Volume Climax Reversal

Entry Logic

• Enter short on a massive volume spike at a key resistance level.
• Entry requires a bearish reversal candle, such as a shooting star or bearish engulfing.
• Confirmation: The next candle must be bearish.
• Timeframe: 5-minute chart.
• Location: At a key resistance level.
• Market Condition: An overextended uptrend.

Exit Logic

• Profit Target: The nearest support level.
• Scaling Out: Sell 50% at the first support level, trail the rest.
• Trailing Stop: The 20-period EMA.
• Signal Failure: A close above the high of the reversal candle.
• Opposite Signal: A bullish engulfing candle with high volume.
• Time Expiration: End of the day.
• Momentum Loss: A failure to make a new low.

Stop Loss Structure

• Hard Stop: Above the high of the reversal candle.
• Soft Stop: A close above the resistance level.
• Max Dollar Loss: $120 per trade.
• Max Percent Loss: 1.2% of account.
• Structural Stop: Above the resistance level.

Risk Management Framework

• Risk Per Trade: 0.6% 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 in highly volatile markets.
• Conviction Sizing: Full size on A+ setups.
• Scaling In: Not recommended.
• Scaling Out: At support levels.

Trade Filtering

• Market Conditions: Only trade in overextended trends.
• Setups: Look for volume climax reversals at key resistance levels.
• Instruments: High-volume stocks.
• Time Restrictions: No restrictions.
• Chop/News Avoidance: Avoid trading around news.

Context Framework

• Trend Direction: Counter-trend trade.
• VWAP Relationship: Price should be far above VWAP.
• MA Relationship: Price should be far above the 50-period SMA.
• Range Location: Not applicable.
• Higher TF Alignment: The higher timeframes should show signs of exhaustion.

Trade Management Rules

• Breakeven: Move stop to breakeven after a 1R move.
• Scale Out: At support levels.
• Add Size: Not recommended.
• Fast vs Slow Moves: Take profits quickly.

Time Rules

• Optimal Window: Any time during the day.
• Times to Avoid: None.
• Session Notes: Works well in all sessions.

Setup Classification

• A+ Setup: A massive volume spike with a clear reversal candle.
• A Setup: A good volume spike with a decent reversal candle.
• B Setup: A questionable volume spike or reversal candle.
• C Setup: Avoid weak setups.

Market Selection Criteria

• Instruments: Stocks with a daily volume of over 2 million shares.
• Volume: Very high volume on the reversal.
• Volatility: High volatility.

Statistical Edge Metrics

• Win Rate: 40%.
• Avg Win: 3R.
• Avg Loss: 1R.
• Profit Factor: 1.2.
• Expectancy: 0.2R per trade.

Failure Conditions

• The strategy fails if the trend is too strong.
• Avoid trading if the volume spike is not significant.

Psychological Rules

• Be prepared for a high failure rate.
• Do not be afraid to short a strong uptrend.

Advanced Components

• Regime Detection: Use an overbought/oversold indicator.
• Filters: Use a volume filter.
• Correlation: Avoid correlated instruments.
• MTF Alignment: Look for signs of exhaustion on higher timeframes.

Location

• Strongest: At major resistance levels.
• Weakest: In the middle of a range.