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ICT Mentorship Core Content - Month 02 - No Fear Of Losing
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ICT Mentorship Core Content - Month 02 - No Fear Of Losing

Introduction

The speaker introduces the topic of why losing on trades won't affect your profitability and explains how fear-based decision-making can negatively impact trading.

Losing Trades and Fear-Based Decision Making

  • Fear-based decision-making promotes adverse focus, trade paralysis, and inability to execute efficiently.
  • Equity managed by traders who cannot take a loss cannot profit long-term.

Achieving Profits Despite Taking Reasonable Losses

  • Professional equity managers understand that losses are costs of doing business.
  • Using sound equity management and high probability setups yield handsome percent returns.
  • Trading scenarios that encourage potential three to one reward ratios provide an initial foundation.
  • Defining trade setups that frame five to one reward to risk or more efficiently cover losses.

Framing a Trade

The speaker provides an overview of framing a trade using a bullish order block as an example.

Using Bullish Order Block as Example

  • Market returns to previous institutional area of buying noted by the down candle prior to the previous rally higher.
  • High to open price defines fair value gap or most probable support in retracement into order block.
  • Mean threshold is defined by middle of down candle inside retracement into order block; this is used for hypothetical long entry on secondary bullish order block.
  • 20 pips used as trade stop loss easily frames reward multiples of three to one reward the risk and five to one reward the risk or even higher; nearly an old high 20 pips above it gives us a nice objective above where price would be retreating to.

Justifying Taking Losing Trades

The speaker explains how taking losing trades can still lead to profitability.

Sample Set of 10 Trades

  • Hypothetical account size of $5,000 and low accuracy rate of 30%.
  • Looking for trades with a reward to risk ratio of three to one.
  • Risking one percent of the account on each trade.
  • Average win should be $150 and average loss should be $50 or 1.

Net Positive Profitability

  • Out of ten trades, assuming three wins and seven losses.
  • Subtotal for the three wins at an average profit of $150 would bring us to a $450 winning basis on the three trades out of ten that were winners; subtotal for the losses would equate to $350 or 7 times $50 of an average loss.
  • Even in this low accuracy rate with a multiple of three to one, you still can marginally eke out a net positive profit; two percent return over ten trades in a month is an amazing return for managed funds.

Managed Funds

This section discusses the profitability of managed funds based on reward to risk multiples and accuracy rates.

Reward to Risk Multiples of 5 to 1 with 30% Accuracy Rate

  • With a focus on reward to risk multiples of five to one, a sample set of 10 trades, and an accuracy rate of 30%, the average profit for three winning trades is $250.
  • The average loss for seven losing trades is $50, resulting in a net profit of $400 or an 8% return.
  • A low accuracy rate of 30% can still result in a wonderful monthly return with the right framing of reward to risk multiples.

Reward to Risk Multiples of 5 to 1 with Increased Risk

  • With the same reward to risk multiple and accuracy rate as before, but now risking two percent per trade, the average win jumps to $500 and the average loss jumps to $100.
  • Three winning trades at five hundred dollars each bring us a subtotal of fifteen hundred dollars. Seven losing trades at an average loss of one hundred dollars give us a subtotal of seven hundred dollars.
  • This results in a net gain of $750 or a 15% return.

Increased Accuracy Rate with Same Reward to Risk Multiples

  • An increase in accuracy from 30% to just 40% can result in a twenty-eight percent return with the same reward-to-risk ratio and two percent maximum trade risk.
  • With a further increase in accuracy to 50%, half of the trades are winners and half are losers, resulting in a net profit of $2000 or a forty percent return.

Conclusion

  • High accuracy is not necessary for making ridiculous returns. Framing reward to risk multiples in your favor is more important.
  • These examples are hypothetical, but they demonstrate the importance of framing trades with the right reward-to-risk ratio and managing risk effectively.

Optimal Trading Goals

In this section, the speaker discusses how to achieve optimal trading goals by framing trades around a five-to-one reward-to-risk model and keeping risk low.

Achieving Optimal Trading Goals

  • Multiples can increase without increasing the number of trades or risk per trade.
  • With an accuracy rate of 50%, lowering risk per trade to 1% means an average win drops to $250 and an average loss is down to $50.
  • Five winning trades out of ten with a profit of $2,250 and five losing trades with a loss of $50 each gives us a net profit of $1,000.
  • By framing trades around a five-to-one reward-to-risk model and risking only 1%, traders can achieve a rate of return of 20% per month even if they are only accurate half the time.
  • One percent risk per trade is enough to make millionaires.

Managing Other People's Money

  • Large funds look for one to two percent returns per month with thirty percent accuracy and one percent risk per trade using three-to-one rewards-to-risk models.
  • Traders do not need astronomical rates of return per month to manage other people's money. A rate of return between one and two percent per month would be sufficient for most investors.
  • Framing trades around a five-to-one reward-to-risk model while keeping risks low allows traders to yield handsome results without forcing performance.

The Importance of Risk Management

In this section, the speaker emphasizes that traders need to frame their trades with good multiples of reward to risk and keep risk managed and defined.

Key Points:

  • Traders should have a column of all their wins and losses.
  • Losses may be long in the list, but it does not remove the profitability factor.
  • Good multiples of reward to risk are essential for framing trades.
  • Keeping risk managed and defined is crucial.

Calculating Dollar Per Pip

In this section, the speaker explains how to calculate dollar per pip using an example with a 20 pip stop.

Key Points:

  • To calculate dollar per pip, take one percent of $5,000 (which is $50).
  • Divide your stop loss by $50 to get your dollar per pip.
  • Use leverage for your trade based on your calculated dollar per pip.

Building Trading Principles

In this section, the speaker highlights that traders do not need high accuracy rates. As time goes on and traders grow in proficiency and understanding about price action, their accuracy rate will increase.

Key Points:

  • High accuracy rates are not necessary for trading success.
  • Proficiency and understanding about price action will increase over time.
  • Accuracy rate will increase as traders grow in proficiency.

Conclusion

In this section, the speaker concludes by wishing viewers good luck and good trading until the next discussion or teaching session.

Key Points:

  • Good luck and good trading!
Playlists: 2016 ICT Private Mentorship Core Content Month 02
Video description

2016 Premium ICT Mentorship Core Content Video Lectures Audio and visuals are exactly as they were distributed in October 2016. CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN Trading performance displayed herein is hypothetical. Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance trading results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results. U.S. Government Required Disclaimer – Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with money you can’t afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results. Trade at your own risk. The information provided here is of the nature of a general comment only and neither purports nor intends to be, specific trading advice. It has been prepared without regard to any particular person’s investment objectives, financial situation and particular needs. Information should not be considered as an offer or enticement to buy, sell or trade. You should seek appropriate advice from your broker, or licensed investment advisor, before taking any action. Past performance does not guarantee future results. Simulated performance results contain inherent limitations. Unlike actual performance records the results may under or over compensate for such factors such as lack of liquidity. No representation is being made that any account will or is likely to achieve profits or losses to those shown. The risk of loss in trading can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. If you purchase or sell Equities, Futures, Currencies or Options you may sustain a total loss of the initial margin funds and any additional funds that you deposit with your broker to establish or maintain your position. If the market moves against your position, you may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice in order to maintain your position. If you do not provide the required funds within the prescribed time, your position may be liquidated at a loss, and you may be liable for any resulting deficit in your account. Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example, when the market makes a “limit move.” The placement of contingent orders by you, such as a “stop-loss” or “stop-limit” order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders.