Leveraged ETF Mean Reversion

Entry Logic

• Exact Entry Trigger: Buy TQQQ when it is 2 ATR (14 on the 5-minute chart) below the 20-period SMA on the 5-minute chart.
• Confirmation: The 5-minute RSI must be below 30.
• Timeframe: 5-minute chart.
• Location Context: The entry should occur at a support level.
• Market Condition: A volatile, but range-bound market.

Exit Logic

• Profit Targets: The 20-period SMA on the 5-minute chart.
• Scaling Out: Not recommended.
• Trailing Stop: Not applicable.
• Signal Failure Exit: Exit if the price makes a new low.
• Opposite Signal Exit: Not applicable.
• Time Expiration: Exit at the end of the day.
• Momentum Loss: Not applicable.

Stop Loss Structure

• Hard Stop: 1 ATR (14) below the entry price.
• Soft Stop: Not applicable.
• Max Dollar Loss: 0.5% of account equity.
• Max Percent Loss: 1.5% of the position's value.
• Structural Stop: Below the most recent swing low.

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 1.5:1.

Position Sizing Model

• Sizing Approach: Fixed fractional sizing.
• Volatility Adjustment: Position size is adjusted based on the 14-period ATR.
• Conviction Sizing: Not applicable.
• Scaling In: Not recommended.
• Scaling Out: Not recommended.

Trade Filtering

• Market Conditions to Avoid: Strongly trending markets.
• Specific Setups Required: An oversold condition in a leveraged ETF.
• Instruments: TQQQ or SQQQ.
• Time Restrictions: No specific time of day restrictions.
• Chop/News Avoidance: Avoid trading around major market-moving news.

Context Framework

• Trend Direction: The underlying index (NDX) should be in a range-bound or choppy trend.
• VWAP Relationship: Not a primary consideration.
• Moving Average Relationship: The entry occurs far below the 20-period SMA.
• Range Location: The entry should occur at the lower end of the recent trading range.
• Higher TF Alignment: The daily chart of the NDX should confirm the range-bound environment.

Trade Management Rules

• Breakeven: Not applicable.
• Scale Out: Not applicable.
• Add Size: Not applicable.
• Fast vs Slow Moves: This is a counter-trend strategy, so moves can be fast.

Time Rules

• Optimal Trading Window: No specific window.
• Times to Avoid: Not applicable.
• Session Notes: This is a day trading strategy.

Setup Classification

• A+ Setup: A deep oversold condition at a key support level.
• A Setup: An oversold condition.
• B Setup: A weak oversold condition.
• C Setup: No oversold condition.

Market Selection Criteria

• Instruments: TQQQ or SQQQ.
• Volume/Liquidity: High volume is essential.
• Volatility: These are highly volatile instruments.

Statistical Edge Metrics

• Expected Win Rate: 55-60%.
• Average Win Size: 1.5x the average loss.
• Average Loss Size: 1x the defined risk.
• Profit Factor: 1.5 - 1.8.
• Expectancy Per Trade: Positive, aiming for > 0.2R per trade.

Failure Conditions

• Market Conditions: Fails in strongly trending markets.
• Specific Scenarios: The oversold condition continues and the price keeps falling.

Psychological Rules

• Key Mental Discipline: Requires the ability to buy into weakness. This can be psychologically challenging.

Advanced Components

• Market Regime Detection: Use the VIX to gauge market sentiment. The strategy works best when the VIX is high and rising.
• Volatility/Liquidity Filters: Essential.
• Correlation Filters: Not applicable.
• MTF Alignment: Daily chart confirmation is beneficial.

Location

• Where Strongest: In volatile, range-bound markets.
• Where Weakest: In strongly trending markets.