NQ (Nasdaq) Momentum Breakout

Entry Logic

• Exact Entry Trigger: Enter long on a breakout above a key resistance level. Enter short on a breakdown below a key support level.
• Confirmation: The breakout/breakdown candle must close with strong momentum and high volume.
• Timeframe: 5-minute chart.
• Location Context: The breakout should occur from a consolidation pattern, such as a flag or pennant.
• Market Condition: The market must be showing signs of increasing momentum.

Exit Logic

• Profit Targets: A measured move from the consolidation pattern.
• Scaling Out: Not recommended.
• Trailing Stop: Trail the stop loss below the 9-period EMA.
• Signal Failure Exit: Exit if the breakout fails and the price closes back inside the consolidation pattern.
• Opposite Signal Exit: Not applicable.
• Time Expiration: Exit if the trade does not show a profit within 30 minutes.
• Momentum Loss: Exit if momentum starts to wane.

Stop Loss Structure

• Hard Stop: Place the stop loss below the low of the breakout candle for longs, or above the high for shorts.
• Soft Stop: Not used.
• Max Dollar Loss: $1,200 per contract.
• Max Percent Loss: 1.2% of account capital.
• Structural Stop: The stop is placed behind the breakout level.

Risk Management Framework

• Risk Per Trade: 1% of account capital.
• Maximum Daily Loss Limit: 3% of account capital.
• Maximum Weekly Loss Limit: 6% of account capital.
• Maximum Drawdown: 15% from peak equity.
• R:R Requirement: Minimum 2:1 risk-reward ratio.

Position Sizing Model

• Sizing Approach: Fixed fractional sizing.
• Volatility Adjustment: Reduce size if the ATR is unusually high.
• Conviction Sizing: Not applicable.
• Scaling In: Not recommended.
• Scaling Out: Not recommended.

Trade Filtering

• Market Conditions to Avoid: Low-volume, choppy markets.
• Specific Setups Required: A clear consolidation pattern followed by a high-volume breakout.
• Instruments: NQ (Nasdaq 100 E-mini futures).
• Time Restrictions: Trade during the first two hours of the US session.
• Chop/News Avoidance: Avoid trading around major news events.

Context Framework

• Trend Direction: Trade in the direction of the prevailing trend.
• VWAP Relationship: For longs, the price should be above VWAP. For shorts, the price should be below VWAP.
• MA Relationship: The 9 EMA should be above the 20 EMA for longs, and below for shorts.
• Range Location: Trade breakouts from consolidation patterns.
• Higher TF Alignment: The higher timeframes should support the direction of the trade.

Trade Management Rules

• Breakeven: Move stop to breakeven after the price has moved 1R in your favor.
• Scale Out: Not applicable.
• Add Size: Not recommended.
• Fast vs Slow Moves: This strategy is designed for fast moves. If the move is slow, consider exiting the trade.

Time Rules

• Optimal Trading Window: The first two hours of the US session.
• Times to Avoid: The rest of the day.
• Session Notes: This strategy is most effective during the US session due to the high volume and volatility.

Setup Classification

• A+ Setup: A textbook consolidation pattern with a high-volume breakout and all context elements aligned.
• A Setup: A good consolidation pattern with a decent breakout.
• B Setup: A sloppy consolidation pattern or a weak breakout.
• C Setup: Avoid. No clear pattern or breakout.

Market Selection Criteria

• Instruments: NQ (Nasdaq 100 E-mini futures).
• Volume/Liquidity: High volume and liquidity are crucial.
• Volatility: High volatility is preferred.

Statistical Edge Metrics

• Win Rate: 45-50%.
• Avg Win: 3R.
• Avg Loss: 1R.
• Profit Factor: 1.35.
• Expectancy: 0.35R per trade.

Failure Conditions

• When Strategy Fails: In choppy, range-bound markets.
• Specific Scenarios to Avoid: Trading breakouts that are not supported by volume.

Psychological Rules

• Mental Discipline: Be prepared for quick moves and have your orders ready. Do not hesitate.

Advanced Components

• Regime Detection: Use a momentum filter to identify when the market is in a high-momentum state.
• Filters: Use a volume filter to confirm breakouts.
• Correlation: Check the correlation with other tech stocks.
• MTF Alignment: Ensure the higher timeframes are aligned with the trade direction.

Location

• Where Strongest: In high-momentum, trending markets.
• Where Weakest: In low-volume, choppy markets.