Transcription
Hey, what's up guys? Mean here. This is the 16th episode of the whiteboard series. In this video, we're going over stops, take profits, and reward to risk.
Here's the thing, you can have the perfect entry and still lose money. That's because your entry is only part of the trade equation. You need to know where your stop goes, where you're taking profit, and if the reward to risk ratio makes that trade worth taking. So, in this video, we're going to cover all of that. I will give you a complete framework on how to place your stops, where to place your TPs, and reward to risk math that will allow you to lose more than half your trades and still remain profitable. Let's get into it.
Let's start by talking about stop losses. One of the most common mistakes people make in trading is improper stop loss placement. Your stop loss, quite simply, equals where your trade idea is invalidated. Okay? So, your stop equals invalidation of your entire trade idea. Your stop doesn't go where it gives you a favorable reward to risk. It doesn't go at a fixed number of points or under a certain round level or where you just think it looks good. Your stop goes where your trade idea is invalidated.
Now, this is actually the simplest part of this entire video because of all the work that we did leading up to this. If your stop goes where your trade idea is invalidated, well, first thing we need to know, which we've already figured out in these videos, is what validates our trade setup. So, I'd given you two different entry models, but they work the same way and I'd given you two different conditions. So, the entry models involve you entering on some sort of 5-minute or 15-minute or could even be an hourly model within a high time frame point of interest. So, when price comes into our high time frame point of interest, right? Say this is an OB. I'm going to look for my 15-minute model or my 5-minute model to be present here. So, I might look for the 1-hour to shift, right? And then within that 1-hour, I'm going to be looking for my 5-minute model to form, right? Breaking market structure, fair value gap, is shifting the direction of the high time frame. So, we know that the validation of our trade setup is high time frame confluence, high time frame POI, 4-hour or 1-hour setup, and then a low time frame model. If this is where our trade idea is validated, our stop loss is on invalidation. Well, price trades back through that structure, we've been invalidated. It's really that simple.
So, when it comes to reversals, if you remember, we're trying to time the daily reversal, I want to see my model present itself, right? And then I want to put my stop loss below the high time frame point of interest, PD array, whatever you want to call it. So, my stop is here. That means price can come down, trade lower, and then still end up reversing, and I'm okay cuz my trade idea is not wrong until down there. For the continuation model, right? Price is already started to reverse, I can put my stop loss below the swing low that gave me the market structure break. Because this structure is what validated the setup, the model. This structure is what validated and set up the model. So, invalidation is if we trade back through that structure. It's that simple. If we lose the structure and the model that gave you the trade that made it a valid setup, loss of that structure is your stop loss. Is your invalidation. So, that's actually the easiest part of this entire video. Your stop loss goes where your trade idea is invalidated. Nowhere else. If you remember anything from this first section, it's this line right here. Your stop equals your invalidation. That's it.
So, improper stop loss placement is a major reason why people lose money trading. They have no longevity. They blow up their accounts. But, behavior is another major reason why people find it difficult to stick with their stop losses. Their behavior, their emotions. We are emotional creatures. You're an emotional little monkey, like I told you in the last video. So, I'm going to give you three rules to help you with this. And as with everything in this video series, this is more beginner to intermediate friendly. As you get more advanced in your trading, of course, you can move your stops around and you can be a little bit more finesse with your trade management. But, early on, the more mechanical, the more robotic, the better. So, here's three simple rules that you can stick to to help you actually follow your stop loss and risk management plan.
