**Stop Losses in Trading: Know When You're Wrong — Transcript & Summary | SozAI**
Source: https://sozai.app/transcript/stop-losses-trading-know-when-wrong/

TTrades explains how to place stop-losses using protected swings, change in state of delivery and order blocks, with ES and 5-minute examples.

## Key Takeaways

- Your stop-loss belongs at the invalidation point of your protected swing, not at an arbitrary distance.
- Moving the stop to the candle body can improve R:R but accepts more risk of being stopped out by a sweep.
- Continuation entries on fair value gap retests often provide better risk-to-reward than reversal entries.
- Confirm a protected swing with a close through the down-closed candles before committing to a trade.

## What the video covers

- Stop-losses should be placed based on invalidation, specifically at the protected swing low or high that defines the trade idea.
- A protected swing must reach an important level (sweeping a low or entering a fair value gap) and then price must close over the series of down-closed candles that caused it.
- The presenter's model uses change in the state of delivery and order blocks; other traders may use breaker blocks, fair value gaps, or inversions and must define their own invalidation.
- Stop placement can be adjusted to the candle bodies rather than wicks to improve risk-to-reward, at the cost of sometimes being swept out before the target is hit.
- Reversal entries from consolidations are contrasted with continuation entries that form on fair value gap retests, which often offer better risk-to-reward.
- Examples are walked through on the hourly chart with 5-minute confirmation, looking for aligned fractal models and waiting for closes over key candles before entering.
- Entries should wait for a confirmed closure through the relevant candle series rather than acting on a wick or a close just over one candle.
- Targets discussed include previous day highs and achieving at least 2R on the trade.
- The ES hourly example shows expansion met with expansion forming a reversal, followed by a new protected swing and tracking price toward the objective.

## Chapters

1. 00:00 Introduction and Protected Swing Review
2. 01:20 Invalidation and Stop Placement Model
3. 03:20 Chart Examples: Finding Protected Swings
4. 05:20 Risk-to-Reward and Stop Adjustments
5. 07:00 Continuation Entries and Fair Value Gaps
6. 09:00 ES Hourly Example: Expansion and Reversal
7. 11:00 Tracking Protected Swings to Objective

Answers

## Questions about this video

What makes a swing a 'protected swing' in this video?

A protected swing must reach into an important level, either sweeping out a low or entering a fair value gap, and then price must close over the series of down-closed candles that formed that move. The presenter says this closure is what confirms the swing and defines where invalidation sits.

Where should the stop-loss be placed?

The stop-loss should be placed at the protected low (for longs) or protected high (for shorts), since that is the level where the trade idea is invalidated. The presenter also notes you can move the stop to the candle bodies to improve risk-to-reward, accepting that it may be swept out more often.

Do these stop-loss rules apply to other trading methods?

The presenter states the invalidation approach is built on his own model using change in the state of delivery and order blocks. Traders using breaker blocks, fair value gaps, or inversions must decide for themselves where their invalidation belongs.

## Full Transcript — Download SRT & Markdown

00:05

Speaker A

How's it going, everyone? In this video, we will be covering stop-losses. Now, if you haven't already seen my video on protected swings, go ahead and check that out first, as it is a requirement to understand this video. So, the first thing to understand is what a protected swing is, and that is what I covered in my previous video. But to review, a protected swing must reach into an important level, which is sweeping out a low or reaching into a fair value gap. And then price must close over the series of down-closed candles that swept out that low or into the fair value gap.

00:23

Speaker A

thing to understand is what a protected swing is, and that is what I covered in my previous video. But to review, a protected swing must reach into an important level, which is sweeping out a low or reaching into a fair value gap.

00:35

Speaker A

So, the close over right here. Now, that is considered a protected swing, and I can trade away from that. So, by understanding what a protected swing is, where can I place my invalidation? Well, I can place my invalidation on that protected swing, because if I'm anticipating price to trade higher and not go to this low, that is where it makes sense to have my invalidation or my stop-loss.

