Moving Average Reclaim Reversal

Entry Logic

• Enter long when price reclaims a key moving average (e.g., 50-day SMA) after trading below it.
• Confirmation is a daily close above the moving average.
• Use a daily timeframe for this setup.
• Entry should be above the high of the reclaim candle.
• This setup works best in a trending market.

Exit Logic

• The profit target is a new high in the uptrend.
• Scale out 50% at the previous high.
• Trail the remaining position with the reclaimed moving average.
• Exit if price closes back below the moving average.
• Exit on a confirmed bearish reversal pattern.
• Exit if the trade is not profitable within 20 days.
• Exit if the MACD shows a bearish crossover.

Stop Loss Structure

• Place a hard stop below the low of the reclaim candle.
• A soft stop is a close below the reclaimed moving average.
• Maximum dollar loss is $1200 per trade.
• Maximum percent loss is 2.4% of the account.
• The structural stop is below the low of the reclaim candle.

Risk Management Framework

• Risk 1.8% of the account per trade.
• Daily loss limit is 5.4% of the account.
• Weekly loss limit is 11% of the account.
• Maximum drawdown is 30%.
• Minimum risk-reward ratio is 2.5:1.

Position Sizing Model

• Use a fixed fractional sizing model.
• Adjust size based on the distance to the stop loss.
• Use 1.25x size for A+ setups.
• Do not scale into trades.
• Scale out at the previous high.

Trade Filtering

• Avoid trading this setup in a ranging market.
• Requires a clear reclaim of a key moving average.
• Trade only instruments that respect moving averages.
• 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 a key moving average.
• The setup should occur after a period of consolidation.
• The monthly chart should show a bullish bias.

Trade Management Rules

• Move the stop to breakeven after the first profit target is hit.
• Scale out 50% at the previous high.
• Do not add to winning trades.
• Be patient and let the trend resume.

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 weeks.

Setup Classification

• A+ setup: Strong reclaim with high volume, clear trend alignment.
• A setup: Clear reclaim with moderate volume, neutral market.
• B setup: Weak reclaim with low volume, counter-trend.
• C setup: No clear setup, avoid.

Market Selection Criteria

• Trade large-cap stocks and ETFs.
• The instrument should have a history of respecting moving averages.
• The instrument should have a high level of liquidity.

Statistical Edge Metrics

• Expected win rate is 65%.
• Average win is 3R.
• Average loss is 1R.
• Profit factor is 1.95.
• Expectancy per trade is 0.95R.

Failure Conditions

• The strategy fails if the reclaim is false and price rolls over.
• A common failure is a failure to make a new high after the entry.

Psychological Rules

• Have the confidence to buy after a period of weakness.
• Do not get shaken out by short-term volatility.

Advanced Components

• Use a moving average convergence/divergence (MACD) to confirm the reclaim.
• A market breadth indicator can help gauge the strength of the market.
• Avoid trading this setup on multiple correlated stocks.
• The weekly chart must confirm the uptrend.

Location

• The setup is strongest when it occurs at a major moving average in a strong uptrend.
• The setup is weakest in a choppy, sideways market.
• The significance of the reclaimed moving average is key to the success of the trade.