NQ Tech Sector Correlation Trade

Entry Logic

• Exact Entry Trigger: Enter long NQ when a basket of leading tech stocks (e.g., AAPL, MSFT, GOOG) are all trading above their opening price. Enter short NQ when they are all trading below their opening price.
• Confirmation: The move in the tech stocks should be on high volume.
• Timeframe: 5-minute chart.
• Location Context: NQ should be trading near a key support or resistance level.
• Market Condition: A clear trend in the tech sector.

Exit Logic

• Profit Targets: The next key support or resistance level.
• Scaling Out: Not recommended.
• Trailing Stop: Trail the stop loss below a recent swing low for longs, or above a recent swing high for shorts.
• Signal Failure Exit: Exit if the tech stocks start to reverse.
• Opposite Signal Exit: Not applicable.
• Time Expiration: Exit the trade by the end of the day.
• Momentum Loss: Exit if the momentum in the tech stocks starts to fade.

Stop Loss Structure

• Hard Stop: Place the stop loss 30 ticks from the entry price.
• Soft Stop: Not used.
• Max Dollar Loss: $1,500 per contract.
• Max Percent Loss: 1.5% of account capital.
• Structural Stop: The stop is placed behind a key support or resistance 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 1.5:1 risk-reward ratio.

Position Sizing Model

• Sizing Approach: Fixed fractional sizing.
• Volatility Adjustment: Not applicable.
• Conviction Sizing: Not applicable.
• Scaling In: Not recommended.
• Scaling Out: Not recommended.

Trade Filtering

• Market Conditions to Avoid: When the tech stocks are not moving in unison.
• Specific Setups Required: A clear trend in the tech sector.
• Instruments: NQ (Nasdaq 100 E-mini futures).
• Time Restrictions: Trade during the US session.
• Chop/News Avoidance: Avoid trading during major news events.

Context Framework

• Trend Direction: Trade in the direction of the tech sector trend.
• VWAP Relationship: For longs, NQ should be above VWAP. For shorts, NQ should be below VWAP.
• MA Relationship: The 20 EMA should be above the 50 EMA for longs, and below for shorts.
• Range Location: Not applicable.
• 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: Let the trade run in fast moves. In slow moves, consider taking profits earlier.

Time Rules

• Optimal Trading Window: The US session.
• Times to Avoid: The overnight session.
• Session Notes: This strategy is dependent on the movement of US tech stocks, so it should only be traded during the US session.

Setup Classification

• A+ Setup: All major tech stocks are trending strongly in the same direction.
• A Setup: Most major tech stocks are trending in the same direction.
• B Setup: The tech stocks are mixed.
• C Setup: Avoid. The tech stocks are not showing any clear direction.

Market Selection Criteria

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

Statistical Edge Metrics

• Win Rate: 50-55%.
• Avg Win: 2.5R.
• Avg Loss: 1R.
• Profit Factor: 1.25.
• Expectancy: 0.25R per trade.

Failure Conditions

• When Strategy Fails: When the correlation between NQ and the tech stocks breaks down.
• Specific Scenarios to Avoid: Trading this strategy when the tech stocks are giving conflicting signals.

Psychological Rules

• Mental Discipline: Trust the correlation, but be prepared for it to fail.

Advanced Components

• Regime Detection: Not applicable.
• Filters: Use a filter to track the performance of a basket of tech stocks.
• Correlation: This strategy is based on correlation.
• MTF Alignment: Ensure the higher timeframes are aligned with the trade direction.

Location

• Where Strongest: When the tech sector is leading the market.
• Where Weakest: When the tech sector is lagging the market.