00:41

Speaker A

So the closeover right here. Now that is considered a protected swing and I can trade away from that. So by understanding what a protected swing is, where can I place my invalidation? Well, I can place my invalidation on that

00:54

Speaker A

Now, in terms of risk-to-reward, if I cannot get the risk-to-reward that I want out of this trade, what do I know about change in the state of delivery, or opposing candles, or order blocks here? I want to see the mean threshold of those be respected, or 50%. So, if I want to manipulate the risk-to-reward, what I'll go ahead and do is place my stop loss at the body, and you can see I can get 2R a bit quicker doing this. However, I do have to accept the fact that sometimes it will come sweep me out and then go and hit my TP with this type of stop-loss placement.

01:08

Speaker A

trade, what do I know about change in the state of delivery or opposing candles or order blocks here? That I want to see the mean threshold of those be respected or 50%. So, if I want to manipulate the risk-to-reward, what I'll

01:20

Speaker A

For a final note in the intro, this invalidation presentation is built off of my model, which uses change in the state of delivery and order blocks. Other people may use different PD arrays, such as breaker blocks, fair value gaps, or inversions. With those, you have to decide where your invalidation is. Is it a close back above the inversion? Is it right above the fair value gap candle? This video is just over my invalidations, but if you use a different PD array, this is something you have to decide for yourself.

01:32

Speaker A

and hit my TP with this type of stop-loss placement. Now for a final note in the intro and this presentation is that this invalidation presentation is built off of my model which is using change in the state of delivery and

01:46

Speaker A

So, let's get into TradingView and go over a few examples of finding protected swings and their invalidation. You can see here we have a nice V-shaped reversal forming a reversal in a consolidation, which is a continuation signature. We run out the low in this consolidation, and we have a closure back inside the range. See this previous candle closing like this. So with this, we could go down to the 5-minute time frame, since I am on the hourly, and look for that aligned fractal model to the upside.

02:00

Speaker A

the fair value gap candle? This video is just over my invalidations. But if you use a different PD array, this is something you have to decide for yourself. So, let's get into Trading View and go over a few examples of

02:13

Speaker A

So down here on the 5-minute chart, do we have a change in the state of delivery yet? We do not, because we have yet to close over the series of down-closed candles that made the low. So, marking out that level, we'd need to wait for that to be closed over to form a protected low right here. Let's let that play out. We do get the closure over. So now we have a protected low here.

02:27

Speaker A

We have a closure back inside the range. see this previous candle closing like this. So with this, we could go down to the 5-minut time frame since I am on the hourly and look for that aligned fractal model to the

02:40

Speaker A

Zooming out on the 5-minute, if we're looking to trade to the previous day's highs, we have the Friday high over there. We could be looking for entries long until then. What I could do is look to take an entry anywhere in here. But where would I need my stop? Technically, on the protected low, and then looking for that high. That gives more than 2R, which would be valid. Or I could look to put it on the bodies' low. So from these bodies, find that low in there and do something like that. Or what I can do is wait for a continuation.

02:54

Speaker A

wait for that to be closed over to form a protected low right here. So, let's let that play out. We do get the closure over. So, now we have a protected low here. And so, zooming out here on the

03:06

Speaker A

Now, what does that look like? I'm just going to wait for a new protected swing to form. So let's zoom out a little and let this play forward and see if we can find a new one. Is this a protected swing? Not by how I define it, because it needs to reach into an important level. So letting this continue, we reach into an important level, which is a fair value gap, and then we close over the down-closed candles into that important level. This would be a valid entry, putting my stop on the protected low, and from here I can look for 2R or to trade to that high.

03:19

Speaker A

where would I need my stop? Well, technically on the protected low and then looking for that high. So that does give more than 2 hour which would be valid or I could look to put it on the bodies low right. So from these bodies

03:33

Speaker A

You can see with this continuation entry, I get better risk-to-reward than I would with that reversal entry. So let's see if this works out or if there's another entry. And you can see what happens here. We reach into another important level, a fair value gap. Do we close over the down-closed candles? No, not yet. So this is not a valid entry until we get the closure over that level. Now that we have failed to close over this level, we have made a new low. I'm not looking for a closure over this level anymore to validate this. We've now swept a low, which is an important level. Now we have a new series of down-closed candles, and you can see how this is also aligning with my continuation with the candle 4 in the fractal model. Let's see what happens. And right there, we get that.

