal bar until after the market begins to move strongly in your direction.
Figure 27.1 Need a Six-Tick Move to Make Four Ticks
It usually takes a six-tick move beyond the signal bar to net a four-tick scalp and a ten-tick move to make an eight-tick scalp in the Eminis. In Figure 27.1, the entry buy stop was one tick above the bar 2 signal bar's high at line A, where you would have been filled. ...
