Gap Size Classification Trade (Small/Medium/Large)

Entry Logic

• Exact Entry Trigger: Classify the gap size as small (<1%), medium (1-3%), or large (>3%). Small gaps often fill, medium gaps can go either way, and large gaps often trend. Trade accordingly.
• Confirmation Requirements: Varies by gap size. Small gaps require a reversal pattern. Large gaps require a trend continuation pattern.
• Timeframe Required: 5-minute chart.
• Location Context: Depends on the gap size.
• Market Condition Requirement: Varies by gap size.

Exit Logic

• Profit Target(s): For small gaps, target the full gap fill. For large gaps, target 2R and 3R.
• Scaling Out Rules: Scale out at each target.
• Trailing Stop Rules: Use the 20-period EMA on the 5-minute chart.
• Exit on Signal Failure: Exit if the trade moves against the anticipated direction.
• Exit on Opposite Signal: Not applicable.
• Exit on Time Expiration: Exit by the end of the day.
• Exit on Momentum Loss: Exit if the momentum stalls.

Stop Loss Structure

• Hard Stop Location: Varies by setup.
• Soft Stop Rules: None.
• Maximum Dollar Loss: 1% of account.
• Maximum Percent Loss: 3% of stock price.
• Structural Stop Placement: Varies by setup.

Risk Management Framework

• Risk Per Trade: 1% of capital.
• Maximum Daily Loss Limit: 3%.
• Maximum Weekly Loss Limit: 6%.
• Maximum Drawdown Allowed: 15%.
• Risk-Reward Ratio Requirement: Minimum 2:1.

Position Sizing Model

• Recommended Sizing Approach: Based on 1% risk rule.
• Volatility-Based Adjustment: Reduce size in volatile stocks.
• Conviction-Based Sizing: Full size for A+ setups.
• Scaling In Rules: Do not scale in.
• Scaling Out Rules: As defined in Exit Logic.

Trade Filtering

• Market Conditions to Avoid: Varies by gap size.
• Specific Setups Required: A clear gap.
• Stock/Instrument Requirements: Liquid stocks.
• Time of Day Restrictions: First hour of trading.
• Chop/News Avoidance Rules: Avoid news-driven gaps.

Context Framework

• Trend Direction Assessment: Varies by gap size.
• VWAP Relationship: Varies by gap size.
• Moving Average Relationship: Varies by gap size.
• Range Location: Varies by gap size.
• Higher Timeframe Alignment: Varies by gap size.

Trade Management Rules

• When to Move Stop to Breakeven: After the first target is hit.
• When to Scale Out: At profit targets.
• When to Add Size: Never.
• How to Handle Fast Moves vs Slow Moves: Let the trade play out.

Time Rules

• Optimal Trading Window: First hour of trading.
• Times to Avoid: Mid-day chop.
• Session-Specific Notes: Best in the New York session.

Setup Classification

• A+ Setup Criteria: A clear setup with high volume.
• A Setup Criteria: A clear setup with average volume.
• B Setup Criteria: A weak setup.
• C Setup Criteria: No clear setup.

Market Selection Criteria

• Instrument Requirements: Liquid stocks.
• Volume/Liquidity Requirements: >1M daily volume.
• Volatility Requirements: Moderate.

Statistical Edge Metrics

• Expected Win Rate: 55-60%.
• Average Win Size: 2.5R.
• Average Loss Size: 1R.
• Profit Factor: 1.6 to 2.0.
• Expectancy Per Trade: +0.7R to +0.9R.

Failure Conditions

• Market Conditions Where Strategy Fails: Varies by gap size.
• Specific Scenarios to Avoid: Varies by gap size.

Psychological Rules

• Key Mental Discipline Requirements: Requires discipline to trade according to the gap size.

Advanced Components

• Market Regime Detection: Use market internals to confirm the bias.
• Volatility/Liquidity Filters: Avoid illiquid stocks.
• Correlation Filters: Not applicable.
• Multi-Timeframe Alignment: Look for confirmation on the 15-minute chart.

Location

• Where This Setup Is Strongest: Varies by gap size.
• Where This Setup Is Weakest: Varies by gap size.
• Location Changes Outcome: The gap size is critical.