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Okay folks.
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Welcome back.
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Teaching number five in the second
month of the ICT mentorship, we were
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talking specifically about how to
mitigate losing trades effectively
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when a local bet looked back at the
same sample size of price action.
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And we're going to go through
it a little bit differently.
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I'm going to assume that we were
studying this particular asset
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class or market, if you will.
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And we go through our standard
markup of a market setup and framing
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the risk and reward multiple.
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And we noted the bull shorter block
and we identified where the market
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should come back down into it.
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And we identified the mean threshold
and hypothetical long entry on
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the secondary bullish order block.
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Now, assuming for a moment that
we saw this down candle here.
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Okay.
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It's all supporting
idea of, we should see.
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Uh, some buying or, or
recapitalization of this down candle.
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We see that happening here.
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Now.
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We don't know for sure that's
going to happen, but let's assume
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for a moment that we went in and
we took a long on this position.
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Okay.
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And understanding the mean threshold.
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Uh, we don't like to see the
middle of the down candle.
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One of our shorter block be
violated because some of you
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are all new and there are.
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Chances that you'll probably
take the trade and want to have
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a, stop-loss just a little bit
below this means for our shoulder.
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And there's nothing wrong with
that normally, but let's just
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say, for instance, you did
that and you got stopped out.
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Okay.
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Um, what would you do let's assume that
you, you did that and you got stopped out.
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What would you do?
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Obviously, I'm going to
tell you a plot twist.
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You can say that you got a stop out
here and you took a full 2% loss, or if
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you're a hot shot and you think you're
really an elite trader, if you will,
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uh, you risk more than 2%, you probably
would have been burned pretty bad.
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And if you're a gambler and you risk a lot
of money on your trades like that, and you
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don't feel any pain, uh, that's a problem.
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But.
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We don't need to take huge risks and
we don't need to take a lot of trades,
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but we will encounter losing trades.
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So I'm going to give you a
scenario and assume for a
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moment, we saw this panning out.
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We saw the idea that there should
be some upside, but we put our
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stop loss a little too close to the
market and say, we took a full stop.
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Now, assuming that we took that long
position and our stock was below
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the mean threshold and it hit us.
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Let's assume for a moment that
our maximum leverage and risk on
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the trade would be at a full 2%.
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Well, that means we'd have to take
another look at the same trade
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and reevaluate whether or not it's
something that we can still trade.
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Obviously we had our mindset on
this potential set up initially.
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But if the trade hasn't completely
unraveled, just because it's swept us
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out below demean threshold on our initial
try going along, it doesn't mean the
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trades completely no longer viable.
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It just means that we probably were
just inaccurate in terms of where our
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stop-loss was placed and we had to
take another basically stab at it.
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So now we can take a look at
that new order block that form.
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With this down candle price trades away
through it, on this candle right here.
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It trades above that down candle.
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So when it does that, that authorizes any
new return to this down candle as a buying
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opportunity, mark comes down into it here.
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Okay.
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We can take a long position here.
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Okay.
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Now this time we're going to allow a
little bit more movement against us.
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Okay.
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Because we still would have.
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A strong conviction or hypothetically
a strong conviction that the market
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should move higher differences is
we're going to go about our leverage
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a little bit differently, and we're
going to allow ourselves a little
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bit more movement against us.
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We're not going to be so high strung
about getting an ultra tight stop loss.
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This time, our stop loss is going
to actually be below the order block
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that we're framing your trade around.
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So the market has created a down
candle, shown them Williams to run
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away off support of a previous down
candle, which is a bullshitter.
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We saw a willingness to capitalize
buying with the movement away
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from this here came back down.
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We want to be a buyer right in
here at the top of that candle.
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Okay.
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So if we did that and we used the bottom
of the candle as our stop loss, where
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are we going to do differently with this?
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Well, we're going to go long
with one half of the position
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size we used on the initial loss.
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So for instance, if we took a
initial loss of 2% on the first
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trip, We have to go down to 1%.
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I mean, if we were trading with 1%
and we took a full loss on the initial
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trade, we would have to drop down to
one half of 1% of our total equity base.
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Now, if the initial loss was 2% of the
equity base, this trade again would be
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1% of the equity base in total risk.
