Stochastic Mean Reversion

Entry Logic

• Long Entry: Stochastic (14, 3, 3) %K line crosses below 20.
• Short Entry: Stochastic (14, 3, 3) %K line crosses above 80.
• Confirmation: %K line crosses back above 20 (for long) or below 80 (for short).
• Timeframe: 30-minute.
• Location: At a support or resistance level.
• Market Condition: Ranging.

Exit Logic

• Profit Target: Stochastic reaches the 50 level.
• Scaling Out: No.
• Trailing Stop: No.
• Signal Failure: Exit if the Stochastic makes a new extreme.
• Opposite Signal: Exit on an opposite signal.
• Time Expiration: 10 bars.
• Momentum Loss: Exit if price stalls.

Stop Loss Structure

• Hard Stop: Below the low of the signal candle.
• Soft Stop: If the Stochastic turns back towards the extreme.
• Max Dollar Loss: $300.
• Max Percent Loss: 0.6%.
• Structural Stop: Beyond a recent pivot.

Risk Management Framework

• Risk Per Trade: 0.5%.
• Daily Limit: 4 trades.
• Weekly Limit: 3%.
• Max Drawdown: 10%.
• R:R Requirement: 2:1.

Position Sizing Model

• Sizing Approach: Fixed risk.
• Volatility Adjustment: Not used.
• Conviction Sizing: Based on the quality of the support/resistance level.
• Scaling In: No.
• Scaling Out: No.

Trade Filtering

• Market Conditions: Avoid strong trends.
• Setups: Look for divergence between price and the Stochastic oscillator.
• Instruments: Forex pairs and index CFDs.
• Time Restrictions: None.
• Chop/News Avoidance: Yes.

Context Framework

• Trend Direction: Neutral.
• VWAP Relationship: Not relevant for forex.
• MA Relationship: Price is likely oscillating around a flat moving average.
• Range Location: Near the top or bottom of a defined range.
• Higher TF Alignment: The higher timeframe should also be in a range.

Trade Management Rules

• Breakeven: No.
• Scale Out: No.
• Add Size: No.
• Fast vs Slow Moves: Works for both.

Time Rules

• Optimal Window: Any.
• Times to Avoid: Illiquid times.
• Session Notes: Effective in all major sessions.

Setup Classification

• A+ Setup: Stochastic divergence at a major weekly support/resistance level.
• A Setup: Stochastic extreme at a daily support/resistance level.
• B Setup: Stochastic extreme with no clear price structure.
• C Setup: Stochastic extreme in a strongly trending market.

Market Selection Criteria

• Instruments: EUR/USD, GBP/USD, AUD/USD.
• Volume: High.
• Volatility: Moderate.

Statistical Edge Metrics

• Win Rate: 60%.
• Avg Win: 1.8R.
• Avg Loss: 1R.
• Profit Factor: 1.48.
• Expectancy: +0.28R.

Failure Conditions

• Market Conditions: A breakout from a multi-day range.
• Specific Scenarios: When the Stochastic oscillator "pegs" at an extreme.

Psychological Rules

• Discipline: Wait for the Stochastic to cross back from the extreme. Do not jump the gun.

Advanced Components

• Regime Detection: Use ADX to confirm a ranging market.
• Filters: Combine with other oscillators to confirm signals.
• Correlation: Avoid taking signals on multiple correlated pairs at the same time.
• MTF Alignment: Look for Stochastic extremes on multiple timeframes for a stronger signal.

Location

• Strongest: In sideways markets with clear boundaries.
• Weakest: In powerful, trending markets.