78.6% Deep Retracement Entry

Entry Logic

• Exact Entry Trigger: Price retraces to the 78.6% Fibonacci level.
• Confirmation: A bullish or bearish divergence on the RSI or MACD indicator.
• Timeframe: 1-hour chart.
• Location Context: The 78.6% level should be near a major support or resistance zone.
• Market Condition: A market that has shown a tendency for deep pullbacks.

Exit Logic

• Profit Target(s): First target at the 38.2% level, second target at the 0% level.
• Scaling Out: Scale out 50% at each target.
• Trailing Stop: Use a 2-bar trailing stop.
• Exit on Signal Failure: A close beyond the 100% level invalidates the trade.
• Exit on Opposite Signal: A strong reversal signal on a higher timeframe.
• Exit on Time Expiration: Close the trade if it has not moved in 12 hours.
• Exit on Momentum Loss: A loss of momentum on the underlying trend.

Stop Loss Structure

• Hard Stop: Place the stop loss 15 pips beyond the 88.6% Fibonacci level.
• Soft Stop: A close beyond the 88.6% level.
• Maximum Dollar Loss: $250 per trade.
• Maximum Percent Loss: 2.5% of the account.
• Structural Stop: Behind a clear structural level beyond the 88.6% level.

Risk Management Framework

• Risk Per Trade: 2% of the account.
• Maximum Daily Loss Limit: 5%.
• Maximum Weekly Loss Limit: 10%.
• Maximum Drawdown: 30%.
• Risk-Reward Ratio: Minimum 1:2.

Position Sizing Model

• Sizing Approach: Kelly Criterion.
• Volatility-Based Adjustment: Reduce size in high volatility.
• Conviction-Based Sizing: A+ setups get 2.5% risk, A setups 2%, B setups 1.5%.
• Scaling In: Not recommended.
• Scaling Out: At predefined targets.

Trade Filtering

• Market Conditions to Avoid: Low volatility, ranging markets.
• Specific Setups Required: A deep pullback in a strong trend.
• Instrument Requirements: Instruments known for deep retracements.
• Time of Day Restrictions: None.
• Chop/News Avoidance: Avoid major news.

Context Framework

• Trend Direction: Aligned with the daily trend.
• VWAP Relationship: Not a primary factor.
• Moving Average Relationship: Price may be on the other side of short-term MAs, but should respect long-term MAs.
• Range Location: Not for ranging markets.
• Higher Timeframe Alignment: Crucial.

Trade Management Rules

• Breakeven: After 1R of profit.
• Scale Out: At targets.
• Add Size: No.
• Fast vs. Slow Moves: Be patient with deep pullbacks.

Time Rules

• Optimal Trading Window: Any session.
• Times to Avoid: Illiquid times.
• Session-Specific Notes: None.

Setup Classification

• A+ Setup: Confluence with other major technical levels.
• A Setup: Clear 78.6% pullback with divergence.
• B Setup: Weak divergence.
• C Setup: No divergence.

Market Selection Criteria

• Instrument Requirements: Forex, commodities.
• Volume/Liquidity: High.
• Volatility: High.

Statistical Edge Metrics

• Expected Win Rate: 40-45%
• Average Win: 5R
• Average Loss: 1R
• Profit Factor: 2.0
• Expectancy Per Trade: +1R

Failure Conditions

• Market Conditions: Trend reversals.
• Specific Scenarios: A news-driven reversal.

Psychological Rules

• Mental Discipline: Requires a high level of patience and the ability to withstand a significant pullback against the trend.

Advanced Components

• Market Regime Detection: Use a trend filter.
• Volatility/Liquidity Filters: High liquidity is a must.
• Correlation Filters: Be aware of correlations.
• Multi-Timeframe Alignment: Essential.

Location

• Where Strongest: In markets that are prone to deep corrections before continuing the trend.
• Where Weakest: In markets that make shallow pullbacks.