38.2% Retracement Entry

Entry Logic

• Exact Entry Trigger: Price pulls back to and touches the 38.2% Fibonacci retracement level drawn from the most recent significant swing high to swing low (for shorts) or swing low to swing high (for longs).
• Confirmation: A bullish (for long) or bearish (for short) candlestick pattern forms at the 38.2% level, such as a hammer, engulfing pattern, or pin bar. Volume should be higher than the average of the previous 5 candles.
• Timeframe: 5-minute chart for intraday trading.
• Location Context: Entry is taken above VWAP for longs, and below VWAP for shorts. The 38.2% level should not be in a major support or resistance zone.
• Market Condition: A clear trending market is required. Avoid this strategy in ranging or choppy markets.

Exit Logic

• Profit Target(s): The initial profit target is the 0% Fibonacci level (the recent swing high/low). The second target is the -27.2% Fibonacci extension level.
• Scaling Out: Scale out 50% of the position at the first profit target. Let the rest run to the second target.
• Trailing Stop: Once the first profit target is hit, move the stop loss to breakeven. Trail the stop using the 20-period moving average.
• Exit on Signal Failure: If the price closes beyond the 50% retracement level before hitting the profit target, exit the trade.
• Exit on Opposite Signal: Exit if a strong opposite signal appears, such as a break of the trendline.
• Exit on Time Expiration: Close the position if the trade is open for more than 2 hours without significant progress.
• Exit on Momentum Loss: Exit if momentum indicators like RSI or MACD show divergence against the trade direction.

Stop Loss Structure

• Hard Stop: Place the stop loss just beyond the 61.8% Fibonacci retracement level.
• Soft Stop: A close beyond the 50% level is a signal to exit.
• Maximum Dollar Loss: Do not risk more than $100 per trade.
• Maximum Percent Loss: The stop loss should not represent more than 1% of the trading account.
• Structural Stop: The stop is placed behind a structural level, such as a recent swing point, that aligns with the 61.8% level.

Risk Management Framework

• Risk Per Trade: Risk 0.5% of the account per trade.
• Maximum Daily Loss Limit: 2% of the account.
• Maximum Weekly Loss Limit: 5% of the account.
• Maximum Drawdown: 15% of the account.
• Risk-Reward Ratio: Minimum 1:2 risk-reward ratio required for any trade.

Position Sizing Model

• Sizing Approach: Use a fixed fractional position sizing model.
• Volatility-Based Adjustment: Reduce position size by 25% if the ATR is 50% higher than its 20-day average.
• Conviction-Based Sizing: A+ setups get 1% risk, A setups 0.75%, and B setups 0.5%.
• Scaling In: Do not scale into trades.
• Scaling Out: Scale out at predefined profit targets.

Trade Filtering

• Market Conditions to Avoid: Avoid trading during major news events or in low-volume holiday periods.
• Specific Setups Required: Only trade setups that align with the higher timeframe trend.
• Instrument Requirements: Trade high-volume stocks and ETFs with tight spreads.
• Time of Day Restrictions: Avoid trading in the first 15 minutes of the market open and the last 15 minutes before the close.
• Chop/News Avoidance: Do not trade if the market is in a tight range or if a major news release is scheduled within the hour.

Context Framework

• Trend Direction: The primary trend on the 60-minute chart must be in the direction of the trade.
• VWAP Relationship: Trade longs above VWAP and shorts below VWAP.
• Moving Average Relationship: The price should be above the 20 and 50-period EMAs for longs, and below for shorts.
• Range Location: In a ranging market, this strategy is not used.
• Higher Timeframe Alignment: The daily chart should show a clear trend in the direction of the trade.

Trade Management Rules

• Breakeven: Move stop to breakeven after the first profit target is reached.
• Scale Out: Scale out 50% at the first target.
• Add Size: Do not add to positions.
• Fast vs. Slow Moves: In fast-moving markets, trail the stop tighter, using the 9-period EMA. In slow markets, use the 20-period EMA.

Time Rules

• Optimal Trading Window: The first two hours of the trading session.
• Times to Avoid: Mid-day chop, from 12:00 PM to 2:00 PM EST.
• Session-Specific Notes: This strategy performs well in the London and New York sessions.

Setup Classification

• A+ Setup: Perfect alignment with higher timeframe trend, strong confirmation candle, high volume, and clear air to the first profit target.
• A Setup: Good alignment with the trend, decent confirmation, but some minor resistance before the target.
• B Setup: The setup is present, but the broader market context is not ideal.
• C Setup: The setup is weak, or it is against the higher timeframe trend. Avoid.

Market Selection Criteria

• Instrument Requirements: Major forex pairs, stock indices, and large-cap stocks.
• Volume/Liquidity: Minimum 1 million shares traded daily on average.
• Volatility: ATR should be within its normal range.

Statistical Edge Metrics

• Expected Win Rate: 55-60%
• Average Win: 2.5R
• Average Loss: 1R
• Profit Factor: 1.5
• Expectancy Per Trade: +0.375R

Failure Conditions

• Market Conditions: The strategy fails in ranging markets and during high-impact news events.
• Specific Scenarios: A sudden reversal in the broader market trend can invalidate the setup.

Psychological Rules

• Mental Discipline: Have the patience to wait for the price to pull back to the 38.2% level. Do not chase the price.

Advanced Components

• Market Regime Detection: Use the ADX indicator to confirm a trending market (ADX > 25).
• Volatility/Liquidity Filters: Avoid stocks with a high bid-ask spread.
• Correlation Filters: Do not take trades on highly correlated assets at the same time.
• Multi-Timeframe Alignment: The 60-minute and daily charts must align with the 5-minute chart trade direction.

Location

• Where Strongest: In a strong, established trend with clear swing points.
• Where Weakest: In a choppy, sideways market with no clear trend.