So, rule number one, some of you might not like this, but your stop loss is a hard order that goes on right away. All right? So, what do I mean by this? Your stop is not a mental stop. Well, if price comes down to here, you know, I'll I'll close. No. Your stop is an order that you put on the market. Limit order. So, it's there. The moment you enter that trade, your limit order to stop you out of that trade is put on at the same time and it is a hard order that is actually placed on your trading platform. Again, not a mental stop. A mental stop is like a negotiation. And you're going to say, "Oh, you know what? I'll just hold a little longer, a little longer." Next thing you know, you're destroyed, okay? You've blown up your account because you got fearful, you didn't want to close because you didn't want to realize the loss. It's a hard order, okay? So, your stop is a hard order that goes on right away. As soon as you put in your entry, you're putting in your stop at the same time. All right? Not if it closes through this level, not I'm going to stay up and watch it. I can't even tell you the amount of times that I told myself, "Okay, I'm going to close if price goes below here." And then I've fallen asleep. And then I wake up and price is way lower than where I told myself I was going to close, or I convinced myself not to close here and held for an even bigger loss. There's nothing worse than a loss becoming bigger than it should have by not putting your stop loss on. So, stop loss hard order goes on right away, whether you like it or not, okay?
Number two, you're probably not going to like this either, but no widening your stop against you. If your stop is below this order block here, and price comes down here, there's no okay, I'm just going to move it down a little bit. I'm going to give this trade a little bit more room to breathe. And then what happens? It ends up taking out what would have been your original stop and then your new stop loss placement. There is no widening of your stop against you. Now, if price is moving in your direction and you want to trail your stop up, lock in profits along the way, by all means go for it. But you do not move your stop away from where it was originally. Not only because this is going to happen here, but also the entire mathematical equation that we're going to get into later in this video to determine your position size, the reward to risk ratio, is all based on your original stop loss placement. If you move your stop wider against you, you're now exposing more money that you can lose in that trade than you had originally planned. It's going to mess up all the math, and it's also going to mess you up mentally. Because all of a sudden that $1,000 you're ready to lose, well now it's 1,500 bucks, or maybe it's $2,000. So, no widening your stop, not once, not ever.
The third rule, this is one I hope that you've heard before, but your position size comes from your stop. All right? Most people quite literally just randomly choose how big of a position they want to enter. They don't understand leverage, they don't understand margin, they don't understand risk management or position sizing. Your leverage and margin have no effect on determining your position size. It's not even part of the equation. So, your position size comes from your stop-loss placement. So, that's why it's so important to know where your stop-loss is, cuz you need to know where your trade idea is wrong, where you're entering your trade, and then you need to know how much you're willing to risk to actually determine how much you should put on in that position. And I'm going to give you the actual equation here, okay? So, your position size is an equation, and it is your risk percentage, all right, times by your account balance, divided by your entry minus your stop. Notice how in this entire mathematical equation here, margin, leverage, it's not part of it.
So, if you want to know how much Bitcoin you should enter, okay, you want to long Bitcoin, you want to know how much should I enter? Well, first of all, how much are you willing to lose? We've talked about risking 0.5%, 1%, 2%. So, for easy math, let's say you're willing to lose 2% of your account, and your account is a $100,000. Okay? So, your position size is going to equal 2% multiplied by 100 grand. Now, the second part of this equation, the denominator, right, is where's your entry and where's your stop. So, if I say my entry, just again, this is for easy math here cuz I'm not a rocket scientist. Let's say we're entering at 100,000 Bitcoin, and our stop loss is going in 98,000. Just for really simple math here. 2% * 100K means I'm willing to risk $2,000 on this trade. And my 100,000 - 98,000, that's also $2,000. This entire equation equals out to one. So, in this case, we're trading Bitcoin, so this is one Bitcoin. So, if you have a Bitcoin long where your entry is 100K, and your stop loss is at 98K, if you long one Bitcoin, you will only lose $2,000 if you're stopped out. Obviously, there's fees involved, but does that not make sense? You long one Bitcoin, your stop loss is $2,000 below. You lost $2,000.
Why is this so important? Well, you want to know exactly how big of a position you should have to ensure that you're only risking the amount you want to lose. If I only want to lose $2,000, and I enter at 100K, and my stop loss is at 98K, but I go in long five BTC, if I get stopped out, I'm getting whacked for 10 grand. This also goes back to point number two. The reason we don't widen our stop is because our position size math is based on our original stop loss placement. If I all of a sudden change this to 97,000 because I say, "Oh, I don't want to close that trade." So, I'm going to move my stop down a thousand dollars. Well, instead of losing 2,000 like I planned, if it goes down to 97k, I've now lost $3,000. So, I've lost more money than I originally planned to. So, that's why number two is so important because that original stop loss placement determines your position size.