03:45

Speaker A

zoom out a little. Let this play forward and see if we can find a new one. Is this a protected swing? not by how I define it because I needs to reach into an important level. So letting this

03:57

Speaker A

You can see this is one where, if I have my stop at the low, which is the protected low, I can't get too much R to that. So that is when I could manipulate it to the bodies. Or if I can't get 2R out of that, I'm going to look to make 2R by taking a limit entry or looking for a retest, see, get tagged in, and then it goes and hits that level.

04:11

Speaker A

protected low and from here I can look for 2 R or to trade to that high. And you can see with this continuation entry, I get better risk-to-reward than I would with that reversal entry. So, let's see if this works out or if

04:23

Speaker A

So hopefully that makes sense. We form a protected low. That means I'm expecting price to trend higher and not return to this low. However, it didn't provide great risk-to-reward to this high, so I can look for continuation entries. Those will form as we reach into a fair value gap or sweep out a low and then close over those down-closed candles. So you can see this is our protected low. Then we form a new protected low right here. We retrace back into the range and close over the new protected low.

04:37

Speaker A

we get the closure over that level. Now that we have failed to close over this level, we have made a new low.

04:45

Speaker A

And we can talk quickly about this. Why would this be considered a point of interest? Well, it has a fair value gap up here. But even if it didn't have a fair value gap, I'm expecting this low to hold. So if I'm expecting that low to hold and there's no point of interest in here, that's when I can use this level here. Continuing to track that, what do we have here? Price reaches into this fair value gap and closes over here. This is now a protected low, and we continue higher into those highs. That is how you track a trend when it is trending.

04:58

Speaker A

the candle 4 in the fractal model. Let's see what happens. And right there, we get that.

05:05

Speaker A

Let's get into another example. Here we are in our next example. We are on ES on the hourly chart, and you can see I have our daily candles up here. Now, if you've used what we've learned in my previous videos, if we're expecting price to form a continuation, because we have a consolidation and we leave this consolidation, where do we want to see that form? Around or above 50% of the previous candle. So let's see if we form a reversal in here. Let this play ahead. You can see we have expansion, and we're consolidating. If we're going to consolidate, we want another run of this low and then to form a swing here.

05:16

Speaker A

out of that, I'm going to look to make 2R by taking a limit entry or looking for a retest. See, get tagged in and then it goes and hits that level.

05:30

Speaker A

So you can see we run out that low, and we have a very bullish close here. From this we can go to the 5-minute, which is our aligned time frame with the hourly. Down here on the 5-minute, you can see we have those failure swings at the high, which is our target, and we have a nice aggressive move down and an aggressive move back up. So this is expansion met with expansion, which is a reversal.

05:41

Speaker A

can look for continuation entries. Those will form as we reach into a fair value gap or sweep out a low and then close over those down close candles. So you can see this is our protected low. Then we form a new protected low right here.

05:54

Speaker A

If we're looking for a protected swing, what would make this a protected swing? We need a closure through the series of down-closed candles. So we wait for that to occur. Let's see if it does occur. And you can see it does occur as we get the closure over. Zooming back in, this doesn't really make as much sense. As I showed previously, if I want to have my stop all the way on this low, looking to target these highs, we can't even get two R out of that. So I'm going to wait for a continuation entry. Now, you can see if I want to hav

06:04

Speaker A

Well, it has a fair value up here. But even if it didn't have a fair value gap, I'm expecting this low to hold. So, if I'm expecting that low to hold and there's no point of interest in here,

06:13

Speaker A

that's when I can use this level here. So, continuing to track that, what do we have here? Price reaches into this fair value gap, closes over here. This is now a protected low and we continue higher into those highs. And that is how you

06:28

Speaker A

track a trend when it is trending. Let's get into another example. So, here we are in our next example. We are on ES on the hourly chart. And you can see I have our daily candles up here. Now, if

06:39

Speaker A

you've used what we've learned in my previous videos, if we're expecting price to form a continuation, right, because we have a consolidation and we leave this consolidation, where do we want to see that form? Around or above 50% of the previous candle. So, let's

06:54

Speaker A

see if we form a reversal in here. Let this play ahead. And you can see we have expansion. We're consolidating. So, if we're going to consolidate, we want another run of this low and then to form a swing here. So you can see we run out

07:08

Speaker A

that low and we have a very bullish close here. So from this we can go to the 5minut which is our aligned time frame with the hourly. Now down here on the 5minut you can see we have those

07:18

Speaker A

failure swings at the high which is our target and we have a nice aggressive move down and aggressive move back up.

