Part B · Trade — Chapter 9

Stops = invalidation; Plan A/B/A2/C

After this: put the stop where your reasons die, and always know which plan (A, B, A2, C) you're in.

Justification, expectation, invalidation

Know the three "-ations" and "forget about the fourth one, which is liquidation". "Your justification for why you're in a trade is also the exact same reason as to why you would exit the trade." It works with any system (Ichimoku, Elliott, anything) as long as you know these three.

flowchart LR
  J[Justification:
why I am in] --> E[Expectation:
where it should go]
  J -. same reasons, inverted .-> I[Invalidation:
exit]

▶ Stop Loss 0:50 ▶ Stop Loss 1:25 ▶ Stop Loss 10:50 ▶ Watchlist W16 6:21 both

The stop goes where all three reasons flip

He's long because of the 200s, structure and a gray box. The invalidation is below 30m 200s + downtrending structure + lost boxes, all three. "Unless those reasonings are fully washed away there's not really much of a reason to call your trade invalid." One wobble is not an exit.

Above the line, at least one reason still stands.

▶ Stop Loss 1:34 ▶ Stop Loss 2:59 ▶ Stop Loss 10:28 ▶ Stop Loss 11:10 ▶ Stop Loss 11:28 both

Scaled stop: double the R, lower the odds

The textbook stop "killed your RR". A scaled stop hides below the mini structure + 30m 200s + demand ("if those break I'm mostly invalid"). It can "quite literally double up your RR", but probabilities skew slightly against you. Know that you did it. With no micro structure to hide under, it's just arbitrary. The textbook version here was 2.5R: "I probably don't even take that trade."

Tighter stop, bigger R, more wick-outs.

▶ Stop Loss 3:11 ▶ Stop Loss 5:24 ▶ Stop Loss 4:56 ▶ Stop Loss 6:23 ▶ Stop Loss 6:54 swing

Stopped out? Same thesis, one timeframe up

Losing the 30m 200s kills the 30m trade, not the idea. Look for the HTF trend retest (4H 200s) and apply the same three parts there. That trade is invalid only if daily structure breaks and the 4H 200s are lost and daily demand goes.

Reason	30m trade	Higher-TF trade
Trend	above 30m 200s	above 4H 200s
Structure	30m HL intact	daily structure intact
Zone	local demand	daily demand
Invalid when	all three lost	all three lost

▶ Stop Loss 7:28 ▶ Stop Loss 8:19 ▶ Stop Loss 11:46 ▶ Stop Loss 12:45 ▶ Stop Loss 13:19 both

One line in the sand

Name the single level that decides the trade. At BTC's 4H 200s he said "this is basically the line in the sand for me". If the confluence stack goes, price heads to the range lows "regardless of which low your stop is under". Once the key HTF zone is lost, fine-tuning the stop doesn't matter anymore.

One level, two pre-planned outcomes.

▶ Watchlist W16 2:11 ▶ Watchlist W16 3:51 ▶ Watchlist W16 5:41 ▶ Top 5 + BTC 22:05 both

Your edge is knowing when not to use your system

"No indicator is actually profitable." Shorting every RSI bear divergence loses. The edge is spotting which one is different. "Discretion is the ability to know when not to apply something", and algorithms can't turn themselves off. Knowing when not implies knowing when to. The reverse isn't true.

Same MA, same rules. Only one zone pays.

▶ Giving Back 0:07 ▶ Giving Back 0:56 ▶ Giving Back 1:21 ▶ Conviction 6:30 ▶ Conviction 7:28 ▶ Top 5 + BTC 10:03 both

Plan A → B → A2 → C

Plan A is the thesis (e.g. trend along the 200s). Plan B is when A is invalid: "it's not that we're bearish now, it's that this trend is bearish", so expect a deeper pullback. Plan A2 is a reclaim of "the exact same thing that has allowed for this profit": re-enter with the stop below the MAs + recent structure + local demand. If A2 fails, don't go back to B. That's Plan C: "totally reassess". Three bias shifts in three days (~2% each) means the environment changed, so hide the MAs and think like a range trader (Ch 4).

stateDiagram-v2
  direction LR
  A: Plan A · thesis holds
  B: Plan B · thesis invalid, expect deeper pullback
  A2: Plan A2 · same thing reclaimed, re-enter
  C: Plan C · reassess, range mindset
  [*] --> A
  A --> B: loses the trend MA
  B --> A2: reclaims it
  A2 --> C: fails again
  C --> [*]: act only on the range break

▶ Giving Back 3:06 ▶ Giving Back 6:13 ▶ Giving Back 8:27 ▶ Giving Back 9:48 ▶ Giving Back 10:30 ▶ Giving Back 12:16 ▶ Giving Back 14:42 both

If → then

Stop = where every entry reason has flipped. Not before.
Textbook R ≈ 2.5 or less → probably skip.
Tighter stop than textbook → you bought R with probability. Know it.
Stopped on the LTF, HTF still up → same setup on the next TF (4H 200s + daily).
Plan A invalid → B (deeper pullback). Reclaim → A2. A2 fails → C, never back to B.
3 bias flips in ~3 days → Plan C: range mindset, act only on the break.