This document explains a trading methodology, its validation path, and its risk framework. It can be understood without any software background. The method asks six questions before any trade: What is the structure? Where is price? Is momentum expanding or fading? At what level does the signal occur? What invalidates the idea? How much may be lost?
Strategy positioningClick / 点击放大
The objective is not to predict more often. It is to reduce ambiguous decisions: identify structure, locate price, wait for confirmation, define risk, then manage the outcome.
Forming setups are observed; confirmed setups may be evaluated.
Position size is derived from the invalidation distance and risk budget.
3. Structure hierarchy
Structure hierarchyClick / 点击放大
Price is organized from raw bars into merged bars, fractals, strokes, segments, centers, trend types, divergence, and buy/sell points. Each layer builds on the previous layer. A signal may consume structure, but it must never redefine structure merely to create a trade.
4. Multi-timeframe entry
Multi-timeframe entryClick / 点击放大
The higher level defines the environment and direction. The trading level identifies the center, departure, pullback, and setup type. The lower level confirms the actual timing. A trade must have an explicit invalidation point and a reasonable structural target of at least 3R.
One R is the planned loss between entry and structural stop. If the next realistic target offers less than 3R, the correct response is to wait, improve the entry, reduce risk, or pass.
5. Roles of the three buy and sell points
Three buy/sell-point rolesClick / 点击放大
The first buy discovers a possible reversal after a declining move shows divergence. It is early and therefore uses smaller risk. The second buy confirms that the first move was more than a temporary bounce. The third buy follows an established departure from a center after a lower-level pullback remains above ZG.
The diagram uses the long side as the example. Points 2–5 form the first three strokes: ZG is set by point 2 and ZD by point 5. A pullback that re-enters the center invalidates the third-buy condition; sell points are judged by the vertically mirrored structure.
6. Strategy portfolio
Strategy portfolioClick / 点击放大
The core strategy is third-buy and third-sell trend following. The secondary strategy uses a small first-buy or first-sell probe and adds only after a valid second buy or second sell. Trading inside a center is treated as a separate research strategy because noise is higher and the center may extend or break.
7. Signal lifecycle
Signal lifecycleClick / 点击放大
A setup moves through observation, formation, confirmation, execution, position management, and closure. A forming setup is preparation, not a prediction. Even a confirmed setup must pass level alignment, location, minimum 3R, and portfolio-risk checks.
The trade record should include direction, level, setup type, supporting structure, invalidation, planned risk, target in R, and actual execution.
8. Five entry gates
Five entry gatesClick / 点击放大
The five gates are reliable market data, higher-level permission, valid structural location, lower-level confirmation, and a minimum 3R target. If one gate fails, there is no trade.
9. Structural stop loss
Structural stopsClick / 点击放大
A stop is placed where the thesis becomes wrong, not at an arbitrary percentage. The diagram uses long trades as examples: a first buy fails below its divergence low; a second buy has a local invalidation at the pullback low and a broader invalidation below the first-buy low; a third buy fails when its pullback breaks or price re-enters the center. Short-side stops are vertically symmetric.
10. Profit and position management
Profit managementClick / 点击放大
The plan starts with a target of at least 3R, but exits remain structure-led. Around 1R, risk is reviewed rather than mechanically closed. Partial profits may be taken at prior highs, center boundaries, or higher-level targets. A remaining runner follows confirmed structural lows or highs.
11. Position sizing and risk
Risk budgetClick / 点击放大
Conservative starting guardrails are approximately 0.5% risk per ordinary trade, a 1% cap for the strongest setups, about 2% total open risk, and a halt on new trades after a daily loss of two risk units. Correlated positions must be treated as one risk cluster.
Position size equals account equity multiplied by the risk percentage, divided by the loss per unit at the structural stop.
Why these percentages are used
Limiting risk on a single trade to no more than 2% of account equity is a common risk framework. The 2% figure is not a precise scientific threshold and may be tightened or relaxed according to the trader's risk tolerance;
Position size must be determined jointly by the logical stop location and the proportion of account equity the trader is willing to risk. Ordinary trades are set at approximately 0.5%, while the highest-quality setups are capped at 1%, because the strategy must still pass out-of-sample testing, paper trading, and small-risk live validation;
On a declining-equity basis, ten consecutive full-stop losses produce a cumulative drawdown of approximately 4.9% at 0.5% risk per trade and approximately 9.6% at 1% risk per trade. The 0.5% level provides greater resilience during losing streaks, while 1% is reserved as the upper limit for high-quality setups;
Approximately 2% total planned risk is the initial portfolio-level ceiling. It prevents several apparently diversified but highly correlated instruments from creating the same underlying market exposure. Because this is risk estimated from planned stops, gaps, slippage, deteriorating liquidity, and leverage may still cause actual losses to exceed the plan.
Therefore, 0.5% / 1% / 2% should be treated as parameters to be validated. They should later be adjusted according to the maximum losing streak, maximum drawdown, instrument correlation, gaps and slippage, account size, and observed execution error, rather than being permanently fixed by a single rule of thumb.
12. Improving trade quality
Quality filtersClick / 点击放大
Quality improves by removing weak trades: prioritize third buys and sells, avoid the middle of a center, align levels, use lower-level timing, execute confirmed setups, require reliable data and liquidity, demand at least 3R, separate market regimes, validate out of sample, and measure execution discipline.
Expectancy matters more than win rate alone: expectancy equals win rate times average win, minus loss rate times average loss.
13. Review and validation
Validation pathClick / 点击放大
The validation path is visual explanation, bar-by-bar replay, historical backtest, out-of-sample validation, paper trading, and finally small-risk live execution. When evidence disagrees with the method, return to definitions and examples rather than optimizing the historical curve.
14. Project and tooling support
Project supportClick / 点击放大
The project is converting the methodology into reliable data, visible structure, explainable reasoning, replayable decisions, and verifiable results. Current emphasis is foundational structure, visual verification, and data reliability. Signal, multi-level, backtest, and risk-execution capabilities follow only after the structure is stable.
Tools support the method; implementation convenience must not redefine the trading theory.
15. Summary
Strategy summaryClick / 点击放大
The higher level defines direction, the trading level defines location, and the lower level defines timing. First buys and sells discover, second buys and sells confirm, and third buys and sells follow. Third buys and sells are the core strategy. Stops are structural, position size is risk-derived, and normal opportunities begin with a minimum 3R target.
Do not try to predict every fluctuation. Wait for opportunities with clear structure, valid location, aligned levels, explicit invalidation, at least 3R of realistic reward, and sufficient portfolio risk capacity.