Money Flow Index Divergence

Entry Logic

• Enter long on a bullish divergence between the price and the Money Flow Index (MFI).
• Confirmation: A bullish reversal candle.
• Timeframe: 60-minute chart.
• Location: At a key support level.
• Market Condition: A downtrend that is losing momentum.

Exit Logic

• Profit Target: The previous swing high.
• Scaling Out: Not recommended.
• Trailing Stop: A close below the 20-period EMA.
• Signal Failure: A close below the support level.
• Opposite Signal: A bearish engulfing candle with high volume.
• Time Expiration: End of the day.
• Momentum Loss: A failure to make a new high.

Stop Loss Structure

• Hard Stop: Below the low of the reversal candle.
• Soft Stop: A close below the support level.
• Max Dollar Loss: $130 per trade.
• Max Percent Loss: 1.3% of account.
• Structural Stop: Below the support level.

Risk Management Framework

• Risk Per Trade: 0.65% of account.
• Daily Limit: 3 losing trades.
• Weekly Limit: 6% drawdown.
• Max Drawdown: 18%.
• R:R Requirement: Minimum 1.5:1.

Position Sizing Model

• Sizing Approach: Fixed fractional.
• Volatility Adjustment: No adjustment needed.
• Conviction Sizing: Full size on A+ setups.
• Scaling In: Not recommended.
• Scaling Out: Not recommended.

Trade Filtering

• Market Conditions: Only trade in trends that are losing momentum.
• Setups: Look for bullish or bearish divergences.
• Instruments: High-volume stocks.
• Time Restrictions: No restrictions.
• Chop/News Avoidance: Avoid trading around news.

Context Framework

• Trend Direction: Counter-trend trade.
• VWAP Relationship: Not applicable.
• MA Relationship: Not applicable.
• Range Location: At a key support or resistance level.
• Higher TF Alignment: The higher timeframes should show signs of a potential reversal.

Trade Management Rules

• Breakeven: Move stop to breakeven after a 1R move.
• Scale Out: Not recommended.
• Add Size: Not recommended.
• Fast vs Slow Moves: Take profits at the target.

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 clear divergence with a strong reversal candle.
• A Setup: A decent divergence with a good reversal candle.
• B Setup: A questionable divergence or reversal candle.
• C Setup: Avoid weak setups.

Market Selection Criteria

• Instruments: Stocks with a daily volume of over 1 million shares.
• Volume: Not applicable.
• Volatility: Moderate volatility.

Statistical Edge Metrics

• Win Rate: 50%.
• Avg Win: 2R.
• Avg Loss: 1R.
• Profit Factor: 1.0.
• Expectancy: 0.0R per trade.

Failure Conditions

• The strategy fails if the trend is too strong.
• Avoid trading if the divergence is not clear.

Psychological Rules

• Be patient and wait for the divergence to fully form.
• Do not force trades.

Advanced Components

• Regime Detection: Use a momentum indicator to confirm the loss of momentum.
• Filters: Not applicable.
• Correlation: Avoid correlated instruments.
• MTF Alignment: Look for divergences on multiple timeframes.

Location

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