The Momentum Breakout Target System generates Macro Targets which are going to be HIGH PROBABILITY fill zones for an exit based on current Market Internals/Conditions. You can incorporate these targets into your Trade Management and Profit Taking strategies.
How To Incorporate The System Macro Targets Into Your Trading
The basic concept of the Momentum Breakout system is that it detects breakout zones where price can BREAK INTO the Free and Clear and RUN toward the next price obstacle in its path. The System Macro Targets are calculated to be HIGH PROBABILITY FILL zones before price gets to the next obstacle in it’s path which may halt further price movement in that direction.
There are various potential outcomes and scenarios when trading the Momentum Target System.
(1.) An Alert is issued after price breaks out of the Range, but there is no 1-minute close past the Trade Barrier (Alert Price).
So there is “no fill”. If the price reverses direction and breaks out of the opposite side of the Range a new Alert may be issued in the opposite direction. Sometimes an Alert that doesn’t fill will “go away” if the price moves far enough in the opposite direction, then that same alert can appear again. Remember that the Entry Trigger is a 1-minute closing price bar / candle past the Alert price when you see an active alert. When there’s no active alert the software will show “System Hunting Trade Setup”.
(2.) Price does not make it to Target 1 – and instead hits the initial Trailing Stop.
When this occurs the system will “reset” and look for the next entry. It may still use the current market structure and display the same Alert – in which case we are taking a “2nd attempt” using the same parameters. Sometimes the market will blast off in one direction (trigger us into a trade) then reverses before hitting T1 – resulting in a full stop-out. Frequently when this happens we will see another Alert in the opposite direction that often goes on to hit the Targets.
(3.) Price hits Target 1 but never makes it to Target 2 before hitting the Trailing Stop.
The system is designed so that when the price hits Target 1, the Initial Stop will trail and put the trade at or near “virtual break-even” meaning that if the price reverses at that point, the trade will result in a small gain or loss – depending on the fill and ranges in the market at that time. So once Target 1 gets hit (roughly 75% of the time) the trade is essentially “in the clear”. (Sometimes the initial stop will “ratchet” just prior to T1 getting hit, which also helps prevent full stop-outs).
(4.) Price hits both Target 1 and Target 2.
By this time the Trailing Stop will have typically have ratcheted-up to right around the Entry level – meaning there’s no possibility of a loss on any remaining contracts – and you’ve already locked-in gains at both T1 and T2. Alerts that hit both Targets are considered a “big win” because Target 2 is generally a significant distance from the Entry.
(5.) Price hits Target 1 and 2 and continues to move in the direction of the Alert.
Once Target 2 is surpassed the Trailing Stop will continue to ratchet and attempt to stay in the move as long as possible. In this case if you are still holding a “runner” position simply follow the trailing stop or close the position shortly before the market close.
There will be cases where the Trailing Stop never gets hit during the market session. Sell any open positions before the market closes.
As you watch the System Alerts over a number of days and different types of market sessions you will see how the System generated macro targets act as PRICE MAGNETS and have a high degree of accuracy. Note: The System Macro Target Appears after a Trade Alert Is Sent Out and there’s a 1-minute close past the Trade Price Barrier. When the system resets the current Alert will disappear.
Here’s a simple overview
Different Ways to Trade the Momentum Target System
A Trader can incorporate the System Macro Targets in one of several ways. The entire position can be held and exited at either of the Macro Targets or you can incorporate a scaling-out trade configuration. One approach is to pull a partial position off at each of the 2 Targets and then you’re out – waiting for the next alert. Another approach would be to enter with 3 contracts and sell one at each of the first 2 Targets – adjusting your stop along with the Trailing Stop – and simply let the trade play out. The methodology you use can be varied from day to day depending on the day type we are experiencing and the level of “Trendieness” we are seeing in the market for that day.
A 2-contract trader could simply shoot for Target 1 and Target 2 and then call it a day when they (or the trailing stop) are hit. Target 1 and Target 2 are high-probability targets with a high degree of success in getting hit. By the time price makes it to Target 2 the trailing stop on any remaining contracts should be around the Entry, meaning there’s no possibility of a loss on any remaining contracts.
Remember, the BIG POINTS are scored on long-range days, when the market makes a significant directional move and you want to participate in that – so the idea is to scale your way up to holding additional contracts as “runners” once both Targets get hit. Long-range days are guaranteed to occur in the market, but the frequency and number will vary based on market conditions.
Understanding The Auto Trailing Stop
The System Auto Trailing stop is designed for RUNNERS and TREND MOVES. i.e. once a trade takes off past the Alert Price the trailing stop will kick in and attempt to maintain a wide enough distance to allow for normal price fluctuation without knocking us out of the trade only to watch the market eventually make the directional move we anticipated.
It is recommended you place an INITIAL protective HARD STOP based on the initial trailing stop – and adjust your stop as the Trailing Stop moves. Once price is able to make it to the 1st Target you will see the Trailing Stop tighten up. At any point in time you may wish to protect gains by using a tighter stop than the current trailing stop. Remember – the System Trailing Stop is designed to stay far enough away from the current price so that normal price fluctuation won’t knock us out of a trade – and we can stay in for the bigger trend moves.
Once the market starts trending in our favor we will see scenarios where the price will be bracketed in between one of the Targets and the Trailing Stop. i.e. the trade becomes a WIN/WIN … we will be taken out by one or the other.. either results in a profitable trade.
The Momentum Breakout System is designed to get us in on a Strong Trending Move – What we call a Trend Runner (significant point moves). Not every day will be a trending day, where price takes off in one direction and never looks back – but these days do occur frequently and that’s where the big money is made. As you follow the system over time you will see days where ES moves 20-50 points or more and it is possible to capture these type of moves by holding onto a position, even after the first 2 Targets are hit. These type of days will more than make up for “full stop out” days.
The success of any day will depend on the level of momentum in the market during the period we are actively trading it. On a super high momentum day… we may be able to both of the 2 Targets without breaking a sweat and then the price continues to move in our favor – resulting in a huge gain on any remaining contracts held past T2. Other days when there is little or no momentum it may be impossible to get any traction on our entries and we may suffer a full stop-out on our trade.
Understanding that the outcome of every trade depends entirely on the levels of Momentum (and that momentum can increase or decrease in the blink of an eye) will help you to become a better System Trader. Remember the job of the Momentum System is to alert us to the Breakout Areas based on a set of predefined criteria. That’s it. The follow-through and the success or failure of any given trade will be related to the strength of the Momentum in the market after we take our entry. (…as well as the degree of price volatility currently in the market.) We are “playing the odds”. The Momentum Target System wins over the cumulative series of trades even though we may experience periods of low momentum conditions that make trading tough and frustrating. (like a disgruntled surfer waiting for some good waves to come in.)
Dealing With A Non-Trending Market
A Strongly Trending market where price exhibits a lot of forward movement makes it is easier to capture larger point gains as price moves through the Targets with ease. An erratic Non-Trending market makes things more difficult as price has a hard time getting traction after escaping out of the Dynamic Trigger Range in any one direction. On these days price will fall back into the dynamic range as price fails to breakout and continues to revert back to the mean and fall back within the NO TRADE ZONE.
Be prepared to experience consecutive low range days where price is unable to break out and run to any degree. This is where trading smaller size, adjusting expectations for price targets getting hit, and not being too aggressive comes into play during low momentum market conditions.
Overview Of Price Impulse Move Scenarios
The market is constantly attempting to trend with various degrees of aggressiveness and with various degrees of follow-through. Over the series this will present us with 8 different general Daily Impulse Move Scenarios.
The important thing here is to be aware that the system performance on any given day will be subject to what the market gives us to work with The (general) Day Types described below are essentially just a function of market behavior and you just want to be aware how these day types will affect the performance of the system over any given market session.
Based on how the Momentum Breakout System is designed and calibrated, I have classified 8 different Impulse Move Scenarios which I have given basic names to easily recognize them. As you will see from the chart below, they break down into groups of two. The top scenarios will provide you with more point exposure than the bottom scenarios. Each of these scenarios will be described in detail below. Take some time to familiarize yourself which each one as you will experience these same general patterns over and over when following the ES Momentum Breakout System.
