Pre-Market Range Breakout

Entry Logic

• Entry trigger: Price breaks out of a well-defined pre-market consolidation range (at least 30 minutes long).
• Confirmation: High volume on the breakout candle (at least 2x the average of the previous 10 candles).
• Timeframe: 5-minute chart.
• Location context: The breakout occurs after a period of low volatility and tight consolidation.
• Market condition: A quiet pre-market session that is starting to show signs of life.

Exit Logic

• Profit target: The measured move of the consolidation range.
• Scaling out: Not recommended.
• Trailing stop: A manual trail below the low of each 5-minute candle for longs, above the high for shorts.
• Signal failure exit: Exit if the breakout fails and the price closes back inside the range.
• Opposite signal exit: Not applicable.
• Time expiration: Exit if the target is not reached within 90 minutes.
• Momentum loss: Exit if the breakout move stalls and volume dries up.

Stop Loss Structure

• Hard stop: At the midpoint of the consolidation range.
• Soft stop: A close back inside the range.
• Max dollar loss: $200 per trade.
• Max percent loss: 0.4% of account capital.
• Structural stop: Below the low of the consolidation range for longs, above the high for shorts.

Risk Management Framework

• Risk per trade: 0.2% of account equity.
• Maximum daily loss limit: 0.8% of account equity.
• Maximum weekly loss limit: 2% of account equity.
• Maximum drawdown: 7% from peak equity.
• Risk-reward ratio: Minimum 2:1 required.

Position Sizing Model

• Sizing approach: Risk-based position sizing.
• Volatility adjustment: Not applicable.
• Conviction sizing: Not applicable.
• Scaling in: Not recommended.
• Scaling out: Not recommended.

Trade Filtering

• Market conditions to avoid: Extremely volatile pre-market sessions.
• Specific setups required: A clean, well-defined range.
• Stock/instrument requirements: Stocks that are known to trend well after a breakout.
• Time of day restrictions: 8:00 AM to 9:15 AM ET.
• Chop/news avoidance: Avoid if the breakout is not supported by any news or catalyst.

Context Framework

• Trend direction: Trade in the direction of the daily chart trend.
• VWAP relationship: The breakout should push the price decisively away from VWAP.
• Moving average relationship: The 50-period SMA on the 15-minute chart should support the breakout direction.
• Range location: The breakout should occur from a pre-market range.
• Higher TF alignment: The 60-minute chart should show a clear path for the breakout to run.

Trade Management Rules

• Breakeven: Move stop to breakeven after a 1R move.
• Scale out: Not applicable.
• Add size: Not applicable.
• Fast vs slow moves: Let the trade work, but be prepared to take profits if it stalls.

Time Rules

• Optimal window: 8:30 AM to 9:00 AM ET.
• Times to avoid: The last 15 minutes before the market open.
• Session notes: This strategy is good for traders who like clear, defined entry and exit points.

Setup Classification

• A+ criteria: A very long and tight consolidation range with a powerful, high-volume breakout.
• A criteria: A clean range with a good breakout.
• B criteria: A sloppy range or a weak breakout.
• C criteria: Avoid all other setups.

Market Selection Criteria

• Instrument requirements: Any stock with good pre-market liquidity.
• Volume/liquidity: Minimum 40k shares traded by 8:30 AM ET.
• Volatility: Low volatility during the consolidation, high volatility on the breakout.

Statistical Edge Metrics

• Win rate: 55%.
• Avg win: 2.5R.
• Avg loss: 1R.
• Profit factor: 1.37.
• Expectancy: 0.37R per trade.

Failure Conditions

• The strategy fails when the breakout is a fake-out.
• Avoid when the range is too wide or ill-defined.

Psychological Rules

• Be patient and wait for the breakout; do not anticipate it.
• Do not be afraid to take a small loss if the breakout fails.

Advanced Components

• Regime detection: Not applicable.
• Filters: Filter for stocks that have a history of successful breakouts.
• Correlation: Not applicable.
• MTF alignment: The breakout should be in the same direction as the 4-hour chart trend.

Location

• Strongest: In stocks that are coiling for a big move.
• Weakest: In choppy, directionless markets.