Original subtitles

Okay folks.

Welcome back.

Teaching number five in the second month of the ICT mentorship, we were

talking specifically about how to mitigate losing trades effectively

when a local bet looked back at the same sample size of price action.

And we're going to go through it a little bit differently.

I'm going to assume that we were studying this particular asset

class or market, if you will.

And we go through our standard markup of a market setup and framing

the risk and reward multiple.

And we noted the bull shorter block and we identified where the market

should come back down into it.

And we identified the mean threshold and hypothetical long entry on

the secondary bullish order block.

Now, assuming for a moment that we saw this down candle here.

Okay.

It's all supporting idea of, we should see.

Uh, some buying or, or recapitalization of this down candle.

We see that happening here.

Now.

We don't know for sure that's going to happen, but let's assume

for a moment that we went in and we took a long on this position.

Okay.

And understanding the mean threshold.

Uh, we don't like to see the middle of the down candle.

One of our shorter block be violated because some of you

are all new and there are.

Chances that you'll probably take the trade and want to have

a, stop-loss just a little bit below this means for our shoulder.

And there's nothing wrong with that normally, but let's just

say, for instance, you did that and you got stopped out.

Okay.

Um, what would you do let's assume that you, you did that and you got stopped out.

What would you do?

Obviously, I'm going to tell you a plot twist.

You can say that you got a stop out here and you took a full 2% loss, or if

you're a hot shot and you think you're really an elite trader, if you will,

uh, you risk more than 2%, you probably would have been burned pretty bad.

And if you're a gambler and you risk a lot of money on your trades like that, and you

don't feel any pain, uh, that's a problem.

But.

We don't need to take huge risks and we don't need to take a lot of trades,

but we will encounter losing trades.

So I'm going to give you a scenario and assume for a

moment, we saw this panning out.

We saw the idea that there should be some upside, but we put our

stop loss a little too close to the market and say, we took a full stop.

Now, assuming that we took that long position and our stock was below

the mean threshold and it hit us.

Let's assume for a moment that our maximum leverage and risk on

the trade would be at a full 2%.

Well, that means we'd have to take another look at the same trade

and reevaluate whether or not it's something that we can still trade.

Obviously we had our mindset on this potential set up initially.

But if the trade hasn't completely unraveled, just because it's swept us

out below demean threshold on our initial try going along, it doesn't mean the

trades completely no longer viable.

It just means that we probably were just inaccurate in terms of where our

stop-loss was placed and we had to take another basically stab at it.

So now we can take a look at that new order block that form.

With this down candle price trades away through it, on this candle right here.

It trades above that down candle.

So when it does that, that authorizes any new return to this down candle as a buying

opportunity, mark comes down into it here.

Okay.

We can take a long position here.

Okay.

Now this time we're going to allow a little bit more movement against us.

Okay.

Because we still would have.

A strong conviction or hypothetically a strong conviction that the market

should move higher differences is we're going to go about our leverage

a little bit differently, and we're going to allow ourselves a little

bit more movement against us.

We're not going to be so high strung about getting an ultra tight stop loss.

This time, our stop loss is going to actually be below the order block

that we're framing your trade around.

So the market has created a down candle, shown them Williams to run

away off support of a previous down candle, which is a bullshitter.

We saw a willingness to capitalize buying with the movement away

from this here came back down.

We want to be a buyer right in here at the top of that candle.

Okay.

So if we did that and we used the bottom of the candle as our stop loss, where

are we going to do differently with this?

Well, we're going to go long with one half of the position

size we used on the initial loss.

So for instance, if we took a initial loss of 2% on the first

trip, We have to go down to 1%.

I mean, if we were trading with 1% and we took a full loss on the initial

trade, we would have to drop down to one half of 1% of our total equity base.

Now, if the initial loss was 2% of the equity base, this trade again would be

1% of the equity base in total risk.

So we're defining the trade by entering at the top of the.

Bodies, uh, are this down candle or at the opening?

So we would be getting along in here.

Okay.

