Volume Spike Breakout

Entry Logic

• Enter long on a 5-minute candle close above a key resistance level.
• Entry requires a volume spike of at least 300% above the 20-period moving average of volume.
• Confirmation: The breakout candle must be a full-bodied bullish candle.
• Timeframe: 5-minute chart.
• Location: Entry must occur above the daily VWAP.
• Market Condition: Trending or range-bound market with clear resistance.

Exit Logic

• Profit Target: 2R, where R is the initial risk.
• Scaling Out: Sell 50% at 2R, trail the rest.
• Trailing Stop: 20-period EMA.
• Signal Failure: Close back below the breakout level.
• Opposite Signal: A strong bearish reversal candle with high volume.
• Time Expiration: End of the trading day.
• Momentum Loss: A series of small, overlapping candles.

Stop Loss Structure

• Hard Stop: Below the low of the breakout candle.
• Soft Stop: A close below the 20-period EMA.
• Max Dollar Loss: $100 per trade.
• Max Percent Loss: 1% of account.
• Structural Stop: Below the most recent swing low.

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.
• Volatility Adjustment: Reduce size if ATR is 50% above average.
• Conviction Sizing: A+ setups get full size, B setups get half size.
• Scaling In: Not recommended.
• Scaling Out: At 2R and 3R.

Trade Filtering

• Market Conditions: Avoid choppy, low-volume markets.
• Setups: Only trade clear breakouts from well-defined resistance.
• Instruments: High-volume stocks and ETFs.
• Time Restrictions: Avoid trading in the first 15 minutes of the day.
• Chop/News Avoidance: Do not trade around major news events.

Context Framework

• Trend Direction: Trade in the direction of the daily trend.
• VWAP Relationship: Price must be above VWAP for long trades.
• MA Relationship: Price must be above the 50-period SMA.
• Range Location: Breakouts from the top of a range are preferred.
• Higher TF Alignment: The daily and hourly charts should show a bullish bias.

Trade Management Rules

• Breakeven: Move stop to breakeven after a 1R move.
• Scale Out: At 2R and 3R.
• Add Size: Not recommended.
• Fast vs Slow Moves: Let fast moves run, take profits on slow moves.

Time Rules

• Optimal Window: 10:00 AM to 11:30 AM EST.
• Times to Avoid: Lunchtime and the last hour of trading.
• Session Notes: Strongest in the morning session.

Setup Classification

• A+ Setup: Clear breakout with massive volume, strong trend alignment.
• A Setup: Good breakout with decent volume.
• B Setup: Breakout with questionable volume or trend alignment.
• C Setup: Avoid weak breakouts.

Market Selection Criteria

• Instruments: Stocks with a daily volume of over 2 million shares.
• Volume: High relative volume.
• Volatility: ATR of at least 1% of the stock price.

Statistical Edge Metrics

• Win Rate: 45%.
• Avg Win: 2.5R.
• Avg Loss: 1R.
• Profit Factor: 1.125.
• Expectancy: 0.125R per trade.

Failure Conditions

• Strategy fails in choppy, range-bound markets with no clear direction.
• Avoid breakouts that occur on low volume.

Psychological Rules

• Do not chase breakouts. Wait for a clear entry signal.
• Accept that many breakouts will fail.

Advanced Components

• Regime Detection: Use a trend filter to identify the market regime.
• Filters: Use a volume filter to confirm breakouts.
• Correlation: Avoid trading correlated instruments at the same time.
• MTF Alignment: Ensure the higher timeframes are aligned with the trade direction.

Location

• Strongest: At the open of the market when volume is high.
• Weakest: During midday trading when volume is low.