After-Hours News Trade

Entry Logic

• Entry trigger: A significant news event is released after the market closes, causing a stock to move.
• Confirmation: High volume and a clear directional move on the 5-minute chart.
• Timeframe: 5-minute chart.
• Location context: The entry is taken after the initial spike and when a clear trend has been established.
• Market condition: High volatility driven by the news.

Exit Logic

• Profit target: 1.5R, or the next key level.
• Scaling out: Not recommended.
• Trailing stop: A manual trail bar-by-bar on the 5-minute chart.
• Signal failure exit: Exit if the move stalls and reverses.
• Opposite signal exit: Not applicable.
• Time expiration: Exit by the end of the after-hours session.
• Momentum loss: Exit if volume dries up.

Stop Loss Structure

• Hard stop: 1.5% below entry for longs, 1.5% above for shorts.
• Soft stop: A close below the low of the entry candle.
• Max dollar loss: $800 per trade.
• Max percent loss: 1.6% of account capital.
• Structural stop: Below the low of the session for longs, above the high for shorts.

Risk Management Framework

• Risk per trade: 0.8% of account equity.
• Maximum daily loss limit: 3.2% of account equity.
• Maximum weekly loss limit: 8% of account equity.
• Maximum drawdown: 20% from peak equity.
• Risk-reward ratio: Minimum 1.5:1 required.

Position Sizing Model

• Sizing approach: Fixed fractional sizing.
• Volatility adjustment: Reduce size due to high volatility.
• Conviction sizing: Not applicable.
• Scaling in: Not recommended.
• Scaling out: Not recommended.

Trade Filtering

• Market conditions to avoid: Ambiguous news or a choppy market reaction.
• Specific setups required: A clear, impactful news catalyst.
• Stock/instrument requirements: Stocks that are sensitive to news.
• Time of day restrictions: 4:00 PM to 6:00 PM ET.
• Chop/news avoidance: Be aware of the potential for clarifications or additional news that could reverse the move.

Context Framework

• Trend direction: Trade in the direction of the news-driven momentum.
• VWAP relationship: Price should be decisively above or below the after-hours VWAP.
• Moving average relationship: Not applicable.
• Range location: The news should cause a breakout from the after-hours range.
• Higher TF alignment: Not critical.

Trade Management Rules

• Breakeven: Move stop to breakeven after a 1R move.
• Scale out: Not applicable.
• Add size: Not recommended.
• Fast vs slow moves: Expect fast moves and be ready to take profits.

Time Rules

• Optimal window: Immediately after the news is released and a trend is established.
• Times to avoid: Trading before the news is fully understood.
• Session notes: Requires a fast news feed and quick execution.

Setup Classification

• A+ criteria: A major, unexpected news event with a very strong and sustained price reaction.
• A criteria: A significant news event with a clear price reaction.
• B criteria: Minor news or a muted reaction.
• C criteria: Avoid all other setups.

Market Selection Criteria

• Instrument requirements: Stocks in the news.
• Volume/liquidity: High volume is essential.
• Volatility: High volatility is expected.

Statistical Edge Metrics

• Win rate: 45%.
• Avg win: 2.5R.
• Avg loss: 1R.
• Profit factor: 1.12.
• Expectancy: 0.12R per trade.

Failure Conditions

• The strategy fails when the initial reaction is a fake-out.
• Avoid when the news is not as impactful as it first appears.

Psychological Rules

• Trade the reaction, not the news itself.
• Be prepared for volatility and potential losses.

Advanced Components

• Regime detection: Not applicable.
• Filters: Filter for news from credible sources.
• Correlation: Not applicable.
• MTF alignment: Not applicable.

Location

• Strongest: In stocks with a history of strong reactions to news.
• Weakest: In stocks that are not widely followed.