3. Gap and Breakout Combo

Entry Logic

Trigger: Stock gaps up > 5% on 2x average volume, then breaks above the high of the first 15-minute candle. Confirmation: Volume on breakout of first 15-minute high is 1.5x average for that time of day. Timeframe: 5-minute chart for entry, 15-minute for initial range. Location context: Price gaps above prior day's close and significant resistance. Market condition: Bullish sentiment.

Exit Logic

Profit targets: 5-8% from entry. Scaling out: Sell 1/2 at 5% gain. Trailing stop: 0.75 ATR below highest 5-minute close. Signal failure: Price closes below the low of the first 15-minute candle. Time expiration: Close position by 3:00 PM EST. Momentum loss: 3 consecutive 5-minute candles close lower post-breakout.

Stop Loss Structure

Hard stop: Below the low of the first 15-minute candle. Soft stop: Close below entry price by 1%. Max dollar loss: $400 per trade. Max percent loss: 1.5% of account equity. Structural stop: Gap fills completely.

Risk Management Framework

Risk per trade: 0.75% of account. Daily limit: 2.5% of account. Weekly limit: 4% of account. Max drawdown: 8% of account. R:R requirement: Minimum 1.5:1.

Position Sizing Model

Sizing approach: Fixed share size based on volatility. Volatility adjustment: Calculate share size so initial stop loss is 1% of account. Conviction sizing: No conviction sizing for this strategy. Scaling in/out: No scaling in.

Trade Filtering

Market conditions: SPY flat to up. Setups: Clear gap on news or earnings. Instruments: Stocks with market cap > $1B. Time restrictions: Trade only within first 2 hours of market open. Chop/news avoidance: Avoid stocks with imminent news.

Context Framework

Trend direction: Prior day's trend not relevant. VWAP relationship: Price must stay above VWAP after breakout. MA relationship: No MA requirement for entry. Range location: Price gaps above prior day's range. Higher TF: Daily chart shows prior consolidation or strong uptrend.

Trade Management Rules

Breakeven: Move stop to breakeven after 3% gain. Scale out: Sell half at first target. Add size: Never add to losing positions. Fast vs slow moves: Trailing stop dynamically adjusts with volatility.

Time Rules

Optimal window: 9:30 AM - 11:00 AM EST. Times to avoid: After 11:30 AM EST. Session notes: Breakouts often fail later in the day.

Setup Classification

A+/A/B/C criteria: A+ if gap > 8%, 3x volume, clear news catalyst. A if gap > 5%, 2x volume. B if gap > 4%, 1.5x volume.

Market Selection Criteria

Instruments: Highly liquid stocks. Volume: Average daily volume > 2M shares. Volatility: ATR > 2%.

Statistical Edge Metrics

Win rate: 52%. Avg win: 6%. Avg loss: 2.5%. Profit factor: 2.0. Expectancy: $0.03 per dollar risked.

Failure Conditions

Strategy fails: Market sells off sharply, gap fills immediately, low volume breakout.

Psychological Rules

Mental discipline: Do not chase gaps without a clear setup. Be patient for the breakout.

Advanced Components

Regime detection: Use VIX below 20 for optimal conditions. Filters: Pre-market volume > 500k shares. Correlation: No correlation filters. MTF alignment: 1-minute, 5-minute, 15-minute charts align on breakout.

Location

Where strongest: Strong earnings reports, positive sector news. Where weakest: Lack of catalyst, market uncertainty.