Forex Sentiment Extreme Trade

Entry Logic

• Entry triggers when a sentiment indicator (e.g., COT report, retail sentiment) reaches an extreme reading.
• Confirmation requires a reversal candle on the daily chart.
• Timeframe is the daily chart.
• Location is a major market top or bottom.
• Market condition is a potential trend reversal.

Exit Logic

• Profit target is a major support or resistance level on the weekly chart.
• No scaling out.
• Trailing stop is the 50-day moving average.
• Exit on signal failure if the sentiment extreme persists and the price continues to trend.
• Exit on an opposite signal if the sentiment indicator moves to the opposite extreme.
• No time expiration.
• Exit on momentum loss if the price consolidates for a long period.

Stop Loss Structure

• Hard stop is placed beyond the extreme high or low of the trend.
• No soft stop is used.
• Maximum dollar loss is 5% of account equity.
• Maximum percent loss is 5% of account equity.
• Structural stop is placed beyond the extreme of the trend.

Risk Management Framework

• Risk per trade is 2.5% of the account.
• Maximum daily loss limit is not applicable for this long-term strategy.
• Maximum weekly loss limit is not applicable.
• Maximum drawdown allowed is 35%.
• Risk-reward ratio requirement is a minimum of 1:3.

Position Sizing Model

• Sizing is based on a fixed fractional model (2.5% of account per trade).
• No volatility adjustment is used.
• Conviction sizing is not used.
• No scaling in.
• No scaling out.

Trade Filtering

• Avoid trading if the sentiment reading is not at an extreme level.
• Requires a clear extreme in the sentiment indicator.
• Instrument can be any major forex pair.
• This is a long-term position trade.
• Avoid trading if the fundamental picture does not support a reversal.

Context Framework

• Trend direction is expected to reverse.
• The focus is on the contrarian signal from the sentiment indicator.
• Moving averages can be used to confirm the reversal.
• Location is a major market top or bottom.
• Higher timeframe (weekly) should show the potential for a major reversal.

Trade Management Rules

• This is a contrarian, trend-fading strategy.
• Be prepared to hold the position for a long time.
• Do not add to the position.
• Be patient and let the new trend develop.

Time Rules

• This is a long-term strategy, so time of day is not relevant.
• The focus is on the daily and weekly charts.
• No session-specific notes.

Setup Classification

• A+ setup: Extreme sentiment reading at a major support/resistance level with a clear reversal candle.
• A setup: Extreme sentiment reading with a moderate reversal candle.
• B setup: Near-extreme sentiment reading.
• C setup: Trading in the direction of the extreme sentiment.

Market Selection Criteria

• Instrument can be any major forex pair.
• Requires a clear sentiment indicator.
• Volatility can be high.

Statistical Edge Metrics

• Expected win rate is 30%.
• Average win is 10R.
• Average loss is 1R.
• Profit factor is 3.0.
• Expectancy per trade is +2.0R.

Failure Conditions

• Strategy fails when the trend continues despite the extreme sentiment reading.
• Avoid trading in a very strong, fundamentally-driven trend.

Psychological Rules

• Be a contrarian and be comfortable trading against the crowd.
• Be prepared for a low win rate but very large winning trades.

Advanced Components

• A sentiment indicator is the key advanced component.
• No other filters are used.
• Multi-timeframe alignment with the weekly and monthly charts is helpful.

Location

• Strongest at major market tops and bottoms.
• Weakest in the middle of a trend.
• The extreme sentiment reading is the most important factor.