Price Impulse Move Scenario #1
The TL-1 Trend LONG day is a STRONG Uptrend Day that typically breaks early to the upside and doesn’t look back. A great majority of the time the market sees the opening price ONLY ONCE right at the open as price begins to trend higher. At the end of a TL-1 day you will see that your price started on the lower left corner of your chart and ended in the upper right corner of the chart like an escalator going up. If market action is relatively smooth and you get a good initial entry you can stay in a position for most of the session capturing large point gains – exiting just before the close. In this day type scenario you will see Momentum Breakout Alerts in only one direction for the day.
Price Impulse Move Scenario #2
The TL-2 Trend LONG day is a LESS-STRONG Uptrend Day that makes several attempts to trend higher with various degrees of success. On a TL-2 day we will see an Impulse Move that fails and drops price back into the early morning congestion and many times we see price cross back below the opening price. At some point we will see a 2nd Impulse Move to the upside with varying degrees of success. Depending on the size of each Price Impulse Move you may or may not be able to catch any substantial point gains. In this day type scenario you will see Momentum Breakout Alerts in only one direction for the day.
Price Impulse Move Scenario #3
The TS-1 day is STRONG Downtrend Day that typically breaks early to the downside and doesn’t look back. A great majority of the time the market sees the opening price ONLY ONCE right at the open as price begins to trend to the lower. At the end of a TS-1 day you will see that your price started on the upper left corner of your chart and ended in the lower right corner of the chart like an escalator going down. If market action is relatively smooth and you get a good initial entry, you can stay in a position for most of the session capturing large point gains – exiting just before the close. In this day type scenario you will see Momentum Breakout Alerts in only one direction for the day.
Price Impulse Move Scenario #4
The TS-2 Trend LONG day is a LESS-STRONG Downtrend Day that makes several attempts to trend lower with various degrees of success. On a TS-2 day we will see an Impulse Move that fails and retraces price back into the early morning congestion and many times we see price cross back above the opening price. At some point we will see a 2nd Impulse Move to the downside with varying degrees of success. Depending on the size of each Price Impulse Move you may or may not be able to catch any substantial point gains. In this day type scenario you will see Momentum Breakout Alerts in only one direction for the day.
Price Impulse Move Scenario #5
The TFR Day is a Trend Failure – Reversal Day. In a TFR Long/Short example we will see the market attempt an Impulse Move to the upside which will fail at some point and price will return to early morning congestion levels. At some point in the session market sentiment will shift BEARISH and market structure will set things up for an Impulse Move attempt to the downside. In this day type scenario you may see Momentum Breakout Alerts in both directions for the day.
Price Impulse Move Scenario #6
The TFR Day is a Trend Failure – Reversal Day. In a TFR Short/Long example we will see the market attempt an Impulse Move to the downside which will fail at some point and price will return to early morning congestion levels. At some point in the session market sentiment will shift to BULLISH and market structure will set things up for an Impulse Move attempt to the upside. In this day type scenario you may see Momentum Breakout Alerts in both directions for the day.
Price Impulse Move Scenario #7
A TF or Trend Failure day is where Price Action Attempts To Trend But Is Unable To Escape Congestion. In this day type scenario you may see Momentum Breakout Alerts in both directions for the day with varying degrees of success with the Impulse Moves. A TF day ends with price back in the early morning congestion at the close. Some or no point gains may be made on a TF day.
Price Impulse Move Scenario #8
An NT or No Trend day price Action Remains Stuck Within early morning congestion for the entire session. The Momentum system will not issue any Price Barrier Alerts. We typically see NT days around the holidays or extreme dull patches in the market.
Understanding The Statistical Edge Gained Over The Series
The market is either trending strongly or it is not. In the example below you can see a typical 2 week up/down cycle in the market (DAILY BARS) with the corresponding Impulse Move Scenarios. Trading the Momentum Breakout System we attempt to catch the BIG runs. The Statistical Edge of the Momentum Breakout System mainly occurs over the series of trading sessions and not necessarily on a Trade by Trade basis. This is a GRAND-SLAM HOME RUN based system. YOU HAVE TO BE IN FOR THE BIG MOVES or