The invalidation level

Every scenario has a flip side: the place where it is proven wrong. That place is the invalidation level — when price reaches it, the evidence the scenario rested on no longer holds. The level is derived from the scenario's premise: for a scenario built on "support held", invalidation lives where support is clearly lost on a close; a double-bottom scenario loses its foundation if price closes below the low of the W. On a chart it is a zone marked in advance, while the scenario is being built; its counterpart in the world of trading, the stop-loss order, carries the same logic — "I define in advance where I am wrong". Defined beforehand it is analysis; defined afterwards it is negotiation. The common misreading takes an invalidation level as a sign that price will not go there. Price reaches invalidation levels regularly — that is proof the system works, not that it is broken — and pushing the level farther away just so it will not trigger makes being wrong unbounded. For risk literacy 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.

This content is educational information, not personalised investment advice. The chart examples are illustrative.

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