Regression Channel Mean Reversion

Entry Logic

• Long Entry: Price touches the lower line of a linear regression channel.
• Short Entry: Price touches the upper line of a linear regression channel.
• Confirmation: A reversal candle at the channel line.
• Timeframe: 60-minute.
• Location: At the edge of the regression channel.
• Market Condition: Trending.

Exit Logic

• Profit Target: The midline of the regression channel.
• Scaling Out: No.
• Trailing Stop: No.
• Signal Failure: Exit if price closes outside the channel.
• Opposite Signal: Not applicable.
• Time Expiration: 10-12 bars.
• Momentum Loss: Exit if the reversion stalls.

Stop Loss Structure

• Hard Stop: Just beyond the channel line.
• Soft Stop: A close outside the channel.
• Max Dollar Loss: $600.
• Max Percent Loss: 1.2%.
• Structural Stop: Beyond a recent pivot outside the channel.

Risk Management Framework

• Risk Per Trade: 1%.
• Daily Limit: 2 trades.
• Weekly Limit: 4%.
• Max Drawdown: 12%.
• R:R Requirement: 2:1.

Position Sizing Model

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

Trade Filtering

• Market Conditions: Trending markets.
• Setups: Look for a clean test of the channel line.
• Instruments: Any liquid instrument.
• Time Restrictions: None.
• Chop/News Avoidance: Yes.

Context Framework

• Trend Direction: The trade is counter-trend to the immediate move, but with the expectation of reverting to the mean of the trend.
• VWAP Relationship: Not a primary factor.
• MA Relationship: The channel midline is often close to a key moving average.
• Range Location: Not a range-based strategy.
• Higher TF Alignment: The higher timeframe should confirm the trend.

Trade Management Rules

• Breakeven: After a 1R move.
• Scale Out: No.
• Add Size: No.
• Fast vs Slow Moves: Works for both.

Time Rules

• Optimal Window: Any.
• Times to Avoid: Low-volume periods.
• Session Notes: A way to quantify and trade pullbacks in a trend.

Setup Classification

• A+ Setup: A test of the channel line that aligns with a key support/resistance level.
• A Setup: A clean test of the channel line with a reversal candle.
• B Setup: A choppy test of the channel line.
• C Setup: Price breaks out of the channel.

Market Selection Criteria

• Instruments: Any.
• Volume: High.
• Volatility: Moderate.

Statistical Edge Metrics

• Win Rate: 60%.
• Avg Win: 2R.
• Avg Loss: 1R.
• Profit Factor: 1.8.
• Expectancy: +0.4R.

Failure Conditions

• Market Conditions: A trend acceleration or reversal.
• Specific Scenarios: When the slope of the trend changes significantly.

Psychological Rules

• Discipline: Must be willing to fade the short-term momentum in the context of the larger trend.

Advanced Components

• Regime Detection: Use the R-squared of the regression channel to measure the strength of the trend.
• Filters: Avoid trading when the channel is very wide or very narrow.
• Correlation: Be aware of the broader market trend.
• MTF Alignment: The daily chart should confirm the trend direction.

Location

• Strongest: In smooth, orderly trends.
• Weakest: In choppy, volatile trends.