Invalidation and the concept of a stop-loss

Every scenario has a flip side: the place where it is FALSIFIED. This is called the invalidation level — when price reaches it, the evidence the scenario rested on no longer holds. Example: a double-bottom scenario loses its foundation if price closes below the W's low, because the very story of "the low held" has collapsed.

The invalidation level is a concept of analysis; the stop-loss order is its counterpart in the world of trading: an order type that closes a position automatically if price reaches a set level. The logic of both is the same — "I define in advance where I am wrong" — and defining it BEFORE a position exists is fundamentally different from defining it after: beforehand it is analysis, afterwards it is negotiation.

Mind also what an invalidation level does NOT say: it is no indication that price will not GO there. Price reaches invalidation levels regularly — which is proof the system works, not that it is broken. No scenario that fails to price in being wrong counts as complete; that is why every scenario in a DojiLab report carries an invalidation level beside it.