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So we're defining the trade
by entering at the top of the.
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Bodies, uh, are this down
candle or at the opening?
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So we would be getting along in here.
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Okay.
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If we were to elect to use this down
candle as an entry, we could see the
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return back down into this down candle as
well, using that either way, we're going
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to use this range defined by the opening
of this down candle or the top of this
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down candle as our entry, either instance
on this movement down, or this movement
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down in here would have given the.
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This is our total risk
stop below the order block.
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Main thing is, is we're using half
of the leverage and position size
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that we used on the initial loss.
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So we're defining our trade
with this in terms of the risk.
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Now, all we're going to do is refer
back to the original idea of that
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trade, where we first took a law.
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Hypothetically Amarin to frame out the
idea that the same thing would be seen.
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Hopefully if we're writing in our
directional premise with one movement
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up, that would be a multiple of our one.
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So if we have 1% at risk defined
by the entry in here and stop below
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here, once we get to this price point
here, we're already at 1%, right.
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So we got half of our initial
loss back in open profit.
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Once we get one more standard deviation
from what our risk is defined by,
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we're already at 2% mitigated.
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In other words, our losing trade
that we just had using half of the
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initial risk is already mitigated.
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Now at this point, This
is one of those instances.
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If you're a new trader, this is where you
want to consider taking the trade off.
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And I can't stress this enough.
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Sometimes it's just good to get back
to even and relax, and then regroup.
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Especially if you're late in the week, for
instance, say you've been trading all week
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and you took a loss and it's a Thursday
or Friday now, and you get the opportunity
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to get that 2% full stop out there.
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Take it off close the week flat, do not
go into the weekend within that loss.
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If the market presents the opportunity to
give you that loss back and you're late
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in the week, or you're late in the trading
session, take it off the table, move to
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the sidelines and be glad that you did.
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There's nothing saying this is
going to continue going higher.
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So that's why once the market gives us
an opportunity to erase our errors, do.
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Notice that at mitigating 2% of the
initial trades loss for the initial
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trades, uh, a total loss of 2% of our
equity base, we don't even require the
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market trading above the old highs in here
where the buy stocks will be residing.
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So notice that we're already able
to mitigate the initial loss of
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a total 2% hit on our equity.
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And it hasn't even really
fully moved to our.
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Obviously with a multiple of three,
are we are now in new territory.
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So now we've made a new net game.
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If you're going to allow the position
and not listen to it just suggested,
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this is where you want to trail the
stop loss up to where you can no longer
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lose back below open profit of the two.
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Loss once it's been mitigated,
you're going to lock that in.
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So your trailing stop loss will be placed
right there and you would not permit
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the market to come back against you.
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And if it stops you out, it stops you out.
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Bottom line is, is you're not
willing to go back down below if it
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gives an opportunity to recoup the
drawdown, take it or lock it in.
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So it can not take you back down
below, um, your equity, a reference
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point before the draw down ensued.
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Once we get a multiple of our three.
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Okay.
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The, my opinion.
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That's about where you want to
take your profits and squared.
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Also either you take it off
once you mitigate your loss
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entirely when you are too.
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Okay.
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Cause that's going to basically
pay you back, whatever your,
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your loss was, percentage wise.
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Even if you cut that trade leverage
in half, regardless of what it is,
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you only need a multiple of artists.
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To get that trade paid back to you.
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Okay.
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And how many times have we
talked about opportunities?
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How there there's so many
opportunities that the frame three
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to one or five to one, or even more.
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Throughout the week.
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You don't need very much to
get that losing trade back.
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And that's why it's something that's
not requiring you to spend a lot of time
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fearful of or obsessing about when you
take a loss, they're easy to get back.
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You just got to allow your
mindset to stay focused.
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Once the market provides you are to,
or the mitigation of your initial loss.
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You want to lock that in and
then give their market room.
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If you're going to not take the 2%
back off or whatever that initial loss
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was, if you don't take it off and repay
your draw down and bring you back to
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the equity base equity high, rather
prior to the draw down you in suit,
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uh, you want to at least lock that in.
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Initially as you're developing trader,
you want to just take it off the table
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and just be thankful that you got it back.
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Uh, as you grow into the next stage
of development, you want it to start
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locking in your stop loss after you
get your, uh, loss mitigated, and then
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see if it has any more room to go.
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00:12:08,010 --> 00:12:10,739
But initially you want to not do that.
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You want to train yourself to
say, okay, I fixed my error.
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I've corrected the draw down.
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00:12:15,160 --> 00:12:17,339
I'm going to move to the
sidelines and start fresh.
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Okay.
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Um, the next stage would be,
would be to lock that in.
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00:12:22,605 --> 00:12:25,695
And don't allow your, your draw
down to return and see if the
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00:12:25,695 --> 00:12:27,135
market has room to run again.
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00:12:27,315 --> 00:12:32,385
In this case, if you allow the market
to run and you mitigate your 2%
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00:12:32,385 --> 00:12:41,295
loss after seeing an multiple with
the 1% risk, now you have 1% gains.
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00:12:41,295 --> 00:12:44,685
You know, you have a new equity
high, all in the same trade.
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00:12:45,405 --> 00:12:49,245
All this has been done in the
scope of just looking at once.
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00:12:49,980 --> 00:12:51,870
That you may have messed it up.
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00:12:51,900 --> 00:12:55,050
You may have, um, got in and
got too aggressive about what
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your stop-loss should be.
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00:12:56,280 --> 00:13:00,199
Or sometimes you're just a little
early and it's going to run in and
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00:13:00,209 --> 00:13:03,090
go to a level that would make perfect
sense after you see it, do it.
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00:13:03,540 --> 00:13:07,170
But because some of us are very
emotional and very rushed to
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00:13:07,170 --> 00:13:08,100
get in and make a decision.
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00:13:08,130 --> 00:13:12,630
There's no reason to fear going back
in and taking a look at that trade.
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00:13:13,470 --> 00:13:15,390
Um, how many times have
you incurred a loss?
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And you knew that there was still
probability or possibly seeing that trade
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pan out in the direction you thought it
was going to go initially, but you were
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too afraid to go back in and lose money.
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00:13:26,685 --> 00:13:31,185
If you drop down your amount of
leverage and your total risk.
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Cut it in half.
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Okay.
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00:13:33,675 --> 00:13:36,015
Let's give it a let's play devil's
advocate just for a moment.
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Say we bought this one here.
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Okay.
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00:13:39,405 --> 00:13:42,315
We bought this one here and
then we used a mean threshold
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as a stop and it stopped us.
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00:13:44,895 --> 00:13:49,005
And then we used this down candle
when price ran back down into it.
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00:13:49,335 --> 00:13:49,635
Okay.
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00:13:49,635 --> 00:13:54,845
And we went along and say, for instance,
um, yeah, we did the same thing.
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00:13:54,875 --> 00:13:57,365
We were using this middle of this
candle here and we want to, I have
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00:13:57,365 --> 00:14:01,325
ultra short-term stop-loss and it came
down against us and squeeze us out.
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00:14:01,355 --> 00:14:02,435
Or maybe it scared us.
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00:14:02,795 --> 00:14:03,095
Okay.
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00:14:03,095 --> 00:14:07,055
In the market runs again, when it comes
back down into this order block here,
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00:14:07,655 --> 00:14:08,855
that would be another opportunity.
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00:14:08,855 --> 00:14:12,455
So if you started with, what if you
started with 2% here on this tray?
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00:14:13,605 --> 00:14:15,525
And you got knocked out
and you had a full stop.
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00:14:15,755 --> 00:14:20,625
The likelihood of you having that
probably next to impossible, but we're
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00:14:20,625 --> 00:14:23,985
going to say you took a full stop at
two, 2% here on this implement stop.
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00:14:24,975 --> 00:14:29,655
Say you took a 1% full hit here on this
being aggressive, trying to place your
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stop way too short at the mean threshold.
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Okay.
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And you get stopped out again.
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You would have to go down to one
half, 1% right here, right here.
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Okay.
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So again, with that same mindset, if we
were using an entry on this basis and
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the stock would have to go be below this
low now, look at the range between this
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candle opening right here and this low.
