Gap + VWAP + Moving Average Triple Setup

Entry Logic

• Long entry: Stock gaps up, pulls back to the VWAP which is also supported by the 20 EMA. Entry on a bullish candle off this confluence.
• Short entry: Stock gaps down, rallies to the VWAP which is also resisted by the 20 EMA. Entry on a bearish candle off this confluence.
• Confirmation: Volume increase on the entry candle.
• Timeframe: 5-minute chart.
• Location: At the confluence of VWAP and the 20 EMA after a gap.
• Market Condition: Gapping stock, trending or fading.

Exit Logic

• Profit Target: The high of day for longs, low of day for shorts, or 3R.
• Scaling Out: Scale out 50% at 2R.
• Trailing Stop: Trail stop below the 20 EMA.
• Signal Failure: Exit if price closes back below the VWAP/20 EMA confluence.
• Opposite Signal: Not applicable.
• Time Expiration: Exit if the trade is not working within 2 hours.
• Momentum Loss: Exit if the move stalls and volume dries up.

Stop Loss Structure

• Hard Stop: Below the low of the entry candle for longs, above the high for shorts.
• Soft Stop: A close back across the VWAP/20 EMA confluence.
• Max Dollar Loss: $200 per trade.
• Max Percent Loss: 1% of account.
• Structural Stop: Below the morning's low for longs, above the morning's high for shorts.

Risk Management Framework

• Risk Per Trade: 1% of account.
• Daily Limit: 2 losing trades.
• Weekly Limit: 5% drawdown.
• Max Drawdown: 10%.
• R:R Requirement: Minimum 2.5:1.

Position Sizing Model

• Sizing Approach: Fixed fractional, 1% of account at risk.
• Volatility Adjustment: Adjust size based on the stop loss distance.
• Conviction Sizing: A+ setups (perfect gap, pullback, and confluence) get 1.5% risk.
• Scaling In: Not recommended.
• Scaling Out: Scale out 50% at 2R.

Trade Filtering

• Market Conditions: Only trade stocks that have gapped up or down significantly (>2%).
• Setups: Must have a clean pullback to the VWAP/20 EMA confluence.
• Instruments: Mid to large-cap stocks with high volume.
• Time Restrictions: First 2 hours of the trading day.
• Chop/News Avoidance: The gap itself is often news-driven, but avoid further news events.

Context Framework

• Trend Direction: The gap determines the initial trend direction for the day.
• VWAP Relationship: VWAP is a key part of the setup.
• MA Relationship: The 20 EMA is a key part of the setup.
• Range Location: Not applicable.
• Higher TF Alignment: The gap should not be into major higher timeframe resistance for longs, or support for shorts.

Trade Management Rules

• Breakeven: Move stop to breakeven after 1.5R of profit.
• Scale Out: Scale out 50% at 2R.
• Add Size: Not recommended.
• Fast vs Slow Moves: Let the move play out, trail the stop.

Time Rules

• Optimal Window: 9:30 AM - 11:30 AM EST.
• Times to Avoid: After the morning session.
• Session Notes: This is a morning-only strategy.

Setup Classification

• A+ Setup: Large gap, clean pullback to perfect VWAP/20 EMA confluence, high volume.
• A Setup: Good gap and pullback to confluence.
• B Setup: Messy pullback or the confluence is not precise.
• C Setup: No clear pullback or confluence.

Market Selection Criteria

• Instruments: Stocks with a catalyst (earnings, news).
• Volume: Minimum 1 million shares traded daily.
• Volatility: High volatility is expected and required.

Statistical Edge Metrics

• Win Rate: 50%.
• Avg Win: 3R.
• Avg Loss: 1R.
• Profit Factor: 1.5.
• Expectancy: 0.5R per trade.

Failure Conditions

• Market Conditions: Fails if the gap immediately reverses (gap fill).
• Specific Scenarios: Fails if the stock is too volatile and does not respect the technical levels.

Psychological Rules

• Mental Discipline: Must be able to enter on a pullback, which can be psychologically difficult.

Advanced Components

• Regime Detection: Not applicable.
• Filters: Filter for stocks with a high Average True Range (ATR).
• Correlation: Not a primary concern.
• MTF Alignment: Check the daily chart to see where the gap has opened.

Location

• Strongest: On a stock with a strong catalyst and high volume.
• Weakest: On a low-volume stock with no clear reason for the gap.