Death Cross Fade (50/200 SMA)

Entry Logic

• Entry trigger: The 50 SMA crosses below the 200 SMA (a "death cross").
• Confirmation: Price bounces off the 200 SMA after the cross, and then fails, confirming the bearish trend.
• Timeframe: Daily chart.
• Location context: The death cross occurs after a significant uptrend.
• Market condition: A new long-term downtrend is beginning.

Exit Logic

• Profit target: The previous major swing low.
• Scaling out: Not recommended.
• Trailing stop: Trail the stop above the 50 SMA.
• Signal failure: Exit if the 50 SMA crosses back above the 200 SMA.
• Opposite signal: Exit on a "golden cross" (50 SMA crosses above 200 SMA).
• Time expiration: None.
• Momentum loss: Exit if the downtrend loses momentum.

Stop Loss Structure

• Hard stop: Above the high of the bounce that failed.
• Soft stop: A close above the 50 SMA.
• Max dollar loss: $500 per trade.
• Max percent loss: 2.5% of account.
• Structural stop: Above the high of the bounce that failed.

Risk Management Framework

• Risk per trade: 2% of account.
• Daily limit: 1 losing trade.
• Weekly limit: 5% drawdown.
• Max drawdown: 15%.
• R:R requirement: Minimum 3:1.

Position Sizing Model

• Sizing approach: Fixed fractional (2% of account).
• Volatility adjustment: None.
• Conviction sizing: None.
• Scaling in: Not recommended.
• Scaling out: Not recommended.

Trade Filtering

• Market conditions: Avoid taking this trade in a strong uptrend.
• Setups: Only take the first death cross after a long uptrend.
• Instruments: Major stock indices and large-cap stocks.
• Time restrictions: None.
• Chop/news avoidance: Be aware of major news events that could reverse the trend.

Context Framework

• Trend direction: A new long-term downtrend is starting.
• VWAP relationship: Not relevant for this strategy.
• MA relationship: The 50 SMA is below the 200 SMA.
• Range location: The trade is taken at the beginning of a new downtrend.
• Higher TF alignment: The weekly chart should confirm the bearish bias.

Trade Management Rules

• Breakeven: Move stop to breakeven after a 2R move.
• Scale out: Not recommended.
• Add size: Not recommended.
• Fast vs slow moves: Hold the trade as long as the downtrend is intact.

Time Rules

• Optimal window: Any time a new long-term downtrend is starting.
• Times to avoid: Strong bull markets.
• Session notes: This is a long-term strategy.

Setup Classification

• A+ setup: The first death cross after a long uptrend, with a clear rejection at the 200 SMA.
• A setup: A death cross with a decent rejection.
• B setup: A death cross with a weak rejection.
• C setup: Avoid.

Market Selection Criteria

• Instruments: SPY, DIA, IWM, and other major indices.
• Volume: High.
• Volatility: Increasing.

Statistical Edge Metrics

• Win rate: 40%.
• Avg win: 4R.
• Avg loss: 1R.
• Profit factor: 1.6.
• Expectancy: 0.6R.

Failure Conditions

• The strategy fails if the death cross is a false signal and the uptrend resumes.
• Avoid taking this trade if the 200 SMA is still pointing up strongly.

Psychological Rules

• Have the conviction to short the market after a long uptrend.
• Do not be afraid to be a contrarian.

Advanced Components

• Regime detection: Use the slope of the 200 SMA to confirm the new downtrend.
• Filters: Only take trades if the 200 SMA is starting to flatten or point down.
• Correlation: Be aware of market correlations.
• MTF alignment: Check the weekly chart for confirmation.

Location

• Strongest: At the beginning of a new bear market.
• Weakest: In a strong bull market.