Contrarian Sentiment Trade

Entry Logic

• Entry trigger: Take a position opposite to extreme sentiment readings.
• Confirmation: A reversal pattern on the daily chart.
• Timeframe: Daily chart for entry, weekly for context.
• Location: At a major support or resistance level.
• Market condition: Extreme fear or greed.

Exit Logic

• Profit target: The 50% retracement of the prior move.
• Scaling out: Not recommended.
• Trailing stop: Use a 20-period moving average on the daily chart.
• Signal failure: Exit if the price continues to move in the direction of the extreme sentiment.
• Opposite signal: Exit if sentiment reverses to the other extreme.
• Time expiration: This is a swing trade, so no time expiration.
• Momentum loss: Not applicable.

Stop Loss Structure

• Hard stop: Below the low of the reversal pattern for longs, above the high for shorts.
• Soft stop: None.
• Max dollar loss: $1000 per trade.
• Max percent loss: 2% of account.
• Structural stop: Beyond a major support or resistance level.

Risk Management Framework

• Risk per trade: 1% of account.
• Daily limit: Not applicable (swing trade).
• Weekly limit: Not applicable (swing trade).
• Max drawdown: 20%.
• R:R requirement: Minimum 2:1.

Position Sizing Model

• Sizing approach: Fixed fractional.
• Volatility adjustment: None.
• Conviction sizing: All setups are treated equally.
• Scaling in: Not recommended.
• Scaling out: Not recommended.

Trade Filtering

• Market conditions: Only trade when sentiment is at an extreme.
• Setups: Look for clear reversal patterns.
• Instruments: Any liquid instrument.
• Time restrictions: Not applicable.
• Chop/news avoidance: Be aware of major news events that could impact the trade.

Context Framework

• Trend direction: Counter-trend.
• VWAP relationship: Not applicable.
• MA relationship: Price is far from the 200-day moving average.
• Range location: At the extremes of a multi-month range.
• Higher TF alignment: Weekly chart shows overbought or oversold conditions.

Trade Management Rules

• Breakeven: Move stop to breakeven after a 1R move.
• Scale out: Not recommended.
• Add size: Not recommended.
• Fast vs slow moves: Expect a multi-day move.

Time Rules

• Optimal window: Not applicable.
• Times to avoid: Not applicable.
• Session notes: Not applicable.

Setup Classification

• A+ setup: Extreme sentiment, clear reversal pattern, at a major support/resistance level.
• A setup: Extreme sentiment, clear reversal pattern.
• B setup: Extreme sentiment, no clear reversal pattern.
• C setup: Avoid.

Market Selection Criteria

• Instruments: Any liquid instrument.
• Volume: High liquidity.
• Volatility: Moderate to high.

Statistical Edge Metrics

• Win rate: 30-40%.
• Avg win: 4R.
• Avg loss: 1R.
• Profit factor: 1.2 - 1.6.
• Expectancy: Positive.

Failure Conditions

• Strategy fails when the trend continues despite extreme sentiment.
• Avoid during black swan events.

Psychological Rules

• Requires a strong stomach to go against the crowd.
• Must be patient and wait for the setup.

Advanced Components

• Regime detection: Use a sentiment indicator (e.g., Put/Call ratio) to identify extremes.
• Filters: None.
• Correlation: Be aware of market correlations.
• MTF alignment: Weekly chart should confirm the overbought/oversold condition.

Location

• Strongest: At major historical support and resistance levels.
• Weakest: In the middle of a trend.