Extended Hours Liquidity Analysis

Entry Logic

• Entry trigger: Identify liquidity gaps in the extended hours order book.
• Confirmation: A large order is placed, creating a temporary price shelf or ceiling.
• Timeframe: 1-minute chart and Level 2 data.
• Location context: The liquidity gap is near a key technical level.
• Market condition: Low-liquidity extended hours session.

Exit Logic

• Profit target: The other side of the liquidity gap.
• Scaling out: Not recommended.
• Trailing stop: Not applicable.
• Signal failure exit: Exit if the large order is pulled.
• Opposite signal exit: Not applicable.
• Time expiration: Exit within 10 minutes.
• Momentum loss: Not applicable.

Stop Loss Structure

• Hard stop: 10 cents beyond the large order.
• Soft stop: Not applicable.
• Max dollar loss: $100 per trade.
• Max percent loss: 0.2% of account capital.
• Structural stop: Beyond the liquidity shelf/ceiling.

Risk Management Framework

• Risk per trade: 0.1% of account equity.
• Maximum daily loss limit: 0.5% of account equity.
• Maximum weekly loss limit: 1.5% of account equity.
• Maximum drawdown: 5% from peak equity.
• Risk-reward ratio: Minimum 3:1 required.

Position Sizing Model

• Sizing approach: Fixed dollar risk per trade.
• Volatility adjustment: Not applicable.
• Conviction sizing: Not applicable.
• Scaling in: Not recommended.
• Scaling out: Not recommended.

Trade Filtering

• Market conditions to avoid: High-liquidity sessions.
• Specific setups required: A clear liquidity gap on the order book.
• Stock/instrument requirements: Stocks with thin extended hours markets.
• Time of day restrictions: 7:00 AM to 8:00 AM ET, and 6:00 PM to 7:30 PM ET.
• Chop/news avoidance: Avoid if there is news pending.

Context Framework

• Trend direction: Not applicable.
• VWAP relationship: Not applicable.
• Moving average relationship: Not applicable.
• Range location: Within a tight, low-liquidity range.
• Higher TF alignment: Not applicable.

Trade Management Rules

• Breakeven: Not applicable.
• Scale out: Not applicable.
• Add size: Not applicable.
• Fast vs slow moves: This is a scalping strategy; expect very fast moves.

Time Rules

• Optimal window: The least liquid periods of the extended hours.
• Times to avoid: The first and last 30 minutes of each session.
• Session notes: This is an advanced strategy that requires a deep understanding of order book dynamics.

Setup Classification

• A+ criteria: A very large order creating a wide liquidity gap.
• A criteria: A significant order creating a decent gap.
• B criteria: A small order or a narrow gap.
• C criteria: Avoid all other setups.

Market Selection Criteria

• Instrument requirements: Stocks with low extended hours liquidity.
• Volume/liquidity: Low volume is required.
• Volatility: Low volatility is ideal.

Statistical Edge Metrics

• Win rate: 70%.
• Avg win: 1.5R.
• Avg loss: 1R.
• Profit factor: 1.05.
• Expectancy: 0.05R per trade.

Failure Conditions

• The strategy fails when the large order is spoofing and gets pulled before the price reaches it.
• Avoid in stocks with a history of spoofing.

Psychological Rules

• This is a pure scalping strategy; do not get attached to the position.
• Be prepared to scratch the trade for a small loss or gain.

Advanced Components

• Regime detection: Not applicable.
• Filters: Use a Level 2 data feed to identify the liquidity gaps.
• Correlation: Not applicable.
• MTF alignment: Not applicable.

Location

• Strongest: In very quiet, low-liquidity environments.
• Weakest: In high-liquidity, high-volume environments.