So, you're never going to have to do this math yourself. Every modern trading platform is going to have a order entry window where you can put in your entry, your stop loss, your take profit, and then you can just solve for X, fiddle around with the position size until you get to a point where the amount you're going to lose on a stop out is equal to this top line, which is the risk amount you're willing to take. Now, I've given you guys 0.5 to 2%. I think that's pretty good keeping in mind you have multiple trades open, correlated assets. You have five trades each risking 2%. All of a sudden, you have 10% out in the market. So, you got to keep that in mind when you're doing your math. But, this is how you get your position size. It's a function of where your entry is and the distance to your stop, which is dividing the risk percentage you want to risk on your account. So, whatever size your account is, multiply that by this risk percentage you want, divide it by entry minus stop. That will tell you exactly how much of that trade to enter. And this math could be done for any coin. Let's say you want to long hyperliquid. Okay? And this time you have a $10,000 account. We want to risk 2% times our $10,000 account. Okay? So, in this instance, we only want to risk 200 bucks. Let's say your entry is at $60 and your stop loss is going to go at 50. Okay? That's 10. How many times does 10 go into 200? 20. You are going to long 20 hype tokens. And if hype goes from 60 to 50, you're only going to lose that $200 that you wanted to. Again, you're not going to have to do this math yourself, but it's important to understand it so you can see where your position size come from. And again, leverage, margin, all of that stuff is not part of the equation. Know where your entry is, know where your stop is, know what you're risking, you can determine your exact position size. And your position size should be static. You're not moving your position size up and down all willy-nilly. Your position size should be a fixed percentage somewhere in this range, in my opinion. And as your account scales, that 2% becomes a bigger number. If you have a $100,000 account, 2% is 2K. All of a sudden, you now have a million-dollar account cuz you're a Chad who's been crushing trading. That 2% is now 20K. If you're like, "Damn, 20K is a lot of money. I know what 20K can buy me. I'm worried about risking 20K." It's just 2%. So, you want to think in terms of risk percentage, not dollar amount, all right? So, that's the third behavioral rule. If these even count as behaviors, I don't know. Um but your position size comes from your stop.
Now, everything here has one common thread that people get wrong. And people always think reward first. How much money am I going to make if I get this trade right? If I get long five Bitcoin right now and it goes up 10 grand, I'm making $50,000. Most people don't think of what happens if things go wrong. The negative outcome, you're going to get stopped out, is as likely, if not more likely, than the positive outcome in which you make money. So, I want you to frame all of your decisions when it comes to trading as what is the worst-case scenario? The worst-case scenario is I get stopped out. So, before you even enter a trade, you need to know exactly what that worst-case scenario is. If I get stopped out based on my position size, stop-loss placement, all this stuff, exactly how much money do I stand to lose? If you frame things through that perspective, it's going to make it a lot easier to hold your trades cuz you already know the worst outcome of this trade, right, is losing $2,000. That's the worst-case scenario. So, if you're in drawdown and you're down 1,000 bucks, that's fine cuz you're comfortable losing up to 2,000 before you even entered the trade. So, have a risk-first mindset with this stuff. It's going to make you have way more longevity in your trading career. What happens if it goes wrong? You can figure that number out before you even enter the trade.
