okay folks welcome back this is teaching number five in the second month of the ICT mentorship we're talking specifically about how to mitigate losing trades effectively we're gonna look about look back at the same sample size of price action and we're going to go through it a little bit differently and we're going to assume that we were studying this particular asset class or Market if you will and we go through our standard markup of the market setup and framing the risk and reward multiples and we noted the little shoulder 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 uh we saw this down candle here okay it's all supporting the 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 Along on this position okay and understanding the mean threshold we don't like to see the
middle of the down candle on a bullish order 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 threshold and there's nothing wrong with that normally but let's just say for instance you did that and you got stopped out okay what would you do let's assume you you did that and you got stopped out what would you do obviously I'm going to throw you a plot twist you can say yeah you got
a stop out here and you took a full two percent loss or if you're a hot shot and you think you're really you an elite Trader if you will you risk more than two percent 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 that's a problem but we don't need to take huge risks 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 stop was below the mean threshold and it hit our stop let's assume for a moment that our maximum leverage and risk on the trade would be at a full two percent well that means we'd have to take another look at the same trade and reevaluate whether or
not it's something we can still trade obviously we had our mindset on this potential setup initially but if the trade hasn't completely unraveled just because it swept us out below the mean threshold on our initial try going long 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 forms 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 and 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 difference is 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 our trade around so the market has created a down candle we showed and Williams to run away off support of a previous down candle which is a bullish order block 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 use the bottom of the candle as our stop loss what 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 two percent on the first trade we have to go down to one percent if we were trading with one percent and we took a full loss on the initial trade we would have to drop down to one half of one percent
of our total Equity base now if the initial loss was two percent of the equity base this trade again would be one percent of the equity base in total risk so we're defining the trade by entering at the top of this body's uh or this down candle we get the opening so we'll be getting long 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 fill this is our total risk stop below the order block main thing is is we're using half of the leverage and 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 loss hypothetically and we're
going to frame out the idea that the same thing would be seen hopefully if we're right in our directional premise with one movement up that would be a multiple of R1 so if we have one percent at risk defined by the entry in here and stop below here once we get to this price point here we're already at one percent return 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 two percent mitigated in other words our
losing trade that we just had using half of the initial risk is already mitigated now at this point here this is one of those instances of your 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 two percent full stop
out and back take it off close the week flat do not go into the weekend with a net 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 so notice that at mitigating two percent of the initial trades loss or the initial
trades uh um total loss of two percent 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 two percent a hit on our equity and it hasn't even really fully moved to our objectives obviously with some multiple of 3r 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 percent loss once it's been mitigated you're going to lock that in so your trailing stops also 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 cannot take you back down below
um your Equity uh uh reference point before the drawdown ensued once we get a multiple of R3 okay in my opinion that's about where you want to take your profits and square it off so either you take it off once you mitigate your loss entirely when you get R2 okay because 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 R2 to get that trade paid back to you okay and how many times
have we talked about opportunities how there are so many opportunities of 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 R2 or the mitigation of your initial loss you want to lock that in and then give
the market room if you're going to not take the the two percent back off or whatever that initial loss was if you don't take it off and repay your drawdown and bring you back to the equity base Equity High rather prior to the drawdown you and so uh you want to at least lock that in initially as your developing Trader you want to just take it off the table and just be thankful that you got it back as you grow into the next stage of the development you want it to start locking in your stop
loss after you get your 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 drawdown I'm going to move to the sidelines and start fresh okay the next stage would be would be to lock that in and don't allow your your drawdown 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 two percent loss after
seeing an R2 multiple with the one percent risk now you have one percent gain so now you have a new Equity High all in the same trade all this has been done in the scope of just looking at one setup that you may have messed it up you may have got in and you got too aggressive about where your stop loss should be or sometimes you're just a little early and it's going to run and go to a level that would make perfect sense after you see it do it but because some of us are
very emotional very rushed to get in to 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 uh incurred a loss and you knew that there was still a 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 get uh 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 the mean threshold as a stop and it stopped us out here and then we used this down candle when price ran back down into it okay we went long and say for instance um you know we did the same thing we were using this middle of this candle here and we want to have Ultra short-term stop loss and it came down against us and squeezed us out or maybe it scared us okay and 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 two percent here on this trade here and you got knocked out and you had a full stop the likelihood of you having that probably next to the impossible but we're gonna say you took a full stop at two two percent here on this on the stop say you took a one percent 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 one percent 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 load now look at the range between this candle's 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 one percent one percent one and a half percent two percent you still would have made back your
two percent just on that run here so your your initial large hit of two percent even with one half of one percent would have been mitigated so then you would only be down what one percent and you can actually let the market run or take another setup it doesn't have to come back from it doesn't have to come back in all 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 I taught this principal years ago online and folks that saw it they were like uh this is stupid why would I want to cut my risk or my leverage down after a 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 trade's going to be profitable so why would any Trader think like a 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 emotionally psychologically that's what you're thinking but it's not necessary to get it back on the next trade but in this example it's very important we can see that getting to that R3 you can get back your full two percent 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 if say for instance that your first hit at two percent you took a two percent 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 can happen to anyone so if you
do that and you keep going at two percent or worse you increase your risk 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 uh lesson and we don't trade with that we want to avoid that mindset