If we were to elect to use this down candle as an entry, we could see the

return back down into this down candle as well, using that either way, we're going

to use this range defined by the opening of this down candle or the top of this

down candle as our entry, either instance on this movement down, or this movement

down in here would have given the.

This is our total risk stop below the order block.

Main thing is, is we're using half of the leverage and position size

that we used on the initial loss.

So we're defining our trade with this in terms of the risk.

Now, all we're going to do is refer back to the original idea of that

trade, where we first took a law.

Hypothetically Amarin to frame out the idea that the same thing would be seen.

Hopefully if we're writing in our directional premise with one movement

up, that would be a multiple of our one.

So if we have 1% at risk defined by the entry in here and stop below

here, once we get to this price point here, we're already at 1%, right.

So we got half of our initial loss back in open profit.

Once we get one more standard deviation from what our risk is defined by,

we're already at 2% mitigated.

In other words, our losing trade that we just had using half of the

initial risk is already mitigated.

Now at this point, This is one of those instances.

If you're a new trader, this is where you want to consider taking the trade off.

And I can't stress this enough.

Sometimes it's just good to get back to even and relax, and then regroup.

Especially if you're late in the week, for instance, say you've been trading all week

and you took a loss and it's a Thursday or Friday now, and you get the opportunity

to get that 2% full stop out there.

Take it off close the week flat, do not go into the weekend within that loss.

If the market presents the opportunity to give you that loss back and you're late

in the week, or you're late in the trading session, take it off the table, move to

the sidelines and be glad that you did.

There's nothing saying this is going to continue going higher.

So that's why once the market gives us an opportunity to erase our errors, do.

Notice that at mitigating 2% of the initial trades loss for the initial

trades, uh, a total loss of 2% of our equity base, we don't even require the

market trading above the old highs in here where the buy stocks will be residing.

So notice that we're already able to mitigate the initial loss of

a total 2% hit on our equity.

And it hasn't even really fully moved to our.

Obviously with a multiple of three, are we are now in new territory.

So now we've made a new net game.

If you're going to allow the position and not listen to it just suggested,

this is where you want to trail the stop loss up to where you can no longer

lose back below open profit of the two.

Loss once it's been mitigated, you're going to lock that in.

So your trailing stop loss will be placed right there and you would not permit

the market to come back against you.

And if it stops you out, it stops you out.

Bottom line is, is you're not willing to go back down below if it

gives an opportunity to recoup the drawdown, take it or lock it in.

So it can not take you back down below, um, your equity, a reference

point before the draw down ensued.

Once we get a multiple of our three.

Okay.

The, my opinion.

That's about where you want to take your profits and squared.

Also either you take it off once you mitigate your loss

entirely when you are too.

Okay.

Cause that's going to basically pay you back, whatever your,

your loss was, percentage wise.

Even if you cut that trade leverage in half, regardless of what it is,

you only need a multiple of artists.

To get that trade paid back to you.

Okay.

And how many times have we talked about opportunities?

How there there's so many opportunities that the frame three

to one or five to one, or even more.

Throughout the week.

You don't need very much to get that losing trade back.

And that's why it's something that's not requiring you to spend a lot of time

fearful of or obsessing about when you take a loss, they're easy to get back.

You just got to allow your mindset to stay focused.

Once the market provides you are to, or the mitigation of your initial loss.

You want to lock that in and then give their market room.

If you're going to not take the 2% back off or whatever that initial loss

was, if you don't take it off and repay your draw down and bring you back to

the equity base equity high, rather prior to the draw down you in suit,

uh, you want to at least lock that in.

Initially as you're developing trader, you want to just take it off the table

and just be thankful that you got it back.

Uh, as you grow into the next stage of development, you want it to start

locking in your stop loss after you get your, uh, loss mitigated, and then

see if it has any more room to go.

But initially you want to not do that.

You want to train yourself to say, okay, I fixed my error.

I've corrected the draw down.

I'm going to move to the sidelines and start fresh.

Okay.

Um, the next stage would be, would be to lock that in.

And don't allow your, your draw down to return and see if the

market has room to run again.

