Market Profile Excess Trade

Entry Logic

• Entry is a long position when the price creates an excess low (a sharp, deep low with low volume) and then reverses.
• Confirmation is a bullish engulfing candle.
• Timeframe is the 60-minute chart.
• Location is at an excess low.
• Market is in an uptrend.

Exit Logic

• Profit target is the next resistance level.
• Do not scale out.
• Trail the stop loss below the low of the entry candle.
• Exit if the price closes below the excess low.
• Exit on a bearish reversal pattern.
• Exit if the price does not move up within 2 bars.
• Exit if buying momentum stalls.

Stop Loss Structure

• Hard stop is placed below the low of the entry candle.
• Soft stop is a close below the excess low.
• Maximum dollar loss is $500 per trade.
• Maximum percent loss is 5% of the account.
• Structural stop is below the excess low.

Risk Management Framework

• Risk 3.5% of the account per trade.
• Daily loss limit is 10% of the account.
• Weekly loss limit is 20% of the account.
• Maximum drawdown is 40%.
• Risk-reward ratio must be at least 1:1.5.

Position Sizing Model

• Use a fixed fractional position sizing model.
• No volatility adjustment.
• Full size for all setups.
• Do not scale in or out.

Trade Filtering

• Avoid trading in downtrends.
• Only trade when there is a clear excess low.
• Trade only major stock indices.
• Avoid trading during news events.
• Do not trade in choppy markets.

Context Framework

• Trend is up.
• Price is above VWAP.
• Price is above the 50 EMA.
• Location is at an excess low.
• The higher timeframe chart (daily) shows a clear uptrend.

Trade Management Rules

• Move stop to breakeven when the price reaches a 1:1 risk-reward ratio.
• Do not scale out.
• Do not add to the position.
• Let the trade run if buying momentum is strong.

Time Rules

• Optimal trading window is from 10:00 AM to 2:00 PM EST.
• Avoid trading in the last hour of the session.
• The strategy works best on trending days.

Setup Classification

• A+ setup: Reversal from a major excess low in a strong uptrend.
• A setup: Reversal from a minor excess low in a moderate uptrend.
• B setup: Reversal with low volume.
• C setup: No clear excess low.

Market Selection Criteria

• Trade SPY, QQQ, and IWM.
• High volume is required.
• Moderate to high volatility is preferred.

Statistical Edge Metrics

• Expected win rate is 70%.
• Average win is 2R.
• Average loss is 1R.
• Profit factor is 1.4.
• Expectancy per trade is 0.4R.

Failure Conditions

• The strategy fails if the excess low is taken out with strong volume.
• Avoid trading when there is a strong bearish sentiment in the market.

Psychological Rules

• Be patient and wait for the price to create the excess low.
• Do not be afraid to buy a new low.

Advanced Components

• Use a market profile to identify the excess low.
• Use a trend filter to confirm the uptrend.
• Do not trade correlated indices in the same direction.
• The daily chart must confirm the uptrend.

Location

• Strongest in a clear uptrend.
• Weakest in a downtrend or a range-bound market.
• The location of the excess low within the trend is important.