Momentum After Consolidation

Entry Logic

• Entry trigger: A stock breaks out of a consolidation pattern (e.g., a flag or pennant) in the direction of the prevailing trend.
• Confirmation: Volume increases on the breakout.
• Timeframe: 15-minute chart.
• Location context: The consolidation occurs after a strong move up or down.
• Market condition: The market is in a clear trend.

Exit Logic

• Profit targets: 2R and 4R.
• Scaling out: Sell 50% at 2R.
• Trailing stop: Use the 20-period EMA as a trailing stop.
• Signal failure exit: Exit if the price closes back inside the consolidation pattern.
• Opposite signal exit: Not applicable.
• Time expiration: Exit by the end of the day.
• Momentum loss: Exit if momentum slows down.

Stop Loss Structure

• Hard stop: Below the low of the consolidation pattern (for a long) or above the high (for a short).
• Soft stop: A close back inside the consolidation pattern.
• Max dollar loss: 1% of account equity.
• Max percent loss: 2% of the trade's value.
• Structural stop: Below the low of the consolidation pattern.

Risk Management Framework

• Risk per trade: 0.5% of account equity.
• Daily limit: 3 losing trades.
• Weekly limit: 10 losing trades.
• Max drawdown: 5% of account equity.
• R:R requirement: 2:1.

Position Sizing Model

• Sizing approach: Fixed fractional sizing.
• Volatility adjustment: Not applicable.
• Conviction sizing: A+ setups get full size, A setups get 75%, B setups get 50%.
• Scaling in/out: Scale out at profit targets.

Trade Filtering

• Market conditions: Avoid choppy, directionless markets.
• Setups: Only trade clear breakouts from consolidation.
• Instruments: Stocks with a history of strong momentum.
• Time restrictions: Not applicable.
• Chop/news avoidance: Avoid trading around major news releases.

Context Framework

• Trend direction: The 1-hour chart should be in a clear trend.
• VWAP relationship: Price should be on the correct side of VWAP.
• MA relationship: The 20-period EMA should be above the 50-period EMA (for longs) or below (for shorts).
• Range location: The breakout should occur from a clear consolidation pattern.
• Higher TF alignment: The daily chart should be supportive of the trade direction.

Trade Management Rules

• Breakeven: Move stop to breakeven after 1R.
• Scale out: At profit targets.
• Add size: Do not add size.
• Fast vs slow moves: Let fast moves run, but tighten the trailing stop on slow moves.

Time Rules

• Optimal window: Not applicable.
• Times to avoid: Not applicable.
• Session notes: Can be used in any session.

Setup Classification

• A+ criteria: A clean breakout from a tight consolidation pattern with high volume.
• A criteria: A good breakout from a consolidation pattern with a noticeable increase in volume.
• B criteria: A marginal breakout from a consolidation pattern with a slight increase in volume.
• C criteria: Avoid.

Market Selection Criteria

• Instruments: Mid-cap and large-cap stocks.
• Volume: High relative volume.
• Volatility: Moderate to high ATR.

Statistical Edge Metrics

• Win rate: 60%
• Avg win: 2.5R
• Avg loss: 1R
• Profit factor: 1.5
• Expectancy: 0.5R per trade

Failure Conditions

• When strategy fails: Fails when the breakout is a fake-out and the price reverses.

Psychological Rules

• Mental discipline: Have the patience to wait for the consolidation to complete.

Advanced Components

• Regime detection: Use a trend-following indicator to confirm the market regime.
• Filters: Use a volume filter.
• Correlation: Not applicable.
• MTF alignment: Check the 1-hour and daily charts.

Location

• Where strongest: In strongly trending markets.
• Where weakest: In range-bound or choppy markets.