5. Breakout from Ascending Wedge Short

Entry Logic

Trigger: Price breaks below the lower trendline of an ascending wedge pattern on 1.5x average volume. Confirmation: Subsequent candle closes below the trendline. Timeframe: 30-minute chart for pattern identification, 5-minute for entry. Location context: Wedge forms after an uptrend or consolidation. Market condition: Neutral to slightly bearish.

Exit Logic

Profit targets: Measure target as height of the back of the wedge projected from breakout point. Scaling out: Cover 1/3 at 50% of target, 1/3 at target. Trailing stop: 1 ATR above the lowest 30-minute close post-breakout. Signal failure: Price re-enters the wedge pattern. Time expiration: Close position after 3 trading days if no significant move. Momentum loss: RSI rises above 50 post-breakout.

Stop Loss Structure

Hard stop: Above the high of the breakout candle. Soft stop: Close back inside the wedge. Max dollar loss: $450 per trade. Max percent loss: 1.75% of account equity. Structural stop: Upper trendline of wedge is retested and broken.

Risk Management Framework

Risk per trade: 0.85% of account. Daily limit: 2.75% of account. Weekly limit: 4.5% of account. Max drawdown: 9% of account. R:R requirement: Minimum 2:1.

Position Sizing Model

Sizing approach: Fixed dollar amount based on stop loss distance. Volatility adjustment: Use 0.8x normal size if ATR > 3%. Conviction sizing: Add 10% for wedges with 3+ touches on each trendline. Scaling in/out: No scaling in.

Trade Filtering

Market conditions: SPY not in a clear uptrend. Setups: Well-defined wedge, minimum 3 touches on each trendline. Instruments: Stocks with good liquidity, readily available shares to short. Time restrictions: Avoid first 30 minutes. Chop/news avoidance: Avoid earnings.

Context Framework

Trend direction: Counter-trend or consolidation. VWAP relationship: Price must break below VWAP. MA relationship: 20-period SMA should cross below 50-period SMA on breakout. Range location: Price at top of recent range before wedge. Higher TF: Daily chart shows price near resistance.

Trade Management Rules

Breakeven: Move stop to breakeven after 4% gain. Scale out: Cover 1/3 at first target. Add size: No adding to position. Fast vs slow moves: Use a tighter trailing stop for faster moves.

Time Rules

Optimal window: 10:00 AM - 2:00 PM EST. Times to avoid: Last hour of trading. Session notes: Breakdowns often consolidate into close.

Setup Classification

A+/A/B/C criteria: A+ if 4+ touches, 2x volume, target > 10%. A if 3 touches, 1.5x volume, target > 7%. B if 2 touches, 1.2x volume, target > 5%.

Market Selection Criteria

Instruments: Mid-cap stocks. Volume: Average daily volume > 1M shares. Volatility: ATR between 1% and 4%.

Statistical Edge Metrics

Win rate: 50%. Avg win: 8%. Avg loss: 3.5%. Profit factor: 1.8. Expectancy: $0.02 per dollar risked.

Failure Conditions

Strategy fails: False breakdown, market reversal, lack of follow-through volume.

Psychological Rules

Mental discipline: Wait for clear breakdown. Do not anticipate.

Advanced Components

Regime detection: Use VIX to confirm volatility regime. Filters: MACD bearish crossover on breakdown. Correlation: No correlation filters. MTF alignment: 15-minute and 30-minute charts align.

Location

Where strongest: After significant rallies, during consolidation phases. Where weakest: Strong trending markets (up or down).