In this case, if you allow the market to run and you mitigate your 2%

loss after seeing an multiple with the 1% risk, now you have 1% gains.

You know, you have a new equity high, all in the same trade.

All this has been done in the scope of just looking at once.

That you may have messed it up.

You may have, um, got in and got too aggressive about what

your stop-loss should be.

Or sometimes you're just a little early and it's going to run in and

go to a level that would make perfect sense after you see it, do it.

But because some of us are very emotional and very rushed to

get in and make a decision.

There's no reason to fear going back in and taking a look at that trade.

Um, how many times have you incurred a loss?

And you knew that there was still probability or possibly seeing that trade

pan out in the direction you thought it was going to go initially, but you were

too afraid to go back in and lose money.

If you drop down your amount of leverage and your total risk.

Cut it in half.

Okay.

Let's give it a let's play devil's advocate just for a moment.

Say we bought this one here.

Okay.

We bought this one here and then we used a mean threshold

as a stop and it stopped us.

And then we used this down candle when price ran back down into it.

Okay.

And we went along and say, for instance, um, yeah, we did the same thing.

We were using this middle of this candle here and we want to, I have

ultra short-term stop-loss and it came down against us and squeeze us out.

Or maybe it scared us.

Okay.

In the market runs again, when it comes back down into this order block here,

that would be another opportunity.

So if you started with, what if you started with 2% here on this tray?

And you got knocked out and you had a full stop.

The likelihood of you having that probably next to impossible, but we're

going to say you took a full stop at two, 2% here on this implement stop.

Say you took a 1% full hit here on this being aggressive, trying to place your

stop way too short at the mean threshold.

Okay.

And you get stopped out again.

You would have to go down to one half, 1% right here, right here.

Okay.

So again, with that same mindset, if we were using an entry on this basis and

the stock would have to go be below this low now, look at the range between this

candle opening right here and this low.

Think about that in terms of the range, that would be your risk.

Okay.

Watch what happens.

There's one half of 1%, 1%, one and a half percent.

2%.

You still would've made back your 2% just on that run here.

So your, your initial large hit of 2%, even with one half of

1% would have been mitigated.

So then you would only be down what, 1% then you can actually let the

market run or take another setup.

He doesn't have to come back from it.

Doesn't have to come back in.

One trade.

In other words, one trade doesn't have to erase all of your, your losses,

but don't think that you can't make the money back or mitigate the losses.

Okay.

Without increasing more risk, you can actually do it by reducing risk.

And I taught this principle.

Online and folks that saw it, they were like, ah, this is stupid.

Why would I want to cut my risk or my leverage down after losing trade?

Uh, well it's because equity preservation is the number one rule in this game.

And we don't know with any absolution that our trades are going to be profitable.

So why would anybody.

Trader think like a moron and not dial back their leverage.

If they take a losing trade, that means you're doing something wrong.

The likelihood of you going in and making a winning trade on the

next trade as a new trader, highly unlikely, because you're going to

be rushed to get back to square one.

You want to get that loss back right away and emotionally, psychologically.

That's what you're thinking, but it's not necessary to get it back on.

But in this example, it's very important that we can see that getting

to that you can get that your full 2%, if that was the case, you don't

need to have increased leverage.

You don't have to increase your risk, but you do have to have patience to allow

that loss to be mitigated, and you don't need to do it by scaling up your risk.

You actually do it by scaling back your risk, because it say for

instance, that your first hit at 200.

You took a 2% loss.

How do you know that's not a beginning of a 10 string losing, in other

words, what's to say you don't get nine more losing trades in a row.

It can happen to you.

It can happen to me.

It happened to anyone.

So if you do that and you keep going at 2% or worse, you increase your.

You're throwing good money after bad.

You're, you're building toxic thinking.

You're allowing yourself to be beaten down emotionally.

You're going to spend a lot of mental capital and you're going

to grow into fear-based trading.

And we already spoke about fear-based trading, what that

does in the previous lesson.

And we don't trade with that.

We want to avoid that mindset.