Matt (Trading Equilibrium)¶

Matt's Core Strategy¶

Setup Criteria¶

Risk Management¶

Gap Handling¶

The Complete Trend Trading Framework¶

Core Philosophy¶

Environment > Setup

Reaction > Prediction

Risk Management Framework¶

Position Sizing¶

BPS = Basis Points of Total Account Value

Total Open Risk¶

How It Works: - Only add new risk when existing positions move to breakeven or partial profits taken - Prevents compounding losses across multiple positions - Ensures you can't blow up the account even if all open positions hit stops

Over-Allocation Rule¶

Why: - Reduces gap exposure risk - Limits outsized drawdowns from single position - Forces diversification across multiple themes

Stop Loss Placement¶

Stop Placement Philosophy¶

NOT Fixed Percentage - Stops should be placed at logical levels:

Stop Distance Dynamics¶

Trading Vehicle Filter¶

Minimum Requirements:

Price > $10
Avg. 30-Day Volume > 750,000 shares

Why: - Avoids penny stock manipulation - Ensures sufficient liquidity for entries/exits - Attracts institutional participation

Environment Analysis (The MOST Important Factor)¶

The Key Ingredient: Follow Through¶

Follow Through = Environment

Without follow through, we cannot make progress holding positions overnight (becomes a daytrader's market).

Identifying a Conducive Environment¶

✅ Demonstrable Follow Through via Price Action:

• Successful breakouts that hold and extend
• Supported pullbacks (charts push higher from support)
• Respect of key moving averages
• Pushing through previous highs or daily trading ranges

Identifying a Non-Conducive Environment¶

❌ Four Warning Signs of Weak Environment:

Setups: The "Easy" Part¶

Three Main Entry Categories¶

1. Breakouts¶

Simple horizontal pivot / base breakouts

graph LR
    A[Consolidation<br/>Range Contraction] --> B[Breakout Above<br/>Resistance]
    B --> C[Entry on Break]

• Clean horizontal resistance level
• Volume expansion on break
• Preferably after extended consolidation

2. Pullbacks¶

Trending stocks finding support

• Support on key horizontal levels
• Support on key SMAs (9/20/50)
• Pushing through downtrend lines
• Retest of breakout level (backtest)

3. Failed Moves¶

Reversal patterns

• Double tops (failed breakout)
• Failed breakdowns (Undercut & Rally)
• Stop hunts below support that recover

Trading Execution Styles¶

IF X THEN Y Trading (Automated)¶

How It Works:

1. Pre-plan entry trigger and stop (night before or pre-market)
2. Set alerts or use limit orders
3. Trade triggers or it doesn't
4. No intraday decision-making required

Example:

IF NVDA breaks above $500 (yesterday's high)
THEN buy with stop at $495 (yesterday's low)

Opportunistic Trading (Discretionary)¶

How It Works:

• Based on same trend trading logic
• Cannot be pre-planned or automated
• Requires real-time judgment

Examples: - Stock opens at or just above key SMA → immediate entry - Stock pulls back to key SMA and bounces → entry on bounce confirmation - Failed breakdown → entry when it reclaims level

Trade Alignment: Swing vs Position¶

Swing Trade Alignment¶

Position Trade Alignment¶

Trade Management¶

Swing Trade Management¶

Objective: Capture the meat of short-term moves

1. Identify Target:
2. Based on resistance

3. Or measured move calculation

4. Sell Bulk INTO Strength:

5. Take partials as price approaches target

6. Don't wait for exact top

7. Raise Stops:

8. As partials taken, trail stop to recent higher low

9. Protect gains on remaining position

10. Strong Environment Adaptation:

11. Leave small partial to run on key SMA
12. Use SMA the stock has respected in past

Position Trade Management¶

Objective: Capture major trend moves

1. Hold Through Pullbacks:
2. Don't panic on normal retracements

3. Expect 5-10% pullbacks in uptrend

4. Soft Stop Strategy:

5. Use material close below key SMA

6. Not every touch - needs to lose the level

7. SMA Hierarchy:

8. 20 SMA for fast movers
9. 50 SMA for steady trends
10. Must be SMA stock has respected historically

Adjusting Tactics: Aggressive vs Defensive¶

Aggressive Tactics (Strong Environment)¶

Defensive Tactics (Weak Environment)¶

Getting Aggressive: The Only Two Ways¶

1. Sizing / Leverage¶

• Increase position size (within risk management rules)
• Use options for leverage
• ONLY in strong follow-through environment

2. Pressing Winners¶

• Add to winning positions
• Scale in as trade moves in your favor
• Average UP, not down

Key Insights¶

Price is King¶

Options Strategy¶

Learning Approach¶

Difficult Markets¶

Precious Metals & Commodities¶

Matt finds it difficult to trade in precious metals and energy market due to their choppy nature.

