Spinning Top Breakout Direction

Entry Logic

• Exact entry trigger: Place a buy-stop order above the high of the Spinning Top and a sell-stop order below the low of the Spinning Top.
• Confirmation requirements: The Spinning Top must appear after a period of trending, indicating a pause. The breakout from the Spinning Top's range should occur on increased volume.
• Timeframe required: 15-minute chart.
• Location context: The Spinning Top should form near a key support or resistance level.
• Market condition requirement: A trending market that is taking a brief pause.

Exit Logic

• Profit target(s): The target is a measured move equal to the height of the preceding trend leg.
• Scaling out rules: N/A.
• Trailing stop rules: Use a 10-period moving average as a trailing stop.
• Exit on signal failure: If one order is triggered and the price then reverses to trigger the other order, exit the position immediately.
• Exit on opposite signal: A reversal pattern forming after the breakout signals an exit.
• Exit on time expiration: If the trade does not move in the intended direction within 5-10 candles, exit.
• Exit on momentum loss: Declining volume after the breakout is a warning sign.

Stop Loss Structure

• Hard stop location: If long, the stop is the low of the Spinning Top. If short, the stop is the high of the Spinning Top.
• Soft stop rules: N/A.
• Maximum dollar loss per trade: Risk is determined by the range of the Spinning Top.
• Maximum percent loss per trade: The Spinning Top's range should not be more than 1% of the instrument's price.
• Structural stop placement: The stop is placed on the other side of the Spinning Top's range.

Risk Management Framework

• Risk per trade: 1% of capital.
• Maximum daily loss limit: 3%.
• Maximum weekly loss limit: 7%.
• Maximum drawdown allowed: 18%.
• Risk-reward ratio requirement: Minimum 1:2.

Position Sizing Model

• Recommended sizing approach: Size based on the height of the Spinning Top candle.
• Volatility-based adjustment: In high volatility, the Spinning Top's range may be too wide to offer a good risk-reward.
• Conviction-based sizing (A+/A/B setup): A+ for a Spinning Top at a major weekly support/resistance. A for a Spinning Top at a daily level. B for a Spinning Top at an intraday level.
• Scaling in rules: Not recommended.
• Scaling out rules: N/A.

Trade Filtering

• Market conditions to avoid: Choppy, sideways markets where Spinning Tops are common and meaningless.
• Specific setups required: A Spinning Top after a clear, strong trend.
• Stock/instrument requirements: Instruments that trend well.
• Time of day restrictions: N/A.
• Chop/news avoidance rules: Avoid this setup around major news.

Context Framework

• Trend direction assessment: The trade is taken in the direction of the breakout from the Spinning Top.
• VWAP relationship: A breakout above the Spinning Top and VWAP is a strong long signal.
• Moving average relationship: The Spinning Top can represent a pause at a key moving average.
• Range location: The setup can occur anywhere in a trend.
• Higher timeframe alignment: The direction of the breakout should align with the higher timeframe trend.

Trade Management Rules

• When to move stop to breakeven: After a 1R move.
• When to scale out: N/A.
• When to add size: N/A.
• How to handle fast moves vs slow moves: Let fast moves run. Close slow moves early.

Time Rules

• Optimal trading window: Any time there is good volume and a clear trend.
• Times to avoid: Illiquid hours.
• Session-specific notes: N/A.

Setup Classification

• A+ setup criteria: A very small Spinning Top after a long trend, at a major S/R level, with a high-volume breakout.
• A setup criteria: A Spinning Top of average size at a minor S/R level.
• B setup criteria: A wide Spinning Top, making the risk larger.
• C setup criteria (avoid): A Spinning Top in a choppy market.

Market Selection Criteria

• Instrument requirements: Major indices, large-cap stocks, and major forex pairs.
• Volume/liquidity requirements: High volume is required for a clean breakout.
• Volatility requirements: Moderate volatility is best.

Statistical Edge Metrics

• Expected win rate: 50-55%
• Average win size: 2.5R
• Average loss size: 1R
• Profit factor: 1.3 - 1.5
• Expectancy per trade: At least 0.25R.

Failure Conditions

• Market conditions where strategy fails: In non-trending, choppy markets.
• Specific scenarios to avoid: A series of multiple Spinning Tops in a row indicates extreme indecision and should be avoided.

Psychological Rules

• Key mental discipline requirements: The ability to act quickly on the breakout and to accept a small loss if the initial move is false.

Advanced Components

• Market regime detection: Use the ADX to confirm that a trend was in place before the Spinning Top formed.
• Volatility/liquidity filters: N/A.
• Correlation filters: N/A.
• Multi-timeframe alignment: The breakout should be in the direction of the weekly and daily trend.

Location

• Where this setup is strongest: After a sustained trend, as a brief pause before continuation.
• Where this setup is weakest: In a market that is already range-bound.
• Location changes outcome: A Spinning Top at a key S/R level is more significant than one in the middle of a range.