1. Small Cap vs Large Cap Rotation

Entry Logic

Trigger: Relative Strength Index (RSI) 14-period divergence between Small Cap ETF (IWM) and Large Cap ETF (SPY) on 1-hour chart. Confirmation: IWM daily close above 20-day moving average (DMA) and SPY daily close below 20-DMA. Timeframe: 1-hour for divergence, daily for confirmation. Location Context: Divergence occurs near previous support/resistance. Market Condition: Sideways large-cap, emerging small-cap uptrend.

Exit Logic

Profit Target: IWM reaches 1.5 ATR (Average True Range) from entry. Scaling Out: 50% position at 1 ATR profit. Trailing Stop: 0.5 ATR below highest close. Signal Failure: IWM closes below 20-DMA. Time Expiration: No open position after 3 trading days. Momentum Loss: RSI 14-period on 1-hour chart drops below 40.

Stop Loss Structure

Hard Stop: 0.75 ATR below entry price. Soft Stop: Daily close below 20-DMA. Max Dollar Loss: $500 per trade. Max Percent Loss: 1.5% of trading capital. Structural Stop: IWM breaks below previous swing low.

Risk Management Framework

Risk Per Trade: 1% of capital. Daily Limit: 3% capital loss. Weekly Limit: 7% capital loss. Max Drawdown: 15% of capital. R:R Requirement: Minimum 1.5:1.

Position Sizing Model

Sizing Approach: Fixed fractional 1% risk. Volatility Adjustment: Adjust share size based on 1-hour ATR. Conviction Sizing: 1.5% risk for A+ setups. Scaling In/Out: Scale out at profit targets. No scaling in.

Trade Filtering

Market Conditions: Volatility Index (VIX) below 25. Setups: Clear RSI divergence. Instruments: IWM, SPY. Time Restrictions: No trades during FOMC announcements. Chop/News Avoidance: Avoid trading during major economic reports.

Context Framework

Trend Direction: Small-cap emerging uptrend. VWAP Relationship: IWM above VWAP, SPY below VWAP. MA Relationship: IWM 1-hour above 20-period EMA, SPY 1-hour below 20-period EMA. Range Location: IWM breaking out of consolidation. Higher TF: Daily chart shows small-cap strength.

Trade Management Rules

Breakeven: Move stop to entry after 0.5 ATR profit. Scale Out: 50% at 1 ATR, 50% at 1.5 ATR. Add Size: Never add to losing position. Fast vs Slow Moves: Tighten stops on fast moves.

Time Rules

Optimal Window: 9:30 AM - 11:00 AM EST. Times to Avoid: Last hour of trading. Session Notes: Increased volatility during opening hour.

Setup Classification

A+ Criteria: Clear RSI divergence, strong volume on IWM breakout, SPY breakdown. A Criteria: RSI divergence, moderate volume. B Criteria: Weak divergence, low volume. C Criteria: Avoid.

Market Selection Criteria

Instruments: IWM, SPY. Volume: Average daily volume > 50 million shares. Volatility: ATR 1-hour > 0.5%.

Statistical Edge Metrics

Win Rate: 55%. Avg Win: $750. Avg Loss: $500. Profit Factor: 1.65. Expectancy: $162.50 per trade.

Failure Conditions

Strategy Fails: Persistent large-cap outperformance despite small-cap divergence. VIX spikes above 30.

Psychological Rules

Mental Discipline: Adhere to stop loss. Avoid revenge trading. Maintain objectivity.

Advanced Components

Regime Detection: Use VIX for volatility regime. Filters: Volume filter on breakout. Correlation: Monitor correlation between IWM and SPY. MTF Alignment: Daily and 1-hour charts must align for trend.

Location

Strongest: Early bull market phases. Weakest: Bear market rallies.