Standard Deviation Channel Trade

Entry Logic

• Entry trigger: Price touches the upper or lower band of the standard deviation channel.
• Confirmation: A reversal candle forms at the channel boundary.
• Timeframe: 1-hour or 4-hour chart.
• Location context: The trade is in the direction of the trend of the channel.
• Market condition: A trending market with clear volatility bands.

Exit Logic

• Profit target: The opposite side of the standard deviation channel.
• Scaling out: Not applicable.
• Trailing stop: Trail the stop on the other side of the channel's midline.
• Signal failure exit: Price closes outside the channel.
• Opposite signal exit: A reversal signal at the other side of the channel.
• Time expiration: Exit if the price hasn't reached the midline in 5-7 bars.
• Momentum loss: The price stalls and moves sideways.

Stop Loss Structure

• Hard stop: A close outside the standard deviation channel.
• Soft stop: If momentum does not pick up in the direction of the trade.
• Max dollar loss: 1% of account capital.
• Max percent loss: 1% of account capital.
• Structural stop: Beyond the high/low of the reversal candle.

Risk Management Framework

• Risk per trade: 0.5% of account capital.
• Daily limit: 2% of account capital.
• Weekly limit: 5% of account capital.
• Max drawdown: 15% of account capital.
• R:R requirement: Minimum 2:1 risk-reward ratio.

Position Sizing Model

• Sizing approach: Fixed fractional sizing.
• Volatility adjustment: The channel width adjusts for volatility.
• Conviction sizing: A+ setups get full size.
• Scaling in: Not recommended.
• Scaling out: Not recommended.

Trade Filtering

• Market conditions to avoid: Low-volatility, non-trending markets.
• Specific setups required: A clear, trending standard deviation channel.
• Instruments: Stocks, ETFs, and futures.
• Time restrictions: Best during active market hours.
• Chop/news avoidance: Avoid trading around major news releases.

Context Framework

• Trend direction: The trade should be in the direction of the channel's slope.
• VWAP relationship: Not applicable.
• MA relationship: The channel itself is based on a moving average.
• Range location: Trading within the volatility-defined range.
• Higher TF alignment: The channel on the higher timeframe should be in the same direction.

Trade Management Rules

• Breakeven: Move stop to breakeven after a 1R profit.
• Scale out: Not applicable.
• Add size: Not recommended.
• Fast vs slow moves: The strategy works in both, as long as the channel is respected.

Time Rules

• Optimal window: During trending periods.
• Times to avoid: During range-bound, choppy periods.
• Session notes: Works well in all major sessions.

Setup Classification

• A+ setup: A touch of the channel boundary with a strong reversal candle in a clear trend.
• A setup: A touch of the channel boundary with a moderate reversal candle.
• B setup: A touch of the channel boundary with a weak reversal candle.
• C setup: A choppy, non-trending channel.

Market Selection Criteria

• Instruments: Any liquid instrument that trends well.
• Volume: Decent volume to ensure liquidity.
• Volatility: Moderate to high volatility is ideal.

Statistical Edge Metrics

• Win rate: 60-70%.
• Avg win: 1.5R.
• Avg loss: 1R.
• Profit factor: 1.6.
• Expectancy: 0.4R per trade.

Failure Conditions

• When strategy fails: When the trend breaks and the channel is no longer valid.
• Specific scenarios to avoid: Taking trades against the channel's trend.

Psychological Rules

• Mental discipline: Trusting the channel boundaries as support and resistance.
• Key mental discipline requirements: Not panicking if the price gets close to the stop loss.

Advanced Components

• Regime detection: Use a trend filter to confirm the channel's direction.
• Filters: Not applicable.
• Correlation: Not applicable.
• MTF alignment: Ensure the higher timeframe channel is also trending.

Location

• Where strongest: In clear, trending markets with consistent volatility.
• Where weakest: In choppy, non-trending markets.