Failed Breakout Reversal (Upthrust)

Entry Logic

• Enter short when price fails to hold above a resistance level and falls back into the range.
• Confirmation is a bearish engulfing candle on the 1-hour chart.
• Use a 1-hour timeframe for this setup.
• Entry should be below the 50-period SMA.
• This setup works best in a ranging or downtrending market.

Exit Logic

• The profit target is the bottom of the trading range.
• Scale out 50% at the range bottom.
• Trail the remaining position with the 20-period EMA.
• Exit if price closes back above the resistance level.
• Exit on a confirmed Failed Breakdown Reversal (Spring).
• Exit if the trade is not profitable within 2 days.
• Exit if the RSI (14) rises above 50.

Stop Loss Structure

• Place a hard stop above the high of the false breakout.
• A soft stop is a close above the 50-period SMA.
• Maximum dollar loss is $750 per trade.
• Maximum percent loss is 1.5% of the account.
• The structural stop is the high of the upthrust candle.

Risk Management Framework

• Risk 1% of the account per trade.
• Daily loss limit is 2.5% of the account.
• Weekly loss limit is 5% of the account.
• Maximum drawdown is 15%.
• Minimum risk-reward ratio is 3:1.

Position Sizing Model

• Use a fixed fractional sizing model.
• No volatility adjustment is needed.
• Use 1.5x size for A+ setups with high volume.
• Do not scale into trades.
• Scale out at the range bottom.

Trade Filtering

• Avoid trading this setup in a strong uptrend.
• Requires a clear resistance level and a false breakout.
• Trade only stocks with a low short interest.
• Avoid trading during the lunch hour (12 PM - 2 PM EST).
• Do not trade in low-liquidity markets.

Context Framework

• The daily chart should show a clear downtrend or a defined range.
• Price should be trading below the VWAP.
• Price should be below the 200-day SMA.
• The setup should occur at a previously tested resistance level.
• The weekly chart should show a bearish bias.

Trade Management Rules

• Move the stop to breakeven after price has moved 1.5R in your favor.
• Scale out 50% at the range bottom.
• Do not add to winning trades.
• Be aggressive with profit taking in fast-moving markets.

Time Rules

• The optimal time to trade this setup is in the morning session (9:30 AM - 11 AM EST).
• Avoid trading this setup in the late afternoon.
• The setup is most reliable on Tuesdays and Wednesdays.

Setup Classification

• A+ setup: Sharp false breakout, high volume reversal, strong trend alignment.
• A setup: Clear false breakout, moderate volume, neutral market.
• B setup: Slow, grinding false breakout, low volume, counter-trend.
• C setup: No clear resistance level, avoid.

Market Selection Criteria

• Trade stocks in the technology and consumer discretionary sectors.
• Minimum daily volume of 3 million shares.
• The stock should have a history of respecting resistance levels.

Statistical Edge Metrics

• Expected win rate is 70%.
• Average win is 2.5R.
• Average loss is 1R.
• Profit factor is 1.75.
• Expectancy per trade is 0.75R.

Failure Conditions

• The strategy fails if the breakout is real and not false.
• A common failure is a retest of the high that breaks out again.

Psychological Rules

• Have the conviction to sell when others are euphoric.
• Do not hesitate to take the entry once the failure is confirmed.

Advanced Components

• Use order flow analysis to spot distribution at the high.
• A put/call ratio filter can identify crowded long trades.
• Avoid trading this setup on correlated stocks.
• The 4-hour chart must show a clear rejection of the highs.

Location

• The setup is strongest at the upper boundary of a multi-month trading range.
• The setup is weakest in a strong, persistent uptrend.
• The location of the upthrust determines its power.