Intraday Trend Change (Lower High + Lower Low)

Entry Logic

• Enter short after a stock makes a lower high and a lower low on an intraday chart.
• Confirmation is a break of the previous low.
• Use a 5-minute timeframe for this setup.
• Entry should be below the broken low.
• This setup works best in a stock that is already weak on the daily chart.

Exit Logic

• The profit target is a 2:1 risk-reward ratio from the entry.
• Take full profits at the target.
• No trailing stop is used.
• Exit if the stock makes a higher high.
• Exit on a confirmed bullish reversal pattern.
• Exit if the trade is not profitable within 2 hours.
• Exit if the MACD shows a bullish crossover.

Stop Loss Structure

• Place a hard stop above the lower high.
• No soft stop is used.
• Maximum dollar loss is $300 per trade.
• Maximum percent loss is 0.6% of the account.
• The structural stop is above the lower high.

Risk Management Framework

• Risk 0.4% of the account per trade.
• Daily loss limit is 1.2% of the account.
• Weekly loss limit is 3% of the account.
• Maximum drawdown is 10%.
• Minimum risk-reward ratio is 2:1.

Position Sizing Model

• Use a fixed fractional sizing model.
• No volatility adjustment is needed.
• Use 2x size for A+ setups.
• Do not scale into trades.
• Do not scale out.

Trade Filtering

• Avoid trading this setup on strong stocks.
• Requires a clear lower high and lower low pattern.
• Trade only stocks that are below their 50-day SMA.
• Avoid trading this setup in the first 30 minutes of the day.
• Do not trade in choppy, sideways markets.

Context Framework

• The daily chart should show a clear downtrend.
• The stock should be trading below the VWAP.
• The setup should occur after a weak bounce.
• The weekly chart should show a bearish bias.

Trade Management Rules

• Do not move the stop to breakeven.
• Take full profits at the target.
• Do not add to winning trades.
• This is a short-term, intraday trade.

Time Rules

• The optimal time to trade this setup is in the afternoon session (1 PM - 3 PM EST).
• Avoid trading this setup in the morning.
• The trade should last for a few hours at most.

Setup Classification

• A+ setup: Clear lower high and lower low, high volume on the breakdown, strong daily downtrend.
• A setup: Clear lower high and lower low, moderate volume, daily downtrend.
• B setup: Messy pattern, low volume, neutral daily chart.
• C setup: No clear pattern, avoid.

Market Selection Criteria

• Trade stocks that are weak relative to the market.
• The stock should have a high short interest.
• The stock should have a high level of liquidity.

Statistical Edge Metrics

• Expected win rate is 60%.
• Average win is 2R.
• Average loss is 1R.
• Profit factor is 1.2.
• Expectancy per trade is 0.2R.

Failure Conditions

• The strategy fails if the breakdown is false and the stock reverses.
• A common failure is a failure to follow through on the breakdown.

Psychological Rules

• Be disciplined in taking profits at the target.
• Do not get greedy and try to get more out of the trade.

Advanced Components

• Use a relative strength indicator to identify weak stocks.
• A market internals indicator can help gauge the overall market direction.
• Avoid trading this setup on multiple correlated stocks.
• The 1-hour chart must confirm the downtrend.

Location

• The setup is strongest in a weak stock on a weak market day.
• The setup is weakest in a strong stock on a strong market day.
• The context of the overall market is important for this trade.