Lunch Hour Range Trade

Entry Logic

• Entry trigger: Price touches the upper or lower boundary of a well-defined range.
• Confirmation: A reversal candle at the range boundary.
• Timeframe: 5-minute chart.
• Location context: Trade within a clearly defined horizontal range.
• Market condition: A quiet, low-volume market during the lunch hour.

Exit Logic

• Profit target: The opposite side of the range.
• Scaling out: Not recommended.
• Trailing stop: Not used.
• Signal failure exit: Exit if the price breaks out of the range.
• Opposite signal exit: Not applicable.
• Time expiration: Exit if the target is not hit by 2:00 PM EST.
• Momentum loss: Exit if the price stalls in the middle of the range.

Stop Loss Structure

• Hard stop: Just outside the range.
• Soft stop: Not used.
• Max dollar loss: $80 per trade.
• Max percent loss: 0.4% of account.
• Structural stop: Beyond the nearest swing high/low outside the range.

Risk Management Framework

• Risk per trade: 0.4% of account.
• Daily limit: 3 losing trades.
• Weekly limit: 4% drawdown.
• Max drawdown: 12%.
• R:R requirement: Minimum 2:1.

Position Sizing Model

• Sizing approach: Risk-based.
• Volatility adjustment: Not needed in a range-bound market.
• Conviction sizing: Not applicable.
• Scaling in/out: No scaling.

Trade Filtering

• Market conditions: Only trade in a clear range-bound market.
• Setups: Only trade at the boundaries of the range.
• Instruments: Non-volatile stocks.
• Time restrictions: Entry between 12:00 PM and 1:00 PM EST.
• Chop/news avoidance: Avoid on days with afternoon news.

Context Framework

• Trend direction: Non-trending market.
• VWAP relationship: Price will likely oscillate around VWAP.
• Moving average relationship: Moving averages will be flat and intertwined.
• Range location: Trade from the edges of the range.
• Higher TF alignment: The 60-minute chart should also be in a range.

Trade Management Rules

• Breakeven: Not applicable.
• Scale out: Not applicable.
• Add size: Not applicable.
• Fast vs slow moves: This is a slow trade.

Time Rules

• Optimal trading window: 12:00 PM - 1:00 PM EST.
• Times to avoid: Any other time.
• Session notes: This is a high-probability, low-reward strategy.

Setup Classification

• A+ criteria: A perfect, well-defined range with multiple touches.
• A criteria: A clear range with at least two touches on each side.
• B criteria: A developing range.
• C criteria: No clear range (avoid).

Market Selection Criteria

• Instruments: Utility stocks, consumer staples.
• Volume: Low volume is expected.
• Volatility: Low volatility is required.

Statistical Edge Metrics

• Win rate: 70%.
• Avg win: 1R.
• Avg loss: 1R.
• Profit factor: 0.7.
• Expectancy: -0.3R per trade.

Failure Conditions

• Fails if the market breaks out of the range unexpectedly.
• Avoid on days with underlying volatility.

Psychological Rules

• Requires extreme patience.
• Must be disciplined to only trade at the edges of the range.

Advanced Components

• Regime detection: Use a range-detection indicator.
• Filters: Filter trades based on the width of the range.
• Correlation: Be aware of sector-wide moves.
• MTF alignment: The 60-minute and daily charts should confirm the range-bound conditions.

Location

• Strongest: In a quiet, summer market.
• Weakest: During earnings season or on FOMC days.