Lower Highs / Lower Lows Trend Entry

Entry Logic

• Entry trigger: Price pulls back to the 20-period EMA and forms a bearish engulfing candle.
• Confirmation: Volume on the bearish engulfing candle is 50% above the 20-period average volume.
• Timeframe: 5-minute chart.
• Location context: Price is below the 50-period SMA and VWAP.
• Market condition: Strong downtrend with clear lower highs and lower lows.

Exit Logic

• Profit target: 2R, with a secondary target at the previous major swing low.
• Scaling out: Scale out 50% at 2R, trail the rest.
• Trailing stop: Trail the stop loss above the high of the previous candle.
• Signal failure exit: Exit if price closes above the 20-period EMA.
• Opposite signal exit: Exit on a confirmed higher high.
• Time expiration: Exit if the trade is open for more than 2 hours.
• Momentum loss: Exit if momentum indicators show divergence.

Stop Loss Structure

• Hard stop: 1 ATR above the high of the bearish engulfing candle.
• Soft stop: A close above the 20-period EMA.
• Max dollar loss: $100 per trade.
• Max percent loss: 1% of account.
• Structural stop: Above the most recent swing high.

Risk Management Framework

• Risk per trade: 0.5% of account.
• Daily limit: 3 losing trades.
• Weekly limit: 5% drawdown.
• Max drawdown: 15%.
• R:R requirement: Minimum 2:1.

Position Sizing Model

• Sizing approach: Fixed fractional sizing.
• Volatility adjustment: Reduce size if ATR is 50% above average.
• Conviction sizing: Full size for A+ setups, half size for A setups.
• Scaling in: Not recommended for this strategy.
• Scaling out: Scale out 50% at 2R.

Trade Filtering

• Market conditions to avoid: Ranging or choppy markets.
• Setups required: Clear downtrend with pullbacks to the 20-period EMA.
• Instruments: High-volume stocks and ETFs.
• Time restrictions: Avoid trading in the first 15 minutes of the session.
• Chop/news avoidance: Avoid trading around major news events.

Context Framework

• Trend direction: Downtrend.
• VWAP relationship: Price below VWAP.
• MA relationship: Price below 20-period EMA and 50-period SMA.
• Range location: In the lower half of the daily range.
• Higher TF alignment: 1-hour and 4-hour charts show a downtrend.

Trade Management Rules

• Breakeven: Move stop to breakeven after price moves 1R in your favor.
• Scale out: Scale out 50% at 2R.
• Add size: Not recommended.
• Fast vs slow moves: Let profits run on fast moves, take profits on slow moves.

Time Rules

• Optimal window: 9:45 AM to 11:30 AM EST.
• Times to avoid: First 15 minutes and last 30 minutes of the session.
• Session notes: Strategy performs best during the London and New York sessions.

Setup Classification

• A+ criteria: Perfect pullback to the 20-period EMA with a strong bearish engulfing candle and high volume.
• A criteria: Pullback to the 20-period EMA with a decent bearish candle and average volume.
• B criteria: Pullback that goes slightly above the 20-period EMA before reversing.
• C criteria: No clear trend or choppy price action.

Market Selection Criteria

• Instruments: SPY, QQQ, AAPL, MSFT.
• Volume: Minimum 1 million shares traded per day.
• Volatility: ATR should be at least 0.5% of the stock price.

Statistical Edge Metrics

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

Failure Conditions

• Strategy fails when the trend weakens or reverses.
• Avoid using this strategy in low-volume or choppy markets.

Psychological Rules

• Have patience to wait for the perfect setup.
• Do not chase the price if you miss the entry.

Advanced Components

• Regime detection: Use a trend filter to confirm the downtrend.
• Filters: Avoid trading if the VIX is above 30.
• Correlation: Avoid trading highly correlated instruments at the same time.
• MTF alignment: Ensure the higher timeframes are in a downtrend.

Location

• Strongest: In a strong, established downtrend.
• Weakest: In a ranging or choppy market.