Change of Character Reversal

Entry Logic

• Entry trigger: After a strong trend, price fails to make a new high/low and breaks the previous swing point, indicating a potential reversal.
• Confirmation: The break of the swing point is on high volume.
• Timeframe: 30-minute chart.
• Location context: At a key higher timeframe support or resistance level.
• Market condition: End of a trend, beginning of a potential reversal.

Exit Logic

• Profit target: 3R, with a secondary target at the next major support/resistance level.
• Scaling out: Scale out 33% at 2R, 33% at 3R.
• Trailing stop: Trail the stop loss aggressively after 2R.
• Signal failure exit: Exit if price reclaims the broken swing point.
• Opposite signal exit: Exit on a confirmed trend continuation signal.
• Time expiration: Exit if the trade is open for more than 4 hours.
• Momentum loss: Exit if momentum indicators fail to confirm the reversal.

Stop Loss Structure

• Hard stop: 1 ATR above/below the reversal candle.
• Soft stop: A close back inside the previous trend structure.
• Max dollar loss: $200 per trade.
• Max percent loss: 2% of account.
• Structural stop: Above/below the high/low of the failed swing point.

Risk Management Framework

• Risk per trade: 1% of account.
• Daily limit: 1 losing trade.
• Weekly limit: 3% drawdown.
• Max drawdown: 10%.
• R:R requirement: Minimum 3:1.

Position Sizing Model

• Sizing approach: Fixed fractional sizing.
• Volatility adjustment: Use smaller size in highly volatile markets.
• Conviction sizing: Full size for A+ setups, half size for A setups.
• Scaling in: Not recommended.
• Scaling out: Scale out at 2R and 3R.

Trade Filtering

• Market conditions to avoid: Strong, established trends.
• Setups required: Clear failure to make a new high/low and a break of the previous swing point.
• Instruments: Major forex pairs and stock indices.
• Time restrictions: Avoid trading during illiquid periods.
• Chop/news avoidance: Avoid trading around high-impact news.

Context Framework

• Trend direction: Reversing.
• VWAP relationship: Price crossing VWAP.
• MA relationship: Price crossing the 50-period SMA.
• Range location: At the edge of a range.
• Higher TF alignment: Higher timeframe charts show signs of trend exhaustion.

Trade Management Rules

• Breakeven: Move stop to breakeven after price moves 1.5R in your favor.
• Scale out: Scale out at 2R and 3R.
• Add size: Not recommended.
• Fast vs slow moves: Let profits run on fast moves.

Time Rules

• Optimal window: New York session open.
• Times to avoid: Asian session.
• Session notes: Reversals are more common at the beginning of a new session.

Setup Classification

• A+ criteria: Clear change of character at a higher timeframe key level with high volume.
• A criteria: Clear change of character with decent volume.
• B criteria: Change of character with low volume.
• C criteria: No clear change of character.

Market Selection Criteria

• Instruments: EUR/USD, GBP/USD, SPX, NDX.
• Volume: High liquidity.
• Volatility: Moderate to high.

Statistical Edge Metrics

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

Failure Conditions

• Strategy fails when the trend continues despite the change of character.
• Avoid using this strategy against a very strong trend.

Psychological Rules

• Be patient and wait for confirmation.
• Do not be afraid to take a loss if the reversal fails.

Advanced Components

• Regime detection: Use a trend strength indicator to gauge the strength of the previous trend.
• Filters: Avoid trading if the ADX is above 40.
• Correlation: Be aware of correlations between different asset classes.
• MTF alignment: Look for confirmation on multiple timeframes.

Location

• Strongest: At key higher timeframe support and resistance levels.
• Weakest: In the middle of a range.