Smart Beta Intraday Application

Entry Logic

• Long entry: Identify a smart beta ETF (e.g., one focused on low volatility or quality) that is outperforming the broad market on a given day. Enter on a pullback to the 9 EMA on the 5-minute chart.
• Short entry: Not applicable (long-only).
• Confirmation: The smart beta ETF is above its VWAP.
• Timeframe: 5-minute chart.
• Location: Any.
• Market Condition: A market where the specific smart beta factor is in play.

Exit Logic

• Profit Target: 2R or the end of the day.
• Scaling Out: Not recommended.
• Trailing Stop: Trail a stop below the 20 EMA on the 5-minute chart.
• Signal Failure: If the ETF starts to underperform the market.
• Opposite Signal: Not applicable.
• Time Expiration: Exit by the end of the day.
• Momentum Loss: If the trend stalls.

Stop Loss Structure

• Hard Stop: A 1.5% stop loss.
• Soft Stop: A close below VWAP.
• Max Dollar Loss: $150 per trade.
• Max Percent Loss: 0.75% of account.
• Structural Stop: Below a recent swing low.

Risk Management Framework

• Risk Per Trade: 0.75% of account.
• Daily Limit: 2 losing trades.
• Weekly Limit: 4% drawdown.
• Max Drawdown: 8%.
• R:R Requirement: Minimum 2:1.

Position Sizing Model

• Sizing Approach: Fixed fractional.
• Volatility Adjustment: Not a primary concern.
• Conviction Sizing: Not recommended.
• Scaling In: Not recommended.
• Scaling Out: Not recommended.

Trade Filtering

• Market Conditions: A market where the specific factor is being rewarded.
• Setups: The ETF must be clearly outperforming the S&P 500.
• Instruments: Smart beta ETFs (USMV, QUAL, etc.).
• Time Restrictions: Any.
• Chop/News Avoidance: Not a concern.

Context Framework

• Trend Direction: The strategy follows the intraday trend of the ETF.
• VWAP Relationship: The ETF should be trading above VWAP.
• MA Relationship: The 9 and 20 EMAs are used for entry and trailing stops.
• Range Location: Not applicable.
• Higher TF Alignment: Not required.

Trade Management Rules

• Breakeven: Move stop to breakeven at 1.5R.
• Scale Out: Not recommended.
• Add Size: Not recommended.
• Fast vs Slow Moves: Let the trend run.

Time Rules

• Optimal Window: Any.
• Times to Avoid: The first 15 minutes of the open.
• Session Notes: A way to play a specific market theme intraday.

Setup Classification

• A+ Setup: A smart beta ETF is the clear leader of the day.
• A Setup: The ETF is showing good outperformance.
• B Setup: The outperformance is weak or inconsistent.
• C Setup: The ETF is underperforming.

Market Selection Criteria

• Instruments: The most liquid smart beta ETFs.
• Volume: High.
• Volatility: Moderate.

Statistical Edge Metrics

• Win Rate: 55%.
• Avg Win: 2R.
• Avg Loss: 1R.
• Profit Factor: 1.1.
• Expectancy: 0.1R per trade.

Failure Conditions

• Market Conditions: A market with no clear theme.
• Specific Scenarios: The factor that was in favor in the morning reverses in the afternoon.

Psychological Rules

• Mental Discipline: Requires the ability to identify the market's daily theme.

Advanced Components

• Regime Detection: Not needed.
• Filters: Use a relative strength indicator to compare the ETF to the broad market.
• Correlation: Not a concern.
• MTF Alignment: Not required.

Location

• Strongest: When a specific investment factor is clearly in play.
• Weakest: In a directionless, themeless market.