ES Mean Reversion at Extremes

Entry Logic

• Exact Entry Trigger: Enter long when the price touches the lower Bollinger Band (20, 2) and the RSI (14) is below 30. Enter short when the price touches the upper Bollinger Band and the RSI is above 70.
• Confirmation: A bullish or bearish divergence on the RSI increases the probability of a successful trade.
• Timeframe: 15-minute chart.
• Location Context: The setup should occur at a key support or resistance level.
• Market Condition: The market must be in a trading range.

Exit Logic

• Profit Targets: The mean of the Bollinger Bands (the 20-period moving average).
• Scaling Out: Not recommended.
• Trailing Stop: Not used.
• Signal Failure Exit: Exit if the price closes outside the Bollinger Bands for two consecutive candles.
• Opposite Signal Exit: Exit if a valid signal in the opposite direction appears.
• Time Expiration: Exit if the trade is not profitable within 4 hours.
• Momentum Loss: Not applicable.

Stop Loss Structure

• Hard Stop: Place the stop loss 10 ticks beyond the entry candle's high/low.
• Soft Stop: Not used.
• Max Dollar Loss: $750 per contract.
• Max Percent Loss: 0.75% of account capital.
• Structural Stop: The stop is placed behind a clear price structure.

Risk Management Framework

• Risk Per Trade: 0.5% of account capital.
• Maximum Daily Loss Limit: 2% of account capital.
• Maximum Weekly Loss Limit: 5% of account capital.
• Maximum Drawdown: 10% from peak equity.
• R:R Requirement: Minimum 1:1 risk-reward ratio.

Position Sizing Model

• Sizing Approach: Fixed dollar risk per trade.
• Volatility Adjustment: Not applicable.
• Conviction Sizing: Not applicable.
• Scaling In: Not recommended.
• Scaling Out: Not recommended.

Trade Filtering

• Market Conditions to Avoid: Strong trending markets.
• Specific Setups Required: A clear range-bound market with price oscillating between support and resistance.
• Instruments: ES (S&P 500 E-mini futures).
• Time Restrictions: Trade during the London or US session.
• Chop/News Avoidance: Avoid trading during high-impact news releases.

Context Framework

• Trend Direction: The market should be in a sideways trend.
• VWAP Relationship: Not applicable.
• MA Relationship: The 20 and 50 EMAs should be flat and intertwined.
• Range Location: Trade at the edges of the established range.
• Higher TF Alignment: The higher timeframes should also indicate a ranging market.

Trade Management Rules

• Breakeven: Not applicable.
• Scale Out: Not applicable.
• Add Size: Not recommended.
• Fast vs Slow Moves: This strategy works best in slow, oscillating markets.

Time Rules

• Optimal Trading Window: Any time the market is in a clear range.
• Times to Avoid: The market open and close, and during news events.
• Session Notes: Can be traded in any session, but the US session offers the most liquidity.

Setup Classification

• A+ Setup: A clear range with a divergence on the RSI at a key support/resistance level.
• A Setup: A clear range with an overbought/oversold RSI reading.
• B Setup: A weak range or unclear RSI signal.
• C Setup: Avoid. A trending market.

Market Selection Criteria

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

Statistical Edge Metrics

• Win Rate: 65-70%.
• Avg Win: 1.5R.
• Avg Loss: 1R.
• Profit Factor: 1.7.
• Expectancy: 0.5R per trade.

Failure Conditions

• When Strategy Fails: When the market breaks out of the range and starts to trend.
• Specific Scenarios to Avoid: Trading this strategy in a trending market.

Psychological Rules

• Mental Discipline: Be patient and wait for the setup to come to you. Do not force trades.

Advanced Components

• Regime Detection: Use a filter to identify ranging markets.
• Filters: Use a volume profile to identify high-volume nodes, which can act as support and resistance.
• Correlation: Not applicable.
• MTF Alignment: Ensure the higher timeframes are also in a range.

Location

• Where Strongest: In well-established trading ranges.
• Where Weakest: In strong trending markets.