ES (S&P 500) Opening Range Trade

Entry Logic

• Exact Entry Trigger: Enter long on a breakout above the high of the first 5-minute candle. Enter short on a breakdown below the low of the first 5-minute candle.
• Confirmation: Breakout candle must close above the high. Breakdown candle must close below the low. Volume on the breakout/breakdown should be 1.5x the average of the prior 10 candles.
• Timeframe: 5-minute chart for the setup. 1-minute chart for entry refinement.
• Location Context: Entry must occur above the pre-market high for longs, or below the pre-market low for shorts.
• Market Condition: High volatility expected. Market is gapping up or down from the previous day's close.

Exit Logic

• Profit Targets: First target at 2R. Second target at the day's VWAP. Final target at the previous day's high/low.
• Scaling Out: Scale out 50% at the first target. 25% at the second. Let the rest run.
• Trailing Stop: Trail the stop loss below the 5-period EMA on the 5-minute chart.
• Signal Failure Exit: Exit if the price closes back inside the opening range.
• Opposite Signal Exit: Not applicable for this strategy.
• Time Expiration: Exit the trade if it has not reached the first target within 90 minutes.
• Momentum Loss: Exit if momentum indicators (like RSI) show divergence against the trade's direction.

Stop Loss Structure

• Hard Stop: Place the stop loss 2 ticks below the low of the entry candle for longs, or 2 ticks above the high for shorts.
• Soft Stop: Not used.
• Max Dollar Loss: $500 per contract.
• Max Percent Loss: 0.5% of account capital.
• Structural Stop: The stop is placed behind a clear price structure level.

Risk Management Framework

• Risk Per Trade: 1% of account capital.
• Maximum Daily Loss Limit: 3% of account capital.
• Maximum Weekly Loss Limit: 6% of account capital.
• Maximum Drawdown: 15% from peak equity.
• R:R Requirement: Minimum 2:1 risk-reward ratio.

Position Sizing Model

• Sizing Approach: Fixed fractional sizing.
• Volatility Adjustment: Reduce size by 50% if the VIX is above 30.
• Conviction Sizing: A+ setups get 1.5x size. B setups get 0.5x size.
• Scaling In: Not recommended.
• Scaling Out: As per exit logic.

Trade Filtering

• Market Conditions to Avoid: Low volume, sideways markets. Avoid trading on major news release days.
• Specific Setups Required: Clear opening range breakout or breakdown.
• Instruments: ES (S&P 500 E-mini futures).
• Time Restrictions: Only trade the first hour of the US session.
• Chop/News Avoidance: Do not trade if the market is in a tight range or a major news event is scheduled.

Context Framework

• Trend Direction: Trade in the direction of the daily trend.
• VWAP Relationship: For longs, price should be above VWAP. For shorts, price should be below VWAP.
• MA Relationship: For longs, the 20 EMA should be above the 50 EMA. For shorts, the 20 EMA should be below the 50 EMA.
• Range Location: Trade breakouts from the opening range.
• Higher TF Alignment: The daily and 4-hour charts should show a clear trend in the direction of the trade.

Trade Management Rules

• Breakeven: Move stop to breakeven after the first profit target is hit.
• Scale Out: As per exit logic.
• Add Size: Not recommended.
• Fast vs Slow Moves: In fast moves, trail the stop tighter. In slow moves, give it more room.

Time Rules

• Optimal Trading Window: First 60 minutes of the New York session.
• Times to Avoid: After 11:00 AM EST.
• Session Notes: This strategy works best in the US session.

Setup Classification

• A+ Setup: Clear breakout, high volume, and all context framework elements align.
• A Setup: Clear breakout, but volume is average.
• B Setup: Breakout is not clean, or some context elements are missing.
• C Setup: Avoid. Choppy price action.

Market Selection Criteria

• Instruments: ES (S&P 500 E-mini futures).
• Volume/Liquidity: High volume and liquidity are required.
• Volatility: Moderate to high volatility is ideal.

Statistical Edge Metrics

• Win Rate: 55-60%.
• Avg Win: 2.5R.
• Avg Loss: 1R.
• Profit Factor: 1.5.
• Expectancy: 0.4R per trade.

Failure Conditions

• When Strategy Fails: In low-volatility, range-bound markets.
• Specific Scenarios to Avoid: Trading during major news events or when the market is showing signs of chop.

Psychological Rules

• Mental Discipline: Stick to the plan. Do not chase trades. Accept the risk.

Advanced Components

• Regime Detection: Use a market regime filter to identify trending vs. ranging markets.
• Filters: Use a volume filter to confirm breakouts.
• Correlation: Check for correlation with other indices like NQ and YM.
• MTF Alignment: Ensure the higher timeframes are aligned with the trade direction.

Location

• Where Strongest: In trending markets with high volatility.
• Where Weakest: In choppy, low-volume markets.