Key Reversal Bar

Entry Logic

• Enter long on a daily key reversal bar, where the price makes a new low and then closes above the previous day's high.
• Confirmation is a high volume on the key reversal day.
• Use a daily timeframe for this setup.
• Entry should be above the high of the key reversal bar.
• This setup works best in a trending market that is pulling back.

Exit Logic

• The profit target is a 2:1 risk-reward ratio from the entry.
• Scale out 50% at the 2R target.
• Trail the remaining position with the 10-day EMA.
• Exit if price closes below the low of the key reversal bar.
• Exit on a confirmed bearish key reversal bar.
• Exit if the trade is not profitable within 10 days.
• Exit if the MACD shows a bearish crossover.

Stop Loss Structure

• Place a hard stop below the low of the key reversal bar.
• A soft stop is a close below the 10-day EMA.
• Maximum dollar loss is $1000 per trade.
• Maximum percent loss is 2% of the account.
• The structural stop is the low of the key reversal bar.

Risk Management Framework

• Risk 1.5% of the account per trade.
• Daily loss limit is 4.5% of the account.
• Weekly loss limit is 9% of the account.
• Maximum drawdown is 25%.
• Minimum risk-reward ratio is 2:1.

Position Sizing Model

• Use a fixed fractional sizing model.
• Adjust size based on the range of the key reversal bar.
• Use 1.5x size for A+ setups.
• Do not scale into trades.
• Scale out at the 2R target.

Trade Filtering

• Avoid trading this setup on low-volume stocks.
• Requires a clear key reversal bar with high volume.
• Trade only stocks that are in a long-term uptrend.
• Avoid trading this setup during a bear market.
• Do not trade in choppy, sideways markets.

Context Framework

• The weekly chart should show a clear uptrend.
• Price should be pulling back to the 50-day SMA.
• The setup should occur at a support level.
• The monthly chart should show a bullish bias.

Trade Management Rules

• Move the stop to breakeven after price has moved 1R in your favor.
• Scale out 50% at the 2R target.
• Do not add to winning trades.
• Be prepared for a quick move after the entry.

Time Rules

• This setup is identified at the end of the trading day.
• The entry is taken on the following day.
• The trade can last for several days to weeks.

Setup Classification

• A+ setup: Large key reversal bar, massive volume, strong trend alignment.
• A setup: Clear key reversal bar, high volume, neutral market.
• B setup: Small key reversal bar, low volume, counter-trend.
• C setup: No clear pattern, avoid.

Market Selection Criteria

• Trade mid-cap and large-cap stocks with good liquidity.
• Minimum daily volume of 2 million shares.
• The stock should have a history of making strong trends.

Statistical Edge Metrics

• Expected win rate is 65%.
• Average win is 2.5R.
• Average loss is 1R.
• Profit factor is 1.625.
• Expectancy per trade is 0.625R.

Failure Conditions

• The strategy fails if the high of the key reversal bar is not breached.
• A common failure is a false breakout followed by a move to new lows.

Psychological Rules

• Have the discipline to wait for the entry trigger.
• Do not chase the price if you miss the entry.

Advanced Components

• Use a volume profile to identify the point of control.
• A market breadth indicator can confirm the reversal.
• Avoid trading this setup on multiple correlated stocks.
• The weekly chart must confirm the pullback and potential reversal.

Location

• The setup is strongest when it forms at a confluence of support levels.
• The setup is weakest in a strong, persistent downtrend.
• The location of the key reversal bar in the overall trend is critical.