Delta Divergence Trade

Entry Logic

• Entry occurs when price makes a new low, but cumulative delta makes a higher low.
• Confirmation requires the next bar to be a bullish engulfing candle.
• Timeframe is the 5-minute chart.
• Location is near a key support level.
• Market is in a trading range.

Exit Logic

• Profit target is the top of the range.
• Scale out 50% at a 1:1 risk-reward ratio.
• Trail the stop loss below the low of each previous bar.
• Exit if the price makes a new low.
• Exit on a confirmed bearish delta divergence.
• Exit after 30 minutes if the target is not reached.
• Exit if momentum stalls for 3 consecutive bars.

Stop Loss Structure

• Hard stop is placed 1 tick below the entry bar's low.
• Soft stop is a mental stop if the cumulative delta starts to follow the price down.
• Maximum dollar loss is $100 per trade.
• Maximum percent loss is 1% of the account.
• Structural stop is below the key support level.

Risk Management Framework

• Risk 0.5% of the account per trade.
• Daily loss limit is 2% of the account.
• Weekly loss limit is 5% of the account.
• Maximum drawdown is 15% of the account.
• Risk-reward ratio must be at least 1:2.

Position Sizing Model

• Use a fixed fractional position sizing model.
• Reduce size by 50% during high volatility periods.
• Use full size for A+ setups, half size for A setups, and quarter size for B setups.
• Do not scale in.
• Scale out as described in the exit logic.

Trade Filtering

• Avoid trading during major news events.
• Only trade setups that occur at pre-defined support or resistance levels.
• Trade only highly liquid instruments.
• Avoid trading during the first 15 minutes of the session.
• Do not trade in low-volume, choppy markets.

Context Framework

• Trend is sideways.
• Price is below VWAP.
• Price is below the 20 and 50 EMAs.
• Location is at the bottom of a multi-day range.
• The higher timeframe chart (60-minute) shows a clear range.

Trade Management Rules

• Move stop to breakeven after the first profit target is hit.
• Scale out at pre-defined resistance levels.
• Do not add to a winning position.
• In a fast move, let the trade run to the final target. In a slow move, exit at the first sign of weakness.

Time Rules

• Optimal trading window is between 10:00 AM and 11:00 AM EST.
• Avoid trading between 12:00 PM and 2:00 PM EST.
• The strategy is most effective during the London-New York overlap.

Setup Classification

• A+ setup: Perfect delta divergence at a major support level with high volume.
• A setup: Delta divergence at a minor support level.
• B setup: Delta divergence with no clear support level.
• C setup: No delta divergence.

Market Selection Criteria

• Trade futures contracts like ES or NQ.
• Minimum daily volume of 1 million contracts.
• Average True Range of at least 10 points.

Statistical Edge Metrics

• Expected win rate is 60%.
• Average win is 2R.
• Average loss is 1R.
• Profit factor is 1.8.
• Expectancy per trade is 0.8R.

Failure Conditions

• The strategy fails in strong trending markets.
• Avoid using this strategy when a major news event is scheduled.

Psychological Rules

• Trust the signal and do not hesitate to enter.
• Do not chase the price if the entry is missed.

Advanced Components

• Use a market regime filter to identify ranging markets.
• Use a volume filter to confirm the validity of the support level.
• Avoid trading correlated instruments simultaneously.
• The 60-minute chart must confirm the range-bound market.

Location

• Strongest at the boundaries of a well-defined range.
• Weakest in the middle of the range.
• The location of the setup determines the probability of success.