07:25

Speaker A

So this is expansion met with expansion which is a reversal. So if we're looking for a protected swing, what would make this a protected swing? We need a closure through the series of downclo candles. So, waiting for that to occur.

07:38

Speaker A

Let's see if it does occur. And you can see it does occur as we get the closure over. Zooming back in. Now, this doesn't really make as much sense. Like I showed previous, if I want to have my stop all the way on this

07:51

Speaker A

low, looking to target these highs, right? Cuz even with targeting these highs, we can't even get two R out of that. So, I'm going to wait for a continuation entry. Now you can see if I want to have a continuation, it means

08:07

Speaker A

I'm expecting a higher low to form. Now where would be the point of interest for that? Well, I don't have a fair value gap. I don't have a low yet. So with that, I can mark out.5 of this down

08:20

Speaker A

close candles and that would be the area I'm looking to see respected. So you see price comes back down into here. This is valid. That is in the T-spot. And so this is when I could look for this as a

08:32

Speaker A

continuation signature. And you can see we get the close over. Now, why don't I consider this candle here? Well, I just view this as the move down and a consolidation.

08:44

Speaker A

So, I don't really trust a close just over that candle. I want to see a close over that candle. So, with that, I could look to take an entry. I stop on this low. And that gives me two R to those

08:55

Speaker A

highs. Now, let's say I miss this. Do we have any points of interest? We do have a fair value gap in here. If we're going to get a new entry to form here, we reach into a fair value

09:07

Speaker A

gap. We close through the series of down close candles into that fair value gap.

09:12

Speaker A

And that would be a better continuation entry there and just give a little better risk-to-reward. You can see 3.17R versus 2.38. Either are valid. And then we get our candle for continuation. You can see we drop back down. There is no point of interest in

09:29

Speaker A

here. So just using the T-spot as the valid point of interest. Want to see if we can close over that level. We do. And then we get a continuation higher. You can see that last little protected swing in there. If

09:43

Speaker A

we clean this up right here. Why is that one? Well, we reach into a fair value gap. We close over those down close candles, which is just one in this case.

09:52

Speaker A

And then we take out the high. So just reviewing this, we had our protected swing. we form a new one. And then we are just going to track that higher until we hit our objective. Right now, I don't want to be looking to take entries

10:05

Speaker A

after my objective is hit because when are we going to enter a new phase of price? Well, it would be at highs and lows. That's where we can form those reversals. Let's get into another example. So, here we are with our next

10:16

Speaker A

example. You can see we've had a consolidation. We expand out of the consolidation and then back in. Right?

10:21

Speaker A

So, if I'm marking that out, have these equal lows right here. We expand over this high and then we expand back in.

10:28

Speaker A

We're currently retesting that previous range high and reaching into this fair value gap. So, if we're anticipating price to trade lower here, what do we want to look for on this lower time frame? Well, since I'm on the 4 hour, I

10:40

Speaker A

can go to the 15 and look for a protected swing to form. So, here we are on the 15-minute chart. In relation to the 4 hour, we have our drawn liquidity down here. We're into that fair value gap here. We're sweeping out this

10:53

Speaker A

previous high as well. Now, if we're looking for a protected swing, we want to see the series of up close candles that made this high and see if that gets closed below. Now, you see how this is a

11:03

Speaker A

bit messy in here. That is when I'm going to ignore those small candles and I'm just going to take this whole move up. So, with that, I'm going to focus on this whole series of candles up and then

11:12

Speaker A

looking for a close below there. Let's see. Do we get a close below? Oh, we made a new high. So, with this, right, we're not focused on this high anymore. We failed to close below this level before making a new high. So

11:27

Speaker A

now we have a sweep of this high. Where are the series of candles that made that right here? Have we closed below it?