Stock Picks & Observations¶

VRT¶

Taking Partials¶

Taking partials at 1-1.5R and whether to enter a stock after it has already moved up a bit on the day:

Gap Risk Lesson¶

Matt's Daily Process¶

Textbook Setup Example (Aug 16, 2024)¶

Setup Elements¶

• Down trend line with more than 3 touches
• Close to one week but not quite yet
• Reduced volume

Later Update¶

Rate Cuts Impact¶

Questions to Ask Yourself¶

Before Trading¶

Think through before following your itchy trigger fingers - especially when you take trades when indices are down 4% and VIX at 0.

Self-Assessment Questions¶

• Are you chasing action?
• Are you thinking you want to involve in every move the market makes?
• Or are you following a consistent strategy?

Pre-Trade Checklist¶

Mindset¶

Mental Traps to Avoid¶

Mindset Principles¶

• Believe your strategy - If you don't believe it, you won't follow it
• Stay process-oriented - Control what you can control
• Embrace uncertainty - The market owes you nothing
• Manage emotions - Fear and greed will sabotage execution
• Stay patient - Wait for YOUR setups, not every move

Personalization: YOUR Journey¶

The Personalization Imperative¶

Key Points:

1. You Cannot Hide Your Personality
2. It WILL come out in your trading

3. This is not a weakness, it's reality

4. You Cannot Change Your Core

5. Condition yourself to adapt and improve

6. But embrace who you are fundamentally

7. Leverage Your Strengths

8. If you're patient → Position trading
9. If you're decisive → Opportunistic trading

10. If you're analytical → IF X THEN Y automation

11. Mitigate Your Weaknesses

12. Impulsive? → Pre-plan all trades
13. Emotional? → Reduce size, automate exits
14. FOMO-prone? → Strict watchlist discipline

Areas to Personalize¶

Simple Truths (Matt's Core Principles)¶

Price Action Truths¶

• Nothing goes straight up or straight down
• Expect pullbacks in uptrends
• Expect bounces in downtrends

• Plan for both

• It either works or it doesn't

• No need for complex explanations
• If setup fails, exit and move on

• Don't fight price

• You will lose every single argument you have with price

• Price is the ultimate judge
• Your opinion doesn't matter
• Respect what IS, not what "should be"

Strategy Truths¶

• Know your dance partner
• Trade stocks you understand
• Familiarity breeds better decisions

• Don't chase exotic names

• There is no free lunch

• Higher returns = higher risk
• Shortcuts don't exist
• Put in the work

Priority Truths¶

• Environment > Setup
• Best setup in bad environment = Poor results
• Mediocre setup in good environment = Good results

• Focus on WHEN you trade, not just WHAT

• Reaction > Prediction

• Respond to what price does
• Don't predict what it will do
• Trade confirmed moves, not forecasts

Integration with Your Strategy¶

How Matt's Framework Fits Your Indicators¶

Workflow Integration¶

graph TD
    A[Matt's Daily Video] --> B{Environment Analysis}
    B -->|Strong| C[Run Aggressive Scan]
    B -->|Weak| D[Run Defensive Scan]
    C --> E[Check LNRSI Quad-Lock]
    D --> E
    E --> F[Apply Matt's Setup Criteria]
    F --> G[Execute with Your Indicators]
    G --> H[Manage per Environment]

Quick Reference Guide¶

Pre-Trade Checklist (Matt's Questions)¶

• Do I have a consistent strategy?
• Do I understand my strategy?
• Is this a setup? What's the basis?
• Does taking this trade make sense?
• What am I looking for to happen?
• Is it worth opening risk now?
• Is it worth my time?

Risk Management Checklist¶

• Position size appropriate for environment?
• Stop placed at logical level?
• Total open risk under limit?
• No single position > 25% of account?
• Exit plan defined?

Environment Assessment¶

• Are breakouts holding?
• Are pullbacks finding support?
• Are there material gaps in both directions?
• Are there 1%+ intraday reversals?
• Is mid-term trend clear?
• Is action technical or news-driven?

Resources¶

Official Framework Document¶

📄 Trading Equilibrium Framework PDF: matt-trading-equilibrium-framework.pdf

Related Documentation¶

• Your Scanning Criteria - Implements Matt's filters
• Trading Quotes - Matt's wisdom compiled
• Entry Rules - Incorporates Matt's setup logic
• Exit Rules - Based on Matt's management style

Notes¶