The last thing I want to touch on in this section is back to episode 3 on liquidity. If you remember from that episode, we talked about liquidity pools. Well, where are they sitting? Well, if you have a bunch of equal lows, right, bunch of people are going to cram their stops there. If you have a very obvious swing point, right, bunch of people are going to put their stops there. That liquidity is going to be hunted by the market makers, the people moving the market around, the big money, whatever you want to call it. For what? Well, they want to fill their orders. They want to take out that sell side and get more long before ramming price higher. So, don't put your stop in those obvious places. Now, your stop goes where your trade idea is invalidated, but if you're trading how I taught you, we're on these types of moves, not at these obvious levels where everyone's stops are, right? We're actually entering where everyone's stops are, generally. We're waiting for that sweep to happen. One of the reasons, if you watch any of my videos, you see me always trade SFP setups, it's because that SFP is the stop run on the obvious liquidity, which gives me confidence that my stop placement should be safe. Obviously, nothing's 100% safe, but if you find yourself putting your stops in obvious places where everyone else is, and you get stopped out, again, don't be surprised, okay? So, we don't want to put our stops in those obvious placements, those liquidity pools, and remember again from episode three here, give yourself some space. So, if you're entering based off this order block, don't put your stop on the exact low tick of that order block. There's slippage, there's little wicks, little inconsistencies, and if price trades $1 below that order block for even a second and it triggers you, you really don't want to be, you know, getting wicked out at the peak or low. Give yourself a little bit of breathing room, and take that into consideration when determining your position size.
Next section here, we're going to talk about take profits, also known as like TPs. So, phase one, what's this entire model based on? Internal range to external range, this ebb and flow between internal range liquidity to external range liquidity. So, depending on what you're using for your entry, are you entering after we took out external range, are you entering after we took out internal range, the inverse is actually going to be your target. So, if we're entering on a pullback into the dealing range, into an order block, that's internal range liquidity. So, where's our target? Well, it's going to ultimately be the external range liquidity at the top of that range. Yes, there's going to be some internal range liquidity in here, right, within the range, that could be used for partials, but ultimately, we're targeting that external range liquidity. Conversely, if we're entering off of some sort of external range sweep, right? Okay, well, we just swept external range liquidity. We're now going to go look in TP at internal range liquidity. Okay, so if you're entering based on external, ultimately you're targeting internal. If you're entering based on internal, ultimately you're going to be targeting external. So now the question isn't, you know, what are you targeting? That's actually pretty obvious. The entire system is based on this kind of, you know, dance between these two types of liquidity. It's how you actually take your profit. Do you take it all at the same time? Do you take partials? So let's talk about that now.
So we understand internal to external range, where you enter, that's going to determine where you take profit. Now the next question a lot of people have is about partials. How do you actually secure the bag as the trade is going on? Make sure you don't round trip everything. Or if you take profit and then price keeps going and you're like, man, I wish I had some skin in the game still. So partials are a little bit tricky and honestly it's very subjective. The way that I trade and the way that I share my trades with my community is assume I closed 100% of the trade at two to one. Unless stated otherwise, cuz I'm not usually taking a trade and we'll get into this in the next section, unless it's a minimum of two to one reward to risk. Meaning for every dollar of risk I have, I'm making $2 if it goes in my direction. So I just tell them after it's hit two to one, I'm not even going to update the trade anymore. If you want to close it here, great. If you want to hold the whole thing for higher, by all means. Now ultimately, you're going to have trades that you take where two to one, your entry is here, your stop is here. Two to one is right there. But our ultimate target is up to here. So how do we account for that? How do we manage that? Partials is the way that we do that. Now there's no hard and fast rules on exactly how you do this. The way that I do it in particular is I take my trades off in increments of either 25% or 1/3. So, generally, as price is going in my direction, if we hit an obvious area of internal range liquidity on the way to my ultimate target, like there's a some equal highs, a swing high there, I will take off maybe 25% or 1/3 of the trade. By the time my trade hits two to one, I am taking at the bare minimum 50 to 75% of the trade off or 2/3. So, by the time my trade gets to that two to one RR, I've closed 50 to 75% of it, maybe some on the way, but at least by the time we get there, I'm mostly out of this trade, and the remainder, the remaining 25 or 1/3, is my moon bag. So, if I close 75% here, and then price does this, okay, I