Stop Hunt Recovery Trade

Entry Logic

• Entry trigger: Price makes a sharp, sudden move to take out a clear level of stops (e.g., below a key swing low) and then immediately recovers and reclaims the level.
• Confirmation: A strong bullish/bearish candle forms, engulfing the stop hunt candle.
• Timeframe: 5-minute chart.
• Location context: At a key support or resistance level.
• Market condition: Volatile, but within a broader range or trend.

Exit Logic

• Profit target: The other side of the range or the next key level.
• Scaling out: 50% at 2R.
• Trailing stop: Trail below the 5-minute 20 EMA.
• Signal failure exit: Exit if price moves back below the stop hunt low.
• Opposite signal exit: Not applicable.
• Time expiration: Exit if the trade is not profitable within 1 hour.
• Momentum loss: Exit if the recovery stalls.

Stop Loss Structure

• Hard stop: Just below the low of the stop hunt wick.
• Soft stop: Not used.
• Max dollar loss: $140 per trade.
• Max percent loss: 0.7% of account.
• Structural stop: The low of the stop hunt.

Risk Management Framework

• Risk per trade: 0.5% of account.
• Daily limit: 2 losing trades.
• Weekly limit: 3% drawdown.
• Max drawdown: 10%.
• R:R requirement: Minimum 2.5:1.

Position Sizing Model

• Sizing approach: Fixed risk per trade.
• Volatility adjustment: The stop is naturally wide, so the position size will be smaller.
• Conviction sizing: Full size for A+ setups.
• Scaling in: Not recommended.
• Scaling out: At 2R.

Trade Filtering

• Market conditions to avoid: Low volatility.
• Setups required: A clear level of stops that is aggressively taken out.
• Instruments: Any liquid instrument.
• Time restrictions: High-volume sessions.
• Chop/news avoidance: Stop hunts are common around news events, but are risky to trade.

Context Framework

• Trend direction: Can be with or against the trend.
• VWAP relationship: The stop hunt often occurs at a deviation band of the VWAP.
• MA relationship: The recovery often finds support at a key MA.
• Range location: At the high or low of a range.
• Higher TF alignment: The stop hunt should occur at a significant higher-timeframe level.

Trade Management Rules

• Breakeven: Move to breakeven at 1.5R.
• Scale out: At 2R.
• Add size: Not applicable.
• Fast vs slow moves: Expect a fast recovery.

Time Rules

• Optimal window: Session opens.
• Times to avoid: Low-volume periods.
• Session notes: A classic institutional maneuver.

Setup Classification

• A+ criteria: A violent stop hunt of a major level with an immediate, high-volume recovery.
• A criteria: A clear stop hunt and recovery.
• B criteria: The stop hunt is not clear, or the recovery is weak.
• C criteria: No clear stop level.

Market Selection Criteria

• Instruments: Any liquid instrument.
• Volume: High volume on the stop hunt and recovery.
• Volatility: High.

Statistical Edge Metrics

• Win rate: 50%.
• Avg win: 3R.
• Avg loss: 1R.
• Profit factor: 1.5.
• Expectancy: 0.5R per trade.

Failure Conditions

• The stop hunt is not a hunt, but a genuine breakout.
• The recovery lacks momentum.

Psychological Rules

• Requires acting quickly in a volatile environment.
• Requires buying after a sharp drop (or selling after a sharp rally).

Advanced Components

• Regime detection: Look for high-volatility regimes.
• Filters: Use order flow to see the absorption of stops.
• Correlation: Not a primary factor.
• MTF alignment: The stop hunt should occur at a key higher-timeframe level.

Location

• Strongest: At major, obvious swing points.
• Weakest: In the middle of a range.