Risk-On / Risk-Off Rotation

Entry Logic

• Exact Entry Trigger: Go long a risk-on asset (e.g., QQQ) and short a risk-off asset (e.g., TLT) when the ratio of their prices breaks out to a new 20-day high.
• Confirmation: The breakout should be on high volume.
• Timeframe: Daily chart.
• Location Context: The breakout should occur from a consolidation pattern.
• Market Condition: A market that is showing a clear preference for risk assets.

Exit Logic

• Profit Targets: Exit when the ratio reaches a 2:1 risk-reward level.
• Scaling Out: Not recommended.
• Trailing Stop: Trail the stop below the low of each new daily candle.
• Signal Failure Exit: Exit if the ratio closes back below the breakout level.
• Opposite Signal Exit: Not applicable.
• Time Expiration: Exit after 20 trading days.
• Momentum Loss: Exit if the daily RSI on the ratio drops below 50.

Stop Loss Structure

• Hard Stop: Below the low of the breakout candle.
• Soft Stop: Not applicable.
• Max Dollar Loss: 1% of account equity.
• Max Percent Loss: 2.5% of the position's value.
• Structural Stop: Below the most recent swing low.

Risk Management Framework

• Risk Per Trade: 1% of the account.
• Maximum Daily Loss Limit: 2% of the account.
• Maximum Weekly Loss Limit: 5% of the account.
• Maximum Drawdown: 15% from peak equity.
• R:R Requirement: Minimum 2:1.

Position Sizing Model

• Sizing Approach: Dollar-neutral position sizing.
• Volatility Adjustment: Not applicable.
• Conviction Sizing: Not applicable.
• Scaling In: Not recommended.
• Scaling Out: Not recommended.

Trade Filtering

• Market Conditions to Avoid: Directionless, choppy markets.
• Specific Setups Required: A clear breakout in the risk-on/risk-off ratio.
• Instruments: QQQ, SPY, IWM (risk-on) and TLT, GLD, UUP (risk-off).
• Time Restrictions: Not applicable.
• Chop/News Avoidance: Be aware of major macroeconomic news.

Context Framework

• Trend Direction: The strategy is based on the relative trend between risk-on and risk-off assets.
• VWAP Relationship: Not applicable.
• Moving Average Relationship: The ratio should be above its 20-day and 50-day moving averages.
• Range Location: The breakout should occur from a consolidation range.
• Higher TF Alignment: The weekly chart should confirm the trend in the ratio.

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 is a swing trading strategy.

Time Rules

• Optimal Trading Window: Not applicable.
• Times to Avoid: Not applicable.
• Session Notes: Not applicable.

Setup Classification

• A+ Setup: A clean breakout on high volume with confirmation from other risk indicators.
• A Setup: A breakout on moderate volume.
• B Setup: A breakout on low volume.
• C Setup: A choppy, unclear breakout.

Market Selection Criteria

• Instruments: Highly liquid ETFs representing risk-on and risk-off assets.
• Volume/Liquidity: High volume is essential.
• Volatility: The ratio should have sufficient volatility.

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, directionless markets.
• Specific Scenarios: A sudden shift in market sentiment.

Psychological Rules

• Key Mental Discipline: Requires patience and the ability to hold positions for several days or weeks.

Advanced Components

• Market Regime Detection: This strategy is a form of market regime detection.
• Volatility/Liquidity Filters: Essential.
• Correlation Filters: Not applicable.
• MTF Alignment: Weekly chart confirmation is beneficial.

Location

• Where Strongest: At the beginning of new market trends.
• Where Weakest: In choppy, range-bound markets.