Gap into Earnings Reaction

Entry Logic

• Exact Entry Trigger: A stock gaps up or down on an earnings announcement. Wait for the first 15 minutes to form a range, then trade the breakout of that range.
• Confirmation Requirements: High volume on the breakout. The earnings report should have a clear surprise.
• Timeframe Required: 15-minute chart.
• Location Context: The entry occurs after the initial earnings reaction.
• Market Condition Requirement: A market that is reacting to the earnings.

Exit Logic

• Profit Target(s): Target 2R and 3R.
• Scaling Out Rules: Scale out at each target.
• Trailing Stop Rules: Use the 20-period EMA on the 15-minute chart.
• Exit on Signal Failure: Exit if the stock reverses and breaks the other side of the range.
• 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: On the other side of the 15-minute range.
• Soft Stop Rules: None.
• Maximum Dollar Loss: 1% of account.
• Maximum Percent Loss: 3% of stock price.
• Structural Stop Placement: On the other side of the 15-minute range.

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: Markets with no clear reaction to earnings.
• Specific Setups Required: A clear earnings reaction.
• Stock/Instrument Requirements: Liquid stocks.
• Time of Day Restrictions: First hour of trading.
• Chop/News Avoidance Rules: This strategy is based on news.

Context Framework

• Trend Direction Assessment: Based on the earnings reaction.
• VWAP Relationship: The entry should be in the direction of the VWAP trend.
• Moving Average Relationship: The stock is often trading in the direction of its key moving averages.
• Range Location: Depends on the earnings reaction.
• Higher Timeframe Alignment: The daily chart should not contradict the move.

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

Market Selection Criteria

• Instrument Requirements: Liquid stocks.
• Volume/Liquidity Requirements: >2M daily volume.
• Volatility Requirements: High.

Statistical Edge Metrics

• Expected Win Rate: 50-55%.
• Average Win Size: 3R.
• Average Loss Size: 1R.
• Profit Factor: 1.5 to 1.8.
• Expectancy Per Trade: +0.6R to +0.8R.

Failure Conditions

• Market Conditions Where Strategy Fails: Markets with no clear reaction to earnings.
• Specific Scenarios to Avoid: Gaps that are immediately faded.

Psychological Rules

• Key Mental Discipline Requirements: Requires discipline to trade the volatility of earnings.

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 60-minute chart.

Location

• Where This Setup Is Strongest: When the earnings reaction is clear.
• Where This Setup Is Weakest: When the earnings reaction is choppy.
• Location Changes Outcome: The clarity of the earnings reaction is critical.