Breakout + Options Flow Confirmation

Entry Logic

• Long entry: Price breaks out of a well-defined range or consolidation pattern. Entry on the close of the breakout candle.
• Short entry: Price breaks down from a well-defined range or consolidation pattern. Entry on the close of the breakdown candle.
• Confirmation: Unusually high call option volume for long entries, or high put option volume for short entries.
• Timeframe: 1-hour chart for the pattern, 5-minute chart for entry.
• Location: Breakout from a multi-day or multi-week consolidation.
• Market Condition: Volatile market.

Exit Logic

• Profit Target: Measured move of the consolidation pattern or 3R.
• Scaling Out: Scale out 50% at 2R.
• Trailing Stop: Trail stop below the 20-period EMA on the 5-minute chart.
• Signal Failure: Exit if the breakout fails and price re-enters the consolidation.
• Opposite Signal: Exit on a valid opposite signal.
• Time Expiration: Exit if the trade is not profitable within the same day.
• Momentum Loss: Exit if volume dries up after the breakout.

Stop Loss Structure

• Hard Stop: Below the midpoint of the consolidation pattern for longs, above for shorts.
• Soft Stop: A close back inside the consolidation pattern.
• Max Dollar Loss: $250 per trade.
• Max Percent Loss: 1.25% of account.
• Structural Stop: Below the low of the consolidation pattern for longs, above the high for shorts.

Risk Management Framework

• Risk Per Trade: 1.25% of account.
• Daily Limit: 1 losing trade.
• Weekly Limit: 3% drawdown.
• Max Drawdown: 6%.
• R:R Requirement: Minimum 3:1.

Position Sizing Model

• Sizing Approach: Fixed fractional, 1.25% of account at risk.
• Volatility Adjustment: Use a smaller position size for highly volatile stocks.
• Conviction Sizing: A+ setups get 1.5% risk, B setups get 0.75%.
• Scaling In: Not recommended.
• Scaling Out: Scale out 50% at 2R.

Trade Filtering

• Market Conditions: Avoid low-volatility markets.
• Setups: Only take breakouts with clear options flow confirmation.
• Instruments: High-beta stocks with liquid options.
• Time Restrictions: No trading in the last hour of the session.
• Chop/News Avoidance: Avoid trading around earnings announcements.

Context Framework

• Trend Direction: Trade in the direction of the daily trend.
• VWAP Relationship: Breakouts above VWAP are stronger for longs, below for shorts.
• MA Relationship: Price should be on the correct side of the 50 SMA on the daily chart.
• Range Location: Breakout from a well-defined range.
• Higher TF Alignment: The daily chart should support the breakout direction.

Trade Management Rules

• Breakeven: Move stop to breakeven after 2R of profit.
• Scale Out: Scale out 50% at 2R.
• Add Size: Not recommended.
• Fast vs Slow Moves: Let fast moves run.

Time Rules

• Optimal Window: First 2 hours of the session.
• Times to Avoid: Last hour of the session.
• Session Notes: Best during earnings season.

Setup Classification

• A+ Setup: Clean breakout from a long consolidation, strong options flow confirmation, and higher timeframe alignment.
• A Setup: Good breakout, decent options flow.
• B Setup: Messy breakout or weak options flow.
• C Setup: No clear breakout or options flow confirmation.

Market Selection Criteria

• Instruments: TSLA, AAPL, AMZN, and other high-beta stocks.
• Volume: Minimum 5 million shares traded daily.
• Volatility: High ATR is preferred.

Statistical Edge Metrics

• Win Rate: 40%.
• Avg Win: 4R.
• Avg Loss: 1R.
• Profit Factor: 1.6.
• Expectancy: 0.6R per trade.

Failure Conditions

• Market Conditions: Fails in choppy, range-bound markets.
• Specific Scenarios: Fails when the options flow is misleading (e.g., hedging activity).

Psychological Rules

• Mental Discipline: Must be able to handle the lower win rate and not get discouraged.

Advanced Components

• Regime Detection: Use the VIX to determine the overall market volatility.
• Filters: Filter out trades where the options volume is below a certain threshold.
• Correlation: Avoid taking trades on highly correlated stocks at the same time.
• MTF Alignment: Daily and weekly charts should support the breakout.

Location

• Strongest: After a long period of consolidation.
• Weakest: In a choppy, trendless market.