Pre-Market Level Identification

Entry Logic

• Entry trigger: Price interacts with a key pre-market support or resistance level.
• Confirmation: A bullish or bearish engulfing candle on the 5-minute chart at the level.
• Timeframe: 15-minute for level identification, 5-minute for entry.
• Location context: Entry at a level that has been tested at least twice in the pre-market session.
• Market condition: Ranging or trending market, but not excessively volatile.

Exit Logic

• Profit target: The next significant pre-market level.
• Scaling out: Not recommended; exit the full position at the target.
• Trailing stop: A manual trail bar-by-bar on the 5-minute chart.
• Signal failure exit: Exit if the entry-level breaks by more than 10 cents.
• Opposite signal exit: Exit if a strong opposing signal forms at the level.
• Time expiration: Exit if the trade is not profitable within 60 minutes.
• Momentum loss: Exit if price stalls at the entry level for more than 3 candles.

Stop Loss Structure

• Hard stop: 20 cents below the entry-level for longs, 20 cents above for shorts.
• Soft stop: A close below the low of the entry candle.
• Max dollar loss: $400 per trade.
• Max percent loss: 0.8% of account capital.
• Structural stop: Below the most recent swing low for longs, above the swing high for shorts.

Risk Management Framework

• Risk per trade: 0.4% of account equity.
• Maximum daily loss limit: 1.6% of account equity.
• Maximum weekly loss limit: 4% of account equity.
• Maximum drawdown: 12% from peak equity.
• Risk-reward ratio: Minimum 2.5:1 required.

Position Sizing Model

• Sizing approach: Risk-based position sizing.
• Volatility adjustment: Adjust size based on the distance to the stop loss.
• Conviction sizing: Full size for A+ setups, half size for A setups.
• Scaling in: Add to the position if it moves 0.5R in favor and retests the entry level.
• Scaling out: Not applicable.

Trade Filtering

• Market conditions to avoid: Extremely volatile markets or low-liquidity pre-market sessions.
• Specific setups required: A well-defined pre-market level with multiple tests.
• Stock/instrument requirements: High-volume stocks with clear pre-market activity.
• Time of day restrictions: Trade only between 8:00 AM and 9:15 AM ET.
• Chop/news avoidance: Avoid trading around major economic data releases.

Context Framework

• Trend direction: Trade with the dominant trend on the 60-minute chart.
• VWAP relationship: Price should be bouncing off VWAP for longs, or rejecting it for shorts.
• Moving average relationship: The 50-period SMA on the 15-minute chart should act as support/resistance.
• Range location: Trade at the boundaries of the pre-market range.
• Higher TF alignment: The daily chart should show a clear area of support or resistance at the trade location.

Trade Management Rules

• Breakeven: Move stop to breakeven after a 1.5R move.
• Scale out: Not applicable.
• Add size: On a successful retest of the entry level.
• Fast vs slow moves: Let profits run on fast moves, but be quick to take profits on slow grinds.

Time Rules

• Optimal window: 8:30 AM to 9:15 AM ET.
• Times to avoid: The first 30 minutes of the pre-market session (before 8:00 AM ET).
• Session notes: This strategy is most effective during earnings season.

Setup Classification

• A+ criteria: A very clean level with multiple touches and a strong confirmation candle.
• A criteria: A good level with at least two touches and a decent confirmation candle.
• B criteria: A less-defined level or a weak confirmation candle.
• C criteria: Avoid all other setups.

Market Selection Criteria

• Instrument requirements: NASDAQ and NYSE stocks.
• Volume/liquidity: Minimum 50k shares traded in the pre-market session.
• Volatility: Moderate volatility is ideal.

Statistical Edge Metrics

• Win rate: 60%.
• Avg win: 2.0R.
• Avg loss: 1R.
• Profit factor: 1.2.
• Expectancy: 0.2R per trade.

Failure Conditions

• The strategy fails when pre-market levels are not respected at the open.
• Avoid when there is a major news catalyst that overrides technical levels.

Psychological Rules

• Patience is key; wait for the price to come to your level.
• Do not force trades if the setup is not perfect.

Advanced Components

• Regime detection: Use the TRIN to gauge market sentiment.
• Filters: Filter for stocks in play, i.e., those with a recent news catalyst.
• Correlation: Be aware of how the overall market is behaving (e.g., SPY, QQQ).
• MTF alignment: The trade should be in the same direction as the 4-hour chart trend.

Location

• Strongest: In stocks with a history of respecting technical levels.
• Weakest: In low-float, highly speculative stocks.