Anchoring Bias Exploitation

Entry Logic

• Entry trigger: Buy a stock that has sold off sharply but is now showing signs of bottoming.
• Confirmation: A bullish reversal pattern on the daily chart.
• Timeframe: Daily chart.
• Location: At a price that is significantly lower than the 52-week high.
• Market condition: The stock has been out of favor.

Exit Logic

• Profit target: A 50% retracement of the sell-off.
• Scaling out: Not recommended.
• Trailing stop: Use a 50-day moving average.
• Signal failure: Exit if the stock makes a new low.
• Opposite signal: Not applicable.
• Time expiration: This is a swing trade.
• Momentum loss: Not applicable.

Stop Loss Structure

• Hard stop: Below the low of the reversal pattern.
• Soft stop: None.
• Max dollar loss: $500 per trade.
• Max percent loss: 1% of account.
• Structural stop: Below a major support level.

Risk Management Framework

• Risk per trade: 0.5% of account.
• Daily limit: Not applicable.
• Weekly limit: Not applicable.
• Max drawdown: 15%.
• R:R requirement: Minimum 3:1.

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: Avoid stocks in a strong downtrend.
• Setups: Look for stocks that have been unfairly punished.
• Instruments: Large-cap, value stocks.
• Time restrictions: Not applicable.
• Chop/news avoidance: Be aware of any news that could impact the stock.

Context Framework

• Trend direction: Counter-trend.
• VWAP relationship: Not applicable.
• MA relationship: Price is far below the 200-day moving average.
• Range location: At the lows of a multi-year range.
• Higher TF alignment: Weekly chart shows 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 slow and steady recovery.

Time Rules

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

Setup Classification

• A+ setup: Deeply oversold stock, bullish reversal pattern, positive news catalyst.
• A setup: Deeply oversold stock, bullish reversal pattern.
• B setup: Deeply oversold stock, no reversal pattern.
• C setup: Avoid.

Market Selection Criteria

• Instruments: Stocks with a low P/E ratio.
• Volume: High liquidity.
• Volatility: Moderate.

Statistical Edge Metrics

• Win rate: 40-50%.
• Avg win: 3R.
• Avg loss: 1R.
• Profit factor: 1.2 - 1.5.
• Expectancy: Positive.

Failure Conditions

• Strategy fails if the stock continues to sell off.
• Avoid stocks with fundamental problems.

Psychological Rules

• Requires the ability to buy stocks that are out of favor.
• Must be patient and willing to hold for a long time.

Advanced Components

• Regime detection: Use a value screen to find potential candidates.
• Filters: Filter for stocks with a strong balance sheet.
• Correlation: Not applicable.
• MTF alignment: Not applicable.

Location

• Strongest: After a market correction.
• Weakest: During a bull market.