M&A Announcement Arbitrage

Entry Logic

• Entry trigger: Company announces it is being acquired.
• Confirmation: Stock price trades below the acquisition price.
• Timeframe: Daily and weekly charts.
• Location context: Buy the stock as close to the acquisition price as possible.
• Market condition: Any market condition.

Exit Logic

• Profit targets: The acquisition price.
• Scaling out: Not applicable.
• Trailing stop: Not applicable.
• Signal failure exit: Exit if the deal is called off.
• Opposite signal exit: Not applicable.
• Time expiration: Exit when the acquisition is complete.
• Momentum loss: Not applicable.

Stop Loss Structure

• Hard stop: Place a stop loss below a key support level.
• Soft stop: Not applicable.
• Max dollar loss: Not applicable.
• Max percent loss: Do not risk more than 10% of the account on a single trade.
• Structural stop: Place the stop loss below a key support level.

Risk Management Framework

• Risk per trade: 5% of the account.
• Daily limit: Not applicable.
• Weekly limit: Not applicable.
• Max drawdown: 25%.
• R:R requirement: Varies depending on the spread between the stock price and the acquisition price.

Position Sizing Model

• Sizing approach: Fixed fractional position sizing.
• Volatility adjustment: Not applicable.
• Conviction sizing: Not applicable.
• Scaling in/out: Not applicable.

Trade Filtering

• Market conditions: Not applicable.
• Setups: Only trade when there is a definitive merger agreement.
• Instruments: Any stock that is being acquired.
• Time restrictions: Not applicable.
• Chop/news avoidance: Not applicable.

Context Framework

• Trend direction: Not applicable.
• VWAP relationship: Not applicable.
• MA relationship: Not applicable.
• Range location: Not applicable.
• Higher TF alignment: Not applicable.

Trade Management Rules

• Breakeven: Not applicable.
• Scale out: Not applicable.
• Add size: Not applicable.
• Fast vs slow moves: This is a long-term trade, so be patient.

Time Rules

• Optimal window: Not applicable.
• Times to avoid: Not applicable.
• Session notes: Not applicable.

Setup Classification

• A+ criteria: Definitive merger agreement with a high probability of closing.
• A criteria: Merger agreement with a moderate probability of closing.
• B criteria: Not applicable.
• C criteria: Avoid trading.

Market Selection Criteria

• Instruments: Any stock that is being acquired.
• Volume: Not applicable.
• Volatility: Not applicable.

Statistical Edge Metrics

• Win rate: 95%.
• Avg win: Varies depending on the spread.
• Avg loss: Can be large if the deal is called off.
• Profit factor: Varies.
• Expectancy: Varies.

Failure Conditions

• The deal is called off.
• The acquisition price is lowered.

Psychological Rules

• Be patient and let the trade work.
• Do not be swayed by short-term price fluctuations.

Advanced Components

• Regime detection: Not applicable.
• Filters: Not applicable.
• Correlation: Not applicable.
• MTF alignment: Not applicable.

Location

• Strongest: In a stable market.
• Weakest: In a volatile market.