50% Retracement Entry

Entry Logic

• Exact Entry Trigger: Price retraces to the 50% Fibonacci level of the last major swing.
• Confirmation: A reversal candlestick pattern prints at the 50% level, supported by a spike in volume.
• Timeframe: 15-minute chart.
• Location Context: For longs, the entry must be above the 200-period EMA. For shorts, below.
• Market Condition: Trending market with moderate volatility.

Exit Logic

• Profit Target(s): First target at the prior swing high/low (0% Fib level). Second target at the -61.8% extension.
• Scaling Out: Exit 50% at the first target, 30% at the second, and let 20% run with a trailing stop.
• Trailing Stop: Use the Parabolic SAR as a trailing stop after the first target is hit.
• Exit on Signal Failure: If price closes decisively beyond the 78.6% Fib level, the setup is invalid.
• Exit on Opposite Signal: A confirmed break of the trendline against the position warrants an immediate exit.
• Exit on Time Expiration: Close the trade if it is not profitable within 4 hours.
• Exit on Momentum Loss: A bearish divergence on the MACD for a long trade is an exit signal.

Stop Loss Structure

• Hard Stop: Place the stop loss 10 ticks below the 78.6% Fibonacci level.
• Soft Stop: A 15-minute candle closing below the 61.8% level suggests weakness.
• Maximum Dollar Loss: Limit loss to $150 per trade.
• Maximum Percent Loss: Risk no more than 1.5% of the account on a single trade.
• Structural Stop: The stop should be placed behind a clear support/resistance level if one aligns with the Fibonacci levels.

Risk Management Framework

• Risk Per Trade: 1% of trading capital.
• Maximum Daily Loss Limit: 3%.
• Maximum Weekly Loss Limit: 6%.
• Maximum Drawdown: 20%.
• Risk-Reward Ratio: Seek a minimum of 1:2.5 R:R.

Position Sizing Model

• Sizing Approach: Volatility-adjusted position sizing.
• Volatility-Based Adjustment: Position size is inversely proportional to the 14-day ATR.
• Conviction-Based Sizing: A+ setups risk 1.5%, A setups 1%, B setups 0.5%.
• Scaling In: Add to the position on a successful retest of the 38.2% level.
• Scaling Out: As defined in the exit logic.

Trade Filtering

• Market Conditions to Avoid: Highly volatile news-driven markets.
• Specific Setups Required: A clear impulse wave followed by a corrective pullback.
• Instrument Requirements: Liquid instruments with high daily volume.
• Time of Day Restrictions: Avoid the first and last 30 minutes of the trading day.
• Chop/News Avoidance: Stay out of the market 30 minutes before and after a major economic data release.

Context Framework

• Trend Direction: The trade must be in the direction of the trend on the 4-hour chart.
• VWAP Relationship: Longs are taken above VWAP, shorts below.
• Moving Average Relationship: Price should be on the correct side of the 20, 50, and 200-period EMAs.
• Range Location: This strategy is not for range-bound markets.
• Higher Timeframe Alignment: The weekly chart should not show major resistance/support in the way of the trade.

Trade Management Rules

• Breakeven: Move the stop to breakeven when the price has moved 1R in your favor.
• Scale Out: At predefined targets.
• Add Size: Only on strong confirmation of trend continuation.
• Fast vs. Slow Moves: In fast moves, take profits sooner. In slow grinds, let the trade work.

Time Rules

• Optimal Trading Window: 9:30 AM to 11:30 AM EST.
• Times to Avoid: Lunchtime session (12 PM to 2 PM EST).
• Session-Specific Notes: The 50% retracement is a key level watched by traders in all sessions.

Setup Classification

• A+ Setup: Confluence of the 50% Fib level with a major support/resistance level and a pivot point.
• A Setup: 50% retracement with a clear candlestick confirmation.
• B Setup: 50% retracement with a weak confirmation or against a minor trend.
• C Setup: No clear trend or the 50% level is in a "no man's land".

Market Selection Criteria

• Instrument Requirements: Futures, forex, and stocks with a daily ATR of at least 1%.
• Volume/Liquidity: Must be in the top quartile of its sector for volume.
• Volatility: Implied volatility should be in a normal range, not excessively high.

Statistical Edge Metrics

• Expected Win Rate: 50-55%
• Average Win: 3R
• Average Loss: 1R
• Profit Factor: 1.65
• Expectancy Per Trade: +0.65R

Failure Conditions

• Market Conditions: A sudden shift in market sentiment can cause this setup to fail.
• Specific Scenarios: A "V-reversal" with no pullback will not offer an entry.

Psychological Rules

• Mental Discipline: Trust the 50% level, as it is a significant psychological point for many traders.

Advanced Components

• Market Regime Detection: Use a trend-following indicator like the Aroon indicator to confirm the trend.
• Volatility/Liquidity Filters: Only trade instruments with a spread of less than 0.1% of the price.
• Correlation Filters: Avoid taking this setup on multiple correlated pairs at the same time.
• Multi-Timeframe Alignment: The daily, 4-hour, and 1-hour charts should all be in agreement.

Location

• Where Strongest: In a classic "buy the dip" or "sell the rally" scenario in a strong trend.
• Where Weakest: In a market that is making shallow pullbacks or is about to reverse.