Lecture on Stop Losses

Overview

• Discussion on stop losses in trading
• Use a recent trade as an example
• Outline where to place stop losses in general

Basics of Stop Losses

• Fundamental principle: Stop loss placement should account for liquidity sweeps and break of structure
• Liquidity Sweep: A scenario where price takes out highs/lows to gather liquidity before reversing
• Break of Structure: Indicates a change in market direction

General Placement of Stop Losses

• Above Liquidity Sweep: Common practice to place stop loss above the liquidity sweep
  • If price comes back above the high, liquidity sweep is invalidated
  • Ensures trade bias (direction) was incorrect if stop loss is hit
• Covering Spread: Place stop loss slightly above highs to account for spread differences

Exceptions

• High Liquidity Sweeps: If a liquidity sweep is high, placing stop loss far above can ruin risk/reward ratio
  • Look for other confluences like fair value gaps or order blocks
  • Risk is higher as price may still move within the bias but hit stop loss

Real-Time Trade Analysis

• Example trade setup exploration
  • Stop loss reviewed based on recent trade where break of structure and liquidity sweeps observed
  • Importance of covering spread explained
  • Mentioned risk tolerance and account management influencing stop placement

Risk Management and Adjustments

• Adjusting lot sizes based on market conditions
  • High impact news or bank holiday can reduce lot size to manage risk
  • Example: Reducing lot size to half due to high impact news and upcoming bank holiday
• Understanding risk tolerance and stop loss placement
  • Stop loss should mark the invalidation point of trade bias

Additional Considerations

• Invalidation Point: Key concept where if hit, the initial trade idea is considered wrong
• Daily Bias vs. Trade Bias: Sometimes overall market moves correctly but individual trades still fail
• Using set lot sizes for different situations
  • Discussing in future lectures on calculating lot sizes and risk

Reminder for Upcoming Events

• Don't trade during bank holidays or US bank holidays which can affect market liquidity
• Upcoming topics: Set lot sizes, calculating risk, and better understanding low-level trading aspects

Conclusion

• Importance of finding invalidation point and understanding risk tolerance
• Emphasis on learning from trades that hit stop loss
• Reminder to avoid trading during low liquidity periods