ICT Mentorship: Profitability Despite Losses

Key Points

• Topic: Understanding how losses in trading do not necessarily impact long-term profitability.
• Fear-Based Trading: Leads to poor decision-making and limits effective trading.
• Losses: Inevitable but manageable as part of doing business.

Important Concepts

• Professional Equity Management: Acknowledges losses as business costs.
• High Probability Setups: Generate returns despite losses.
• Reward to Risk Ratios: Essential for profitable trading (e.g., 3:1, 5:1).

Framing Trades

• Market Setup and Risk/Reward Multiples:

  • Use of market structures such as the "bullish order block."
  • Identifying support levels such as fair value gaps.

• Mean Threshold: Used as a parameter to avoid closing below a certain level.

• Trade Example:

  • 20 pip stop loss for framing reward multiples.
  • Risk setups encouraging 3:1 and 5:1 reward to risk ratios.

Hypothetical Trading Scenario

• Account Example: $5,000 with low accuracy (30%).
• Risk Management: 1% risk per trade.
• Reward to Risk Ratio: 3:1.

Sample Set Analysis

• 10 Trades: 3 wins, 7 losses.
• Results:
  • Average win: $150
  • Average loss: $50
  • Net outcome: $450 from wins - $350 from losses = $100 net profit.

Higher Reward to Risk Example

• 5:1 Reward to Risk:
  • Winning trades: 3 wins at $250 average = $750 subtotal.
  • Losing trades: 7 losses at $50 average = $350 subtotal.
  • Net profit: $750 - $350 = $400 (8% return).

Increase in Risk and Accuracy

• Risk 2% per Trade:

  • Average win: $500
  • Average loss: $100
  • 15% return with low accuracy (30%).

• Accuracy Increase to 40%:

  • 4 wins, 6 losses.
  • $2,000 profit - $600 loss = $1,400 net profit (28% return).

Optimizing Trading Goals

• 50% Accuracy:

  • Reward to Risk: 5:1, Risk per Trade: 1%.
  • Results: $1,250 profit - $250 loss = $1,000 net profit (20% return).

• Trading Strategy Benefits:

  • Focus on framing trades for optimal returns.
  • Low risk, high reward model.
  • No need for high accuracy.
  • 1% risk per trade yields substantial returns.

Conclusion

• Losses as Costs: Accepting losses as part of trading.

• Long-Term Strategy: Focus on risk management and reward to risk ratios.

• Goal: Maintain profitability with a balanced approach to risk and reward.

• Advice: "Keep risk low, aim for high reward to risk ratios, and manage losses as part of the trade journey."

• Future Outlook: With experience, accuracy will naturally improve, aiming for at least a 50% success rate without needing excessive accuracy.