Financial Sector Rate Sensitivity

Entry Logic

• Exact Entry Trigger: Go long the XLF ETF when the 10-year Treasury yield (TNX) breaks out to a new 20-day high.
• Confirmation: The breakout in TNX should be on high volume.
• Timeframe: Daily chart.
• Location Context: The XLF should be in an uptrend.
• Market Condition: A rising interest rate environment.

Exit Logic

• Profit Targets: A new high in the XLF.
• Scaling Out: Not recommended.
• Trailing Stop: Trail the stop below the low of each new daily candle.
• Signal Failure Exit: Exit if the TNX 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 XLF drops below 50.

Stop Loss Structure

• Hard Stop: Below the low of the breakout candle on the XLF.
• 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: Fixed fractional sizing.
• Volatility Adjustment: Position size is adjusted based on the 14-period ATR of the XLF.
• Conviction Sizing: Not applicable.
• Scaling In: Not recommended.
• Scaling Out: Not recommended.

Trade Filtering

• Market Conditions to Avoid: A falling interest rate environment.
• Specific Setups Required: A clear breakout in the 10-year Treasury yield.
• Instruments: XLF ETF.
• Time Restrictions: Not applicable.
• Chop/News Avoidance: Be aware of Federal Reserve announcements.

Context Framework

• Trend Direction: The XLF should be in an uptrend.
• VWAP Relationship: Not applicable.
• Moving Average Relationship: The XLF should be above its 50-day and 200-day moving averages.
• Range Location: The breakout in TNX should occur from a consolidation range.
• Higher TF Alignment: The weekly chart of the XLF should confirm the uptrend.

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 in TNX on high volume with the XLF in a strong uptrend.
• A Setup: A breakout in TNX on moderate volume.
• B Setup: A breakout in TNX on low volume.
• C Setup: A choppy, unclear breakout in TNX.

Market Selection Criteria

• Instruments: XLF ETF.
• Volume/Liquidity: High volume is essential.
• Volatility: The XLF 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 a falling interest rate environment.
• Specific Scenarios: A sudden reversal in interest rates.

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 based on interest rates.
• Volatility/Liquidity Filters: Essential.
• Correlation Filters: The correlation between XLF and TNX should be positive.
• MTF Alignment: Weekly chart confirmation is beneficial.

Location

• Where Strongest: In a rising interest rate environment.
• Where Weakest: In a falling interest rate environment.