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Think about that in terms of the
range, that would be your risk.
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Okay.
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Watch what happens.
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There's one half of 1%,
1%, one and a half percent.
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2%.
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You still would've made back
your 2% just on that run here.
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So your, your initial large hit
of 2%, even with one half of
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1% would have been mitigated.
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So then you would only be down what,
1% then you can actually let the
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market run or take another setup.
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He doesn't have to come back from it.
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Doesn't have to come back in.
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One trade.
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00:15:36,855 --> 00:15:39,825
In other words, one trade doesn't have
to erase all of your, your losses,
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but don't think that you can't make
the money back or mitigate the losses.
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Okay.
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00:15:46,185 --> 00:15:51,615
Without increasing more risk, you
can actually do it by reducing risk.
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00:15:52,064 --> 00:15:54,314
And I taught this principle.
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00:15:55,935 --> 00:15:59,355
Online and folks that saw it, they
were like, ah, this is stupid.
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00:15:59,445 --> 00:16:04,545
Why would I want to cut my risk or
my leverage down after losing trade?
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00:16:04,965 --> 00:16:10,275
Uh, well it's because equity preservation
is the number one rule in this game.
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00:16:10,995 --> 00:16:15,015
And we don't know with any absolution that
our trades are going to be profitable.
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00:16:15,105 --> 00:16:16,245
So why would anybody.
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00:16:17,130 --> 00:16:22,110
Trader think like a moron and
not dial back their leverage.
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00:16:22,290 --> 00:16:25,800
If they take a losing trade, that
means you're doing something wrong.
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00:16:25,890 --> 00:16:28,860
The likelihood of you going in
and making a winning trade on the
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00:16:28,860 --> 00:16:33,180
next trade as a new trader, highly
unlikely, because you're going to
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00:16:33,180 --> 00:16:35,520
be rushed to get back to square one.
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00:16:35,790 --> 00:16:38,610
You want to get that loss back right
away and emotionally, psychologically.
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00:16:38,850 --> 00:16:43,490
That's what you're thinking, but
it's not necessary to get it back on.
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00:16:44,910 --> 00:16:48,839
But in this example, it's very
important that we can see that getting
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00:16:48,839 --> 00:16:55,860
to that you can get that your full
2%, if that was the case, you don't
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00:16:55,860 --> 00:16:58,439
need to have increased leverage.
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00:16:58,439 --> 00:17:02,579
You don't have to increase your risk,
but you do have to have patience to allow
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00:17:02,579 --> 00:17:07,589
that loss to be mitigated, and you don't
need to do it by scaling up your risk.
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00:17:08,190 --> 00:17:11,790
You actually do it by scaling
back your risk, because it say for
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00:17:11,790 --> 00:17:13,349
instance, that your first hit at 200.
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00:17:14,339 --> 00:17:15,420
You took a 2% loss.
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00:17:15,720 --> 00:17:20,040
How do you know that's not a beginning
of a 10 string losing, in other
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00:17:20,040 --> 00:17:23,760
words, what's to say you don't get
nine more losing trades in a row.
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00:17:24,180 --> 00:17:25,200
It can happen to you.
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00:17:25,500 --> 00:17:26,280
It can happen to me.
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00:17:26,280 --> 00:17:27,150
It happened to anyone.
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00:17:27,630 --> 00:17:31,830
So if you do that and you keep going
at 2% or worse, you increase your.
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00:17:33,110 --> 00:17:34,610
You're throwing good money after bad.
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00:17:34,730 --> 00:17:36,740
You're, you're building toxic thinking.
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00:17:37,220 --> 00:17:40,010
You're allowing yourself to
be beaten down emotionally.
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00:17:40,010 --> 00:17:42,290
You're going to spend a lot of
mental capital and you're going
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00:17:42,290 --> 00:17:44,419
to grow into fear-based trading.
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00:17:44,570 --> 00:17:46,340
And we already spoke about
fear-based trading, what that
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00:17:46,340 --> 00:17:47,960
does in the previous lesson.
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00:17:48,320 --> 00:17:49,580
And we don't trade with that.
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00:17:49,649 --> 00:17:51,230
We want to avoid that mindset.
25099
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