Recency Bias Fade

Entry Logic

• Entry trigger: Fade a move that is based on a recent, high-profile news event.
• Confirmation: The move stalls and begins to reverse.
• Timeframe: 60-minute chart.
• Location: At a key support or resistance level.
• Market condition: The market is overreacting to news.

Exit Logic

• Profit target: A 50% retracement of the news-driven move.
• Scaling out: Not recommended.
• Trailing stop: Use a 20-period EMA on the 60-minute chart.
• Signal failure: Exit if the move resumes in the direction of the news.
• Opposite signal: Not applicable.
• Time expiration: Exit if the trade is not profitable within 24 hours.
• Momentum loss: Not applicable.

Stop Loss Structure

• Hard stop: Beyond the extreme of the news-driven move.
• Soft stop: None.
• Max dollar loss: $400 per trade.
• Max percent loss: 0.8% of account.
• Structural stop: Beyond a key support or resistance level.

Risk Management Framework

• Risk per trade: 0.4% of account.
• Daily limit: 3 losing trades.
• Weekly limit: 5% drawdown.
• Max drawdown: 12%.
• R:R requirement: Minimum 2:1.

Position Sizing Model

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

Trade Filtering

• Market conditions: Avoid trading during major market-moving news.
• Setups: Look for overreactions to earnings reports or other company-specific news.
• Instruments: Large-cap stocks.
• Time restrictions: Trade in the session following the news release.
• Chop/news avoidance: This strategy is based on news.

Context Framework

• Trend direction: Counter-trend.
• VWAP relationship: The move is far from VWAP.
• MA relationship: The move is far from the 20 and 50 EMAs.
• Range location: The move has broken out of a recent range.
• Higher TF alignment: Higher timeframe charts show 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 quick fade.

Time Rules

• Optimal window: The day after a major news release.
• Times to avoid: The day of the news release.
• Session notes: Look for morning gaps that fade.

Setup Classification

• A+ setup: Massive overreaction to news, reversal at a key level.
• A setup: Overreaction to news, reversal.
• B setup: Mild reaction to news.
• C setup: Avoid.

Market Selection Criteria

• Instruments: Stocks with high options volume.
• Volume: High relative volume.
• Volatility: High.

Statistical Edge Metrics

• Win rate: 50-60%.
• Avg win: 2R.
• Avg loss: 1R.
• Profit factor: 1.0 - 1.2.
• Expectancy: Positive.

Failure Conditions

• Strategy fails if the news is truly game-changing for the company.
• Avoid fading news that is confirmed by price action.

Psychological Rules

• Requires the ability to fade the initial reaction.
• Must be able to distinguish between an overreaction and a real trend change.

Advanced Components

• Regime detection: Not applicable.
• Filters: Filter for stocks with high implied volatility.
• Correlation: Not applicable.
• MTF alignment: Not applicable.

Location

• Strongest: After an earnings report.
• Weakest: During a major market trend.