11:34

Speaker A

Yes. So now I have a protected swing which gives me an invalidation. So I'm expecting this high to hold if we are going to continue to trade and trend lower to here. So that would give me an invalidation. Can look to enter on the

11:48

Speaker A

close and do something like that. Now, that would be the reversal entry. If I'm looking for a continuation, I want to see what I want to see an open, high, low, close, or price reach into a point of interest, form an opposing candle,

12:03

Speaker A

and then trade lower. Now, if you notice here, why wouldn't I consider this an opposing candle? Well, we never reach into a fair value gap here or into a point of interest. It would have had to do something like this and then I would

12:16

Speaker A

have considered it. But since it didn't do that, unless it is paired with SMT here, it's not something I'm going to consider and I will miss it. So, let's see if any other continuation forms.

12:26

Speaker A

Once again, we're leaving just shy of this fair value gap. Let's see if we retrace into it. And we don't before taking out this low. So, this is an example of the reversal does provide an entry, but there are no continuations within my

12:42

Speaker A

model for a proper framework. And that is going to happen. You are going to miss setups. you are going to miss trades even if you know where it is going. Let's get into another example. So here we are on oil on the

12:54

Speaker A

hourly chart and you can see we have had a nice expansion day and we have been consolidating. So if we are going to form a reversal off previous day high that would be the relevant level to see a retracement back into the range. So

13:06

Speaker A

you can see here let's see what happens. We have a sweep of that and a closure.

13:12

Speaker A

Now, if you remember from my protected swings video, we can anticipate this to form a high, but it isn't confirmed until when till we get the closure through here. So, we could drop down to the 5minut in here and look for an entry

13:25

Speaker A

or we can wait for this closure through. Let's go ahead and do both. Let's drop down to the 5minut here. So, here we are on the 5minut and you can see we print a continuation here. So, I could look for

13:35

Speaker A

an entry in here. Do I have a protected swing? Well, I have this high being protected as we've closed through here.

13:42

Speaker A

We've reached into this fair value gap. We have up close candles that are then supported, right? With oil likes to have these equal highs sometimes. So, if I'm going to take an entry somewhere in here, I would sometimes give it a little

13:54

Speaker A

bit more room than normal. And let's see if we can get 2 R right down into here. So, let's see. We do go hit our 2R right. And that's a little bit wider of a stop loss. That's just something with oil.

14:10

Speaker A

Sometimes it will come back, sweep out, and then go. And I just want it to be in the trade. So you can see that reversal off previous day high does work. Let's go back to our hour here and see what it

14:20

Speaker A

shows. So here on the hourly, what do we notice? We have closed below there. So do I want to enter right away in here?

14:28

Speaker A

No. Cuz we've just had expansion. We're below lows. That can set up either a retracement, a consolidation, or a reversal. I'm going to let another candle pass. See what happens. We're coming back into the range here. We've closed back inside this previous. So, I

14:42

Speaker A

can anticipate this high to be taken. Let's give it another candle. And here you see we retrace back into that range. We respect the mean threshold here. And what else do we notice? We close back inside the previous candles range. So, with this, I

14:57

Speaker A

could anticipate a move back lower. So, with this, I'll go back down to the 5minute chart. So rewinding a little, what do we have here on the 5-minute? We have that protected high. Why is that a protected high? It reaches into that

15:11

Speaker A

important level on the hourly, which is this fair value gap here. And then we sweep out this short-term high. And we close through the series of up close candles, right? So this is somewhere where I could look to take an entry,

15:21

Speaker A

right? Either on the close or on the retest. And once again, if I can't really get to R here, right, without quite a move below the lows, this is where I could manipulate it. If I have a very aggressive Vshape here, I don't

15:34

Speaker A

want to see it return back to the body. If it returns up to here, it's likely to take this high as well. And you can see how I can manipulate that to give me a 2R that is just below these lows. So,

15:43

Speaker A

let's let this play out. There we go. And we also are seeing a continuation entry. And there it hits R just to the dot. So, that is an example of going back to our hour here. I can anticipate

16:02

Speaker A

this to be a protected swing and look for an entry. But even if I miss that, I can let it confirm and then look for new swing points that form in that direction. So, I hope you enjoyed this

16:11

Speaker A

video on stop losses and the review on protected swings. If you do use different PDAs, you may have to adjust your invalidations, but protected swings do apply to all of them. So, with that, I hope you have a great rest of your day

16:23

Speaker A

and I'll see you guys next time. Have a good one.

Topics: stop loss protected swing invalidation change in state of delivery order blocks fair value gap risk to reward ICT ES futures trading

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