Overnight Move Mean Reversion

Entry Logic

• Long Entry: A stock has a large positive overnight move but opens weak.
• Short Entry: A stock has a large negative overnight move but opens strong.
• Confirmation: A failure to continue the overnight trend in the first 5 minutes.
• Timeframe: 5-minute.
• Location: A fade of the overnight move.
• Market Condition: Any.

Exit Logic

• Profit Target: The previous day's closing price.
• Scaling Out: No.
• Trailing Stop: A tight bar-by-bar stop.
• Signal Failure: Exit if the stock resumes the direction of the overnight move.
• Opposite Signal: Not applicable.
• Time Expiration: Exit by 10:30am EST.
• Momentum Loss: Exit if the reversion stalls.

Stop Loss Structure

• Hard Stop: The high/low of the first 5-minute candle.
• Soft Stop: If the stock does not move in your favor quickly.
• Max Dollar Loss: $300.
• Max Percent Loss: 0.6%.
• Structural Stop: The high/low of the day.

Risk Management Framework

• Risk Per Trade: 0.5%.
• Daily Limit: 3 trades.
• Weekly Limit: 3%.
• Max Drawdown: 10%.
• R:R Requirement: 2:1.

Position Sizing Model

• Sizing Approach: Fixed risk.
• Volatility Adjustment: No.
• Conviction Sizing: No.
• Scaling In: No.
• Scaling Out: No.

Trade Filtering

• Market Conditions: Best when the overnight move was not driven by major news.
• Setups: Look for a disconnect between the overnight move and the opening price action.
• Instruments: Liquid stocks.
• Time Restrictions: First 30 minutes of the day.
• Chop/News Avoidance: Yes.

Context Framework

• Trend Direction: Counter-trend to the overnight move.
• VWAP Relationship: The trade is often a move back towards the opening VWAP.
• MA Relationship: Not a primary factor.
• Range Location: Near the opening price.
• Higher TF Alignment: Not critical.

Trade Management Rules

• Breakeven: After a 1R move.
• Scale Out: No.
• Add Size: No.
• Fast vs Slow Moves: This is a fast, scalping-type strategy.

Time Rules

• Optimal Window: The first 15-30 minutes of the day.
• Times to Avoid: The rest of the day.
• Session Notes: A quick, tactical play on overnight sentiment.

Setup Classification

• A+ Setup: A large, unexplained overnight move that immediately fails at the open.
• A Setup: A moderate overnight move that fails.
• B Setup: A small overnight move that fails.
• C Setup: The opening price action confirms the overnight move.

Market Selection Criteria

• Instruments: High-volume stocks.
• Volume: High.
• Volatility: Moderate.

Statistical Edge Metrics

• Win Rate: 60-70%.
• Avg Win: 1.5R.
• Avg Loss: 1R.
• Profit Factor: 1.5.
• Expectancy: +0.25R.

Failure Conditions

• Market Conditions: When the overnight move is the start of a new trend.
• Specific Scenarios: A stock with a major pre-market news catalyst.

Psychological Rules

• Discipline: Must be able to enter and exit quickly without hesitation.

Advanced Components

• Regime Detection: Not applicable.
• Filters: Avoid stocks with low liquidity.
• Correlation: Be aware of the overall market open.
• MTF Alignment: Not applicable.

Location

• Strongest: On days with no clear market direction.
• Weakest: On strong trend days.