still got a little bit of skin in the game. So, what you've done is you've removed some of that emotional load from the trade because you've locked in some money at your desired place, you've prevented yourself from turning a winner into a loser by not closing anything and having it round trip, and you've positioned yourself for if price is going to go to this ultimate target and you did indeed time the literal daily reversal, you still have some skin in the game. A perfect example is the Bitcoin trade that we covered in the 15-minute model that I just recently took with you guys from a couple weeks ago, where we long Bitcoin at like 59k. And then price went up like this, and I because my stop was so tight, it was at like 57, by the time we got to 63, I was already up three R, and I TP'd the majority of my trade. We're now trading at 66,000. But because I TP'd the majority of it, locked in my trade, I still had a moon bag for that additional little upside. So, this is how I do it. Again, this is a little bit more subjective. Early on in your trading career, this is advice I always give. Your stop, entry, and target should be set at the start of the trade, and you shouldn't touch it. You shouldn't do partial TPs. You shouldn't adjust your stop to break even because price can come back down your entry and then go up, and it's still valid. Your entry was an entry. Why would it be a good place for your stop, right? Trailing your stop up. Oh, you trail your stop up to swing low, it gets stopped out, and then it continues, right? Moving your stop around, moving your take profit further and further, and then it doesn't get there, and you round trip. All of this advanced trade management stuff, I think should come later. I think early on, you should focus on entering the trade, putting your stop on right away, and then taking profit at two to one at least. Be simple, be robotic, be mechanical, and then as you get better and you get more consistent, you can start messing around with trailing your stop up, partial TPs, things like that. But if you're going to do partials, this is how I do it. I'm out of the majority of the trade at two to one, unless I plan for the trade to be three to one or something like that. I'm aiming for a minimum of two to one. That's where I'm taking the majority of my profit, and then I will take my partials in either 25% or 1/3, 33.3 repeating percent increments. The trade journal that I shared on Trade Zella with all the trades I've taken in the Haven on a 100K account, I used a static 2% risk, and I closed the trades primarily at two to one R. So, risking 2K to make 4K every trade. Now, I was able to grow that account more than double in a little over a year just doing that, okay? So, mechanical better early on. Stop, entry, target in, don't touch it. But if you're in if you're so inclined to do partials and TPs, understand the logic of what you're doing. Part of it is reward to risk. Part of it is internal to external range liquidity. If you understand the logic behind it, it's going to allow you to take these in a systematic way. So, this is what I do for take profits. Again, this is a lot more subjective than your stop loss advice that I'm giving you here, which is, need I remind you, your stop is going on right away and it's a hard order and it doesn't freaking move, okay?
Before we move on, I have two quick mistakes that people make with partials, okay? So, two mistakes people make is they TP too early. So, if the moment your trade goes into the green, you feel like you have to take profit because you're seeing a green number, your position size is too big. You're up a bunch of money and you're like, "Oh my god, I need to close." You're risking way too much. Your position size is clearly too big if you feel this urge to immediately take profit. Just like stops, your take profits should be at logical levels, whether that's based on your reward to risk or liquidity, okay? So, don't TP too early. And if you feel that urge, you're likely got more risk on. Same urge you feel where the moment you're in the red, you close well before your stop cuz you don't want to lose any more money, your position size is too big. The second thing is moving stop to break even too soon, again, right? Too early. I've talked about some of the pitfalls of moving your stop to break even. If I'm entering based on this order block, price does this and I immediately move my stop here, I'm moving my stop to an area that I just used as support. Who's to say price can't come back here, tag support again, and then go? So, if you're going to move your stop to break even, which I don't suggest early on, like I mentioned, don't do it until price has hit a meaningful level. So, what do I mean by that? If price If this is structure here, and then you're entering based on this, the moment price does this, I don't think your stop goes from here to here. But if price is now taken out some meaningful levels, and you've TP'd some up here, right? At internal range liquidity, and your ultimate target is here, you can now argue that your stop can move to this new structure low, or even trail up even further. But the moment price goes in your direction, don't move your stop directly underneath your entry, or right to your entry. If you do it too soon, you're going to end up donating your position back, and this is going to happen to you all the time. So, they come and tag you out, and then rip in the other direction. So, these are two other kind of mistakes to look at, or look for, excuse me, when it comes to take profits, and ultimately stop movements.
