Pre-Market Volume Analysis

Entry Logic

• Entry trigger: A sudden surge in pre-market volume, at least 5x the average of the previous 10 candles.
• Confirmation: Price breaks and holds above the high of the volume surge candle for a long, or below the low for a short.
• Timeframe: 15-minute chart.
• Location context: The volume surge occurs near a key support or resistance level.
• Market condition: Any, but most effective in otherwise quiet pre-market sessions.

Exit Logic

• Profit target: 2R, or the next major daily level.
• Scaling out: Not recommended.
• Trailing stop: A 10-period moving average on the 15-minute chart.
• Signal failure exit: Exit if price reverses and closes on the opposite side of the volume surge candle.
• Opposite signal exit: Not applicable.
• Time expiration: Exit if the trade is not profitable by the market open.
• Momentum loss: Exit if volume completely dries up after the initial surge.

Stop Loss Structure

• Hard stop: On the opposite side of the volume surge candle.
• Soft stop: A close beyond the midpoint of the surge candle.
• Max dollar loss: $300 per trade.
• Max percent loss: 0.6% of account capital.
• Structural stop: Below the low of the surge candle for longs, above the high for shorts.

Risk Management Framework

• Risk per trade: 0.3% of account equity.
• Maximum daily loss limit: 1.2% of account equity.
• Maximum weekly loss limit: 3% of account equity.
• Maximum drawdown: 10% from peak equity.
• Risk-reward ratio: Minimum 3:1 required.

Position Sizing Model

• Sizing approach: Volatility-adjusted position sizing.
• Volatility adjustment: The size is inversely proportional to the height of the surge candle.
• Conviction sizing: Not applicable.
• Scaling in: Not recommended.
• Scaling out: Not recommended.

Trade Filtering

• Market conditions to avoid: During major news events that affect the entire market.
• Specific setups required: A clear volume surge that stands out from the rest of the pre-market action.
• Stock/instrument requirements: Stocks that are reporting earnings or have other news catalysts.
• Time of day restrictions: 7:00 AM to 9:00 AM ET.
• Chop/news avoidance: Avoid if the surge is related to a stock halt or other regulatory action.

Context Framework

• Trend direction: Trade in the direction of the prevailing daily trend.
• VWAP relationship: The surge should push the price decisively away from VWAP.
• Moving average relationship: The 200-period SMA on the daily chart should support the trade direction.
• Range location: The surge should break the stock out of a pre-market consolidation.
• Higher TF alignment: The 60-minute chart should confirm the direction of the breakout.

Trade Management Rules

• Breakeven: Move stop to breakeven after a 1R move.
• Scale out: Not applicable.
• Add size: Not applicable.
• Fast vs slow moves: This is a fast-moving strategy; take profits quickly.

Time Rules

• Optimal window: 8:00 AM to 8:45 AM ET.
• Times to avoid: The last 15 minutes before the market open.
• Session notes: Look for this setup in stocks that have a history of large pre-market moves.

Setup Classification

• A+ criteria: A massive volume surge (10x average) at a key level with a clear catalyst.
• A criteria: A 5x volume surge at a key level.
• B criteria: A volume surge without a clear level or catalyst.
• C criteria: Avoid all other setups.

Market Selection Criteria

• Instrument requirements: Volatile stocks, often in the tech or biotech sectors.
• Volume/liquidity: Minimum 20k shares in the surge candle.
• Volatility: High volatility is required.

Statistical Edge Metrics

• Win rate: 45%.
• Avg win: 3.5R.
• Avg loss: 1R.
• Profit factor: 1.57.
• Expectancy: 0.57R per trade.

Failure Conditions

• The strategy fails when the volume surge is a false signal, often seen in illiquid stocks.
• Avoid when the surge is not accompanied by a significant price move.

Psychological Rules

• Act quickly, as these moves can be fast.
• Do not hesitate to take profits.

Advanced Components

• Regime detection: Not applicable.
• Filters: Filter for stocks with a high short interest.
• Correlation: Not applicable.
• MTF alignment: Not critical, but good to have.

Location

• Strongest: In stocks with a fresh news catalyst.
• Weakest: In quiet, range-bound stocks.