YM (Dow) Value Rotation Trade

Entry Logic

• Exact Entry Trigger: Enter long YM when value sectors (e.g., financials, industrials) are outperforming growth sectors. Enter short YM when growth sectors are outperforming value sectors.
• Confirmation: The move in the value sectors should be on high volume.
• Timeframe: 15-minute chart.
• Location Context: YM should be trading near a key support or resistance level.
• Market Condition: A clear rotation from one sector to another.

Exit Logic

• Profit Targets: The next key support or resistance level.
• Scaling Out: Not recommended.
• Trailing Stop: Trail the stop loss below a recent swing low for longs, or above a recent swing high for shorts.
• Signal Failure Exit: Exit if the sector rotation reverses.
• Opposite Signal Exit: Not applicable.
• Time Expiration: Exit the trade by the end of the day.
• Momentum Loss: Exit if the momentum in the value sectors starts to fade.

Stop Loss Structure

• Hard Stop: Place the stop loss 40 ticks from the entry price.
• Soft Stop: Not used.
• Max Dollar Loss: $2,000 per contract.
• Max Percent Loss: 2% of account capital.
• Structural Stop: The stop is placed behind a key support or resistance 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 1.5:1 risk-reward ratio.

Position Sizing Model

• Sizing Approach: Fixed fractional sizing.
• Volatility Adjustment: Not applicable.
• Conviction Sizing: Not applicable.
• Scaling In: Not recommended.
• Scaling Out: Not recommended.

Trade Filtering

• Market Conditions to Avoid: When there is no clear sector rotation.
• Specific Setups Required: A clear outperformance of value sectors over growth sectors, or vice versa.
• Instruments: YM (Dow Jones Industrial Average E-mini futures).
• Time Restrictions: Trade during the US session.
• Chop/News Avoidance: Avoid trading during major news events.

Context Framework

• Trend Direction: Trade in the direction of the sector rotation.
• VWAP Relationship: For longs, YM should be above VWAP. For shorts, YM should be below VWAP.
• MA Relationship: The 20 EMA should be above the 50 EMA for longs, and below for shorts.
• Range Location: Not applicable.
• Higher TF Alignment: The higher timeframes should support the direction of the trade.

Trade Management Rules

• Breakeven: Move stop to breakeven after the price has moved 1R in your favor.
• Scale Out: Not applicable.
• Add Size: Not recommended.
• Fast vs Slow Moves: Let the trade run in fast moves. In slow moves, consider taking profits earlier.

Time Rules

• Optimal Trading Window: The US session.
• Times to Avoid: The overnight session.
• Session Notes: This strategy is dependent on the performance of US value stocks, so it should only be traded during the US session.

Setup Classification

• A+ Setup: A clear and strong rotation from one sector to another.
• A Setup: A decent rotation with good volume.
• B Setup: A weak or unclear rotation.
• C Setup: Avoid. No clear rotation.

Market Selection Criteria

• Instruments: YM (Dow Jones Industrial Average E-mini futures).
• Volume/Liquidity: High volume and liquidity are essential.
• Volatility: Moderate to high volatility is preferred.

Statistical Edge Metrics

• Win Rate: 50-55%.
• Avg Win: 2.5R.
• Avg Loss: 1R.
• Profit Factor: 1.25.
• Expectancy: 0.25R per trade.

Failure Conditions

• When Strategy Fails: When the sector rotation fails to materialize or reverses unexpectedly.
• Specific Scenarios to Avoid: Trading this strategy when there is no clear catalyst for a sector rotation.

Psychological Rules

• Mental Discipline: Be patient and wait for the rotation to be confirmed. Do not anticipate the move.

Advanced Components

• Regime Detection: Not applicable.
• Filters: Use a sector performance filter to identify the leading and lagging sectors.
• Correlation: This strategy is based on the correlation between YM and value stocks.
• MTF Alignment: Ensure the higher timeframes are aligned with the trade direction.

Location

• Where Strongest: When there is a clear shift in market sentiment towards value or growth.
• Where Weakest: In a market with no clear leadership.