Sector Leader Momentum

Entry Logic

• Exact Entry Trigger: Enter long on a pullback to the 8-period EMA on the 1-hour chart of a leading sector ETF.
• Confirmation: The 1-hour RSI must be above 50, and the pullback should be on low volume.
• Timeframe: 1-hour chart for entry, daily for trend context.
• Location Context: The sector ETF must be in the top quartile of performance over the last 20 trading days.
• Market Condition: A clear, trending market environment.

Exit Logic

• Profit Targets: A new high on the 1-hour chart.
• Scaling Out: Not typically used; this is a high-momentum trade.
• Trailing Stop: Trail the stop loss below the low of each new 1-hour candle.
• Signal Failure Exit: Exit if the 1-hour candle closes below the 21-period EMA.
• Opposite Signal Exit: Not applicable.
• Time Expiration: Exit at the end of the trading day.
• Momentum Loss: Exit if the 1-hour RSI drops below 50.

Stop Loss Structure

• Hard Stop: 1 ATR (14) below the swing low prior to entry.
• Soft Stop: A close below the 21-period EMA on the 1-hour chart.
• Max Dollar Loss: 0.5% of account equity.
• Max Percent Loss: 1.5% of the position's value.
• Structural Stop: Below the most recent higher low on the 4-hour chart.

Risk Management Framework

• Risk Per Trade: 0.5% of the account.
• Maximum Daily Loss Limit: 1.5% of the account.
• Maximum Weekly Loss Limit: 3% of the account.
• Maximum Drawdown: 10% from peak equity.
• R:R Requirement: Minimum 2:1.

Position Sizing Model

• Sizing Approach: Fixed fractional sizing.
• Volatility Adjustment: Position size is adjusted based on the 14-period ATR.
• Conviction Sizing: A+ setups can risk up to 0.75% of the account.
• Scaling In: Not recommended.
• Scaling Out: Not recommended.

Trade Filtering

• Market Conditions to Avoid: Choppy, range-bound markets.
• Specific Setups Required: A strong, leading sector with a clear trend.
• Instruments: High-beta sector ETFs.
• Time Restrictions: Entries are best taken in the first half of the trading session.
• Chop/News Avoidance: Avoid trading around major market-moving news.

Context Framework

• Trend Direction: The sector must be in a strong uptrend on the daily and weekly charts.
• VWAP Relationship: Price should be above the daily VWAP.
• Moving Average Relationship: Price should be above the 8, 21, 50, and 200-period moving averages on the 1-hour chart.
• Range Location: The entry should occur after a breakout from a consolidation range.
• Higher TF Alignment: The daily and weekly charts must confirm the bullish trend.

Trade Management Rules

• Breakeven: Move stop to breakeven after the price moves 1R in your favor.
• Scale Out: Not applicable.
• Add Size: Not applicable.
• Fast vs Slow Moves: This strategy is designed for fast-moving, trending markets.

Time Rules

• Optimal Trading Window: 9:30 AM - 12:00 PM EST.
• Times to Avoid: The afternoon session.
• Session Notes: This is a day trading strategy.

Setup Classification

• A+ Setup: A pullback to the 8-period EMA in a very strong trend with high volume on the subsequent breakout.
• A Setup: A pullback to the 21-period EMA in a strong trend.
• B Setup: A pullback to the 50-period EMA.
• C Setup: A pullback in a weak or choppy trend.

Market Selection Criteria

• Instruments: The most volatile and liquid sector ETFs.
• Volume/Liquidity: High volume is essential.
• Volatility: The sector should have a high beta.

Statistical Edge Metrics

• Expected Win Rate: 50-55%.
• Average Win Size: 2x the average loss.
• Average Loss Size: 1x the defined risk.
• Profit Factor: 1.8 - 2.2.
• Expectancy Per Trade: Positive, aiming for > 0.4R per trade.

Failure Conditions

• Market Conditions: Fails in choppy, non-trending markets.
• Specific Scenarios: A sudden reversal in the market or the leading sector.

Psychological Rules

• Key Mental Discipline: Requires the ability to buy pullbacks and not chase tops. Must be able to act quickly.

Advanced Components

• Market Regime Detection: Use the VIX to gauge market sentiment. The strategy works best when the VIX is low and falling.
• Volatility/Liquidity Filters: Essential.
• Correlation Filters: Not a primary consideration.
• MTF Alignment: Essential.

Location

• Where Strongest: In the early to middle stages of a bull market.
• Where Weakest: In bear markets or choppy, range-bound markets.