2. Relative Strength Breakout

Entry Logic

Trigger: Stock breaks 3-month high while maintaining an RS rating > 80 (Investor's Business Daily). Confirmation: 1.5x average volume on breakout day. Timeframe: Daily chart for breakout, 30-minute for entry execution. Location context: Price above 50-day SMA. Market condition: Neutral to bullish market.

Exit Logic

Profit targets: 8-12% gain on initial position. Scaling out: Sell 1/2 at 8% gain. Trailing stop: 1 ATR below the highest close since entry. Signal failure: Stock closes below 50-day SMA. Time expiration: Close position after 7 trading days if no significant move. Momentum loss: Daily volume falls below 75% of average for 3 consecutive days post-breakout.

Stop Loss Structure

Hard stop: 4% below entry price. Soft stop: Close below breakout candle low by 0.5%. Max dollar loss: $600 per trade. Max percent loss: 2.5% of account equity. Structural stop: RS rating drops below 70.

Risk Management Framework

Risk per trade: 1.25% of account. Daily limit: 4% of account. Weekly limit: 6% of account. Max drawdown: 12% of account. R:R requirement: Minimum 2.5:1.

Position Sizing Model

Sizing approach: Fixed dollar amount per trade. Volatility adjustment: Use 0.75x normal size for stocks with 10-day ATR > 4%. Conviction sizing: Add 15% for setups with RS > 90. Scaling in/out: No scaling in.

Trade Filtering

Market conditions: SPY not below 200-day SMA. Setups: Clear consolidation pattern before breakout. Instruments: Growth stocks with strong fundamentals. Time restrictions: Avoid pre-market and after-hours trading. Chop/news avoidance: Avoid earnings week trades.

Context Framework

Trend direction: Stock in established uptrend. VWAP relationship: Price stays above VWAP during intraday consolidation. MA relationship: 20-day SMA above 50-day SMA. Range location: Stock breaking out of base near top of 6-month range. Higher TF: Weekly chart shows strong relative strength.

Trade Management Rules

Breakeven: Move stop to breakeven after 6% gain. Scale out: Sell half at first target. Add size: Never add to losing positions. Fast vs slow moves: Tighten trailing stop for parabolic moves.

Time Rules

Optimal window: 9:45 AM - 11:30 AM EST. Times to avoid: Lunch hour (12:00 PM - 1:00 PM EST). Session notes: Initial surge often fades by lunch.

Setup Classification

A+/A/B/C criteria: A+ if RS > 90, 2x volume, and strong sector. A if RS > 85, 1.5x volume. B if RS > 80, 1.2x volume.

Market Selection Criteria

Instruments: Mid to large-cap growth stocks. Volume: Average daily volume > 1M shares. Volatility: ATR between 1.5% and 5%.

Statistical Edge Metrics

Win rate: 58%. Avg win: 10%. Avg loss: 3.5%. Profit factor: 2.8. Expectancy: $0.06 per dollar risked.

Failure Conditions

Strategy fails: Market experiences broad sell-off, stock reports negative news, RS rating deteriorates rapidly.

Psychological Rules

Mental discipline: Do not chase gaps. Wait for retests. Trust the system.

Advanced Components

Regime detection: Use ADX > 25 to confirm trend strength. Filters: Institutional ownership > 60%. Correlation: Avoid highly correlated stocks in same portfolio. MTF alignment: Daily, weekly, monthly RS consistent.

Location

Where strongest: Growth stock rallies, sector leadership transitions. Where weakest: Bear market rallies, low volatility environments.