Now, my favorite part, reward to risk. Also known as RR, okay? So, reward to risk is how much money you stand to make for what you're risking. So, if you're risking $100, and your reward is $200, meaning if I get stopped out, I lose 100, if it hits my take profit, I make 200, this would be 2:1 reward to risk. If this was $500, and that same $100, this is 5:1. Okay? Pretty straightforward, pretty simple. But this is where the math comes in that makes this so important and so special. The way I've designed my system is to aim for a minimum of 2:1 reward to risk, and here is exactly why.
So, here is your RR math to break even. Okay? So, you're going to be one of the most important things for this entire series. So, if you're going to screenshot anything from this video, it's this right here. So, this table is going to show you the break even percents you get for each reward to risk level. So, one to one reward to risk, meaning every dollar I risk, I make a dollar, you have to get 50% of your trades correct to break even. If you take 10 trades, you get half of them right, the half you got right, you made five bucks, right? The half you got wrong, you lost five bucks. You broke even. If you have a two to one reward to risk, you only need to be right 33% of the time to break even. So, again, 100 trades, each risking a dollar, you get 33% of them right, that's 66 bucks you make. You get 30 or 66% of them wrong, that's 66 bucks you lose. You break even. You only got right one out of three trades and you broke even. Three to one, only 25% of your trades to break even. So, if you're risking a dollar, but every time you're right, you make three bucks, you only got to get right one out of every four trades to break even. And you can go further, a five to one reward to risk, 17% break even, meaning you only have to get 17% of your trades correct if the trades that you do get right pay you five times more than you're risking. So, you can see how powerful this is when you start aiming for this asymmetric reward to risk, meaning more reward for every dollar risked. The math is now on your side. You don't even need to be right half the time to be profitable.
So, in one of my checklists that I've given you, the trades got to be a minimum of two to one because I only need to be right 33% of the time to break even. So, if it's below two to one, and you say, "Hey, I love this trade. All the things are working here. I'm going to take it." But based on where your stop has to go and your entry is and your target, it's only one to one, guess what? You're not taking that trade. I don't care how much you like it, how confident you are in it. That is not a trade that you take because at 1-1, you got to be right more than 50% of the time to be profitable. And let me tell you, it's not realistic. Over a long enough time horizon, with enough data, enough trades, a greater than 50% win rate is quite rare. Last year, my win rate was 48%. This year, it's at 80%, but it's a small sample size on not that very many trades because it's been a low volatility year for crypto. On the whole, over a long period of time, on average, my win rate ranges, win percentage, between 40 and 60%. So, there's a period of time where I'm winning more than 50% of the trip my trades, but there's also a periods of time where I'm only winning 40% of my trades. But because those trades I'm taking are a minimum of 2-1 reward to risk, I am profitable. So, when I said in the intro, I'm going to explain to you how to be profitable while losing more than half your trades, this is what I mean. So, if you take only trades that give you a minimum of 2-1, you only got to be right 33% of the time to break even. That sounds a whole lot more realistic than people telling you you're going to get every trade right, you're going to be in every single move, you never miss, they're never wrong. Being right 40% of the time is a much more realistic goal for you to set for your trading strategy. And if you can get your trades to be all 3-1, and you only take 3-1 trades, maybe that means you take less trades, but you only have to be right 25% of the time to be profitable. So, if you have a 40% win rate, and all your trades are 3-1, you're making a lot of money. And that money will compound quickly. You'll be amazed. And notice how my entire system, exactly how you enter these trades, with the low time frame models, okay? Giving you that tight entry, that defined stop loss, the clear targets, all feed into this. Okay? You're not looking for random trades in the middle of nowhere. You're looking for trades that are in high probability areas with a clear entry, a clear stop, and a clear target. And you know if all of this is lined up and it gives you a minimum of two to one RR, you got yourself a good trade and you got yourself a profitable trading system. So, I really want you to sit with this for a minute and think about it. What I've taught you so far in this video series is a system. And if you apply it correctly and you filter your trades to only take ones that are a minimum of two to one RR or better, you can quite literally lose more than half of your trades and still make money. In fact, a lot of money. If you can get your win rate to 40, 45, 50% and have two to one or three to one setups only. I know people who only take five to one trades. They're not taking as many trades as me perhaps, but the ones they take when they work, they pay off big time. The key is your winners always outsize your losers. And if you do this properly, you have yourself a system where you don't have to be right all the time. Imagine the pressure that's going to take off of you when you get a trade wrong, you don't care. It's part of the process. Out of a hundred trades, you might lose 60 of them. That sounds horrible. But if on the 40 that you win, you make twice as much or three times as much money as you lose on the wrong trades, you're laughing all the way to the bank. So, this is really powerful stuff. I really want you to internalize this math because the entire system filters you setups that fit this criteria. And this is really going to help a lot of you level up. A mistake a ton of people make is they see a setup like this, they want to take it, but it's one to one. The target is here. It's one to one. So, what do they do? They say, "Well, I'll just make the target up here, and now it's two to one." That doesn't work. We do not move our target to give us two to one. The setup itself should provide a two to one minimum reward to risk based on where our entry, stop, and the take profit is. If the take profit that you're targeting based on the chart does not allow for the setup to be two to one, you don't take the trade. You can't just drag your take profit higher to give you your desired two to one, just like you can't drag your stop up tighter to give you the desired two to one. Your take profit comes from the chart, your stop loss comes from the chart, and if the setup you found on the chart does not yield a minimum of two to one, you don't take that trade. So, don't force the two to one, three to one onto the chart. The setup itself should provide for it, and if it doesn't, that's a trade you're filtering out anyways.
So, what are our key takeaways for this episode? Key takeaway number one, your stop equals in val, okay? Your stop goes where your trade idea is invalidated. If you entered based on an order block on the one hour that broke structure to the upside and then a 15-minute model inside of that, when that structure is lost, that order block, that 15-minute structure, you are stopped out. Your position size is determined based on your risk percent times your account size divided by your entry minus your stop, okay? So, you know your position size going into the trade cuz you know how much you want to risk, you know where your entry is, and you know where your stop is. And your stop is a hard order. When you put on your entry, you're also putting on your stop. You know the worst-case scenario right away. You know where you get stopped out and you know exactly how much you lose when you get stopped out and you are going to get stopped out automatically because you have that limit order in there. And last one for number one, never move your stop wider. Okay, your stop goes where the trade idea is invalidated. You don't lower it because you just want to give that trade a little bit more breathing room. Okay, it's where your trade idea is invalidated.
Number two, your take profits are based on internal and external range liquidity logic. If you're entering at internal, you're targeting external. If you enter at external, you're targeting internal and you can take partials at your two to one at IRL levels within the range. And if you're going to take partials, I suggest in increments of 25 to 1/3 and make sure you're still getting that two to one. Don't TP too early. Don't move your stop loss too early. And early on, I think for the vast majority of you, you're better off just taking the entire trade off at your two to one target or three to one target. Maybe you leave a little bit of a runner, but rather than having dynamic take profit levels and adjusting stops and stuff like that, be mechanical early on.
Third is the RR math. We're aiming for a minimum of two to one for any trade, meaning we only need to get one out of every three trades correct to break even. The moment you go below that two to one threshold, the math is no longer protecting you. You're not taking good trades anymore. You're going to have a lot harder time being profitable if you're expected to win 50% of your trades forever. And also, you don't move your target to give you the desired RR, right? Your target is based on the chart, right? It's based on internal and external range liquidity. You don't just move your TP so you get that two to one RR, just like you don't widen your stop.
All right, guys, that's all I got for this episode. In the next video, we're going to talk about scaling into your trades. So, how can you actually build size in multiple positions, multiple entries instead of entering all in one go? I hope you guys are appreciating these videos. I've been loving the support so far. As I've said, if you want to help your boy out, leave comments below, like, share the videos far and wide. Go check out tradermayne.com for my free newsletter, free Discord, free Telegram. And remember, you can practice all this stuff at Breakout, my prop firm, using code Mayne for a discount at checkout. We just added the Nasdaq. You can now trade the best prop firm in the world that was only crypto. Well, now we have TradFi as well. Nasdaq has been added. We got more TradFi assets coming soon. Thanks so much, guys. Talk to you in the next one.