Relative Weakness Momentum Short

Entry Logic

• Entry trigger: Stock's relative strength index (RSI) crosses below 30 on the 5-minute chart.
• Confirmation: Trading volume is 1.5x the 20-period moving average of volume.
• Timeframe: 5-minute chart for entry, 1-hour for trend context.
• Location context: Price is below the 20-period exponential moving average (EMA).
• Market condition: Broader market index (e.g., SPY) is in a downtrend.

Exit Logic

• Profit targets: First target at 2R, second at 4R.
• Scaling out: Sell 50% of the position at the first profit target.
• Trailing stop: Use a 10-period ATR trailing stop.
• Signal failure exit: Exit if price closes above the 20-period EMA.
• Opposite signal exit: Exit if a relative strength signal appears.
• Time expiration: Exit the position if it has not reached the first profit target within 2 hours.
• Momentum loss: Exit if RSI rises above 50.

Stop Loss Structure

• Hard stop: 1 ATR above the entry price.
• Soft stop: A close above the high of the entry candle.
• Max dollar loss: Do not exceed 1% of account equity on any single trade.
• Max percent loss: Do not exceed 2% of the trade's value.
• Structural stop: Place the stop above the most recent swing high.

Risk Management Framework

• Risk per trade: 0.5% of account equity.
• Daily limit: Maximum of 3 losing trades per day.
• Weekly limit: Maximum of 10 losing trades per week.
• Max drawdown: 5% of account equity.
• R:R requirement: Minimum 2:1 risk-reward ratio.

Position Sizing Model

• Sizing approach: Fixed fractional sizing.
• Volatility adjustment: Reduce position size by 25% if VIX is above 20.
• Conviction sizing: A+ setups get 100% size, A setups 75%, B setups 50%.
• Scaling in/out: Do not scale in. Scale out at profit targets.

Trade Filtering

• Market conditions: Avoid trading during major news events.
• Setups: Only trade setups with clear relative weakness.
• Instruments: Trade liquid stocks with high relative volume.
• Time restrictions: Avoid trading in the first 15 minutes of the market open.
• Chop/news avoidance: Do not trade in choppy, range-bound markets.

Context Framework

• Trend direction: The 1-hour chart must show a clear downtrend.
• VWAP relationship: Price must be below the volume-weighted average price (VWAP).
• MA relationship: The 20-period EMA must be below the 50-period EMA.
• Range location: Trade breakdowns from consolidation ranges.
• Higher TF alignment: The daily chart should also show a bearish trend.

Trade Management Rules

• Breakeven: Move the stop to breakeven after the first profit target is hit.
• Scale out: As described in the exit logic.
• Add size: Do not add to a winning position.
• Fast vs slow moves: Let fast moves run, manage slow moves with a tighter trailing stop.

Time Rules

• Optimal window: 9:45 AM to 11:00 AM EST.
• Times to avoid: Avoid trading during the lunch hour (12:00 PM to 1:00 PM EST).
• Session notes: The strategy performs best during the morning session.

Setup Classification

• A+ criteria: All entry and context criteria are met perfectly.
• A criteria: Minor deviation in one of the context criteria.
• B criteria: Two context criteria are not met.
• C criteria: More than two context criteria are not met.

Market Selection Criteria

• Instruments: Large-cap stocks with high liquidity.
• Volume: Minimum of 1 million shares traded daily.
• Volatility: ATR should be at least 1% of the stock's price.

Statistical Edge Metrics

• Win rate: 55%
• Avg win: 2.5R
• Avg loss: 1R
• Profit factor: 1.38
• Expectancy: 0.375R per trade

Failure Conditions

• When strategy fails: The strategy fails in choppy, range-bound markets.

Psychological Rules

• Mental discipline: Stick to the plan and do not chase trades.

Advanced Components

• Regime detection: Use a market regime filter to identify trending markets.
• Filters: Use a volume filter to confirm momentum.
• Correlation: Avoid trading highly correlated stocks at the same time.
• MTF alignment: Ensure alignment across multiple timeframes.

Location

• Where strongest: In strong, trending markets.
• Where weakest: In choppy, sideways markets.