Crypto Mean Reversion

Entry Logic

• Enter a long position when the price touches the lower Bollinger Band on the 30-minute chart.
• Confirmation requires the RSI to be below 30.
• The entry timeframe is the 30-minute chart.
• The setup is valid only in a ranging market.
• This strategy performs best when volatility is contracting.

Exit Logic

• The primary profit target is the middle Bollinger Band.
• No scaling out is used for this strategy.
• A trailing stop is not used.
• Exit the trade if the price closes below the lower Bollinger Band.
• An opposite signal (a touch of the upper Bollinger Band) triggers an exit.
• The trade is closed if it is not profitable within 2 hours.
• Exit if the price starts to trend strongly against the position.

Stop Loss Structure

• A hard stop is placed 2% below the entry price.
• A soft stop is a 30-minute candle close below the lower Bollinger Band.
• The maximum dollar loss per trade is capped at $300.
• The maximum percent loss per trade is 1.5% of the allocated capital.
• The structural stop is placed below the recent swing low.

Risk Management Framework

• Risk no more than 0.75% of the trading account on a single trade.
• The maximum daily loss limit is 2.25% of the account.
• The maximum weekly loss limit is 4.5% of the account.
• A maximum drawdown of 12% will trigger a 2-week trading halt.
• The minimum required risk-reward ratio is 1:1.

Position Sizing Model

• Use a fixed dollar amount per trade.
• No volatility adjustment is needed.
• Conviction is based on the degree of oversoldness.
• Do not scale into trades.
• Do not scale out of trades.

Trade Filtering

• Avoid trading in trending markets.
• The setup requires the price to be within a defined range.
• This strategy can be applied to any liquid cryptocurrency.
• The optimal trading time is during quiet market hours.
• Do not trade during high-impact news events.

Context Framework

• The daily chart should show a ranging market.
• The price should be oscillating around the daily VWAP.
• The Bollinger Bands on the daily chart should be contracting.
• The entry should occur at a key support level.
• The 4-hour chart must confirm the range-bound conditions.

Trade Management Rules

• Take profit at the middle Bollinger Band.
• Do not move the stop to breakeven.
• Do not add to the position.
• This is a quick scalp trade; do not overstay.

Time Rules

• The optimal trading window is during the Asian session.
• Avoid trading during the London and New York overlaps.
• Be aware of the lack of volatility.

Setup Classification

• A+ setup: Touch of the lower Bollinger Band with a bullish divergence on the RSI.
• A setup: Touch of the lower Bollinger Band with RSI below 30.
• B setup: Price pierces the lower Bollinger Band slightly.
• C setup: Price is in a strong downtrend.

Market Selection Criteria

• Trade cryptocurrencies with a history of mean-reverting behavior.
• The instrument should have sufficient liquidity.
• Avoid trading highly volatile or trending assets.

Statistical Edge Metrics

• The expected win rate is 65%.
• The average win is 1.5%.
• The average loss is 1%.
• The profit factor is 1.85.
• The expectancy per trade is 0.275%.

Failure Conditions

• The strategy fails when a new trend begins.
• Avoid this setup when the Bollinger Bands are expanding.

Psychological Rules

• Be patient and wait for the price to come to your level.
• Do not be afraid to buy when the market looks weak.

Advanced Components

• Use the Keltner Channels to confirm the range.
• Filter trades based on the ADX indicator.
• Avoid trades if there is a strong inter-market correlation.
• The weekly chart should also show a lack of trend.

Location

• The setup is strongest at well-defined support and resistance levels.
• The setup is weakest in the middle of the range.
• The location within the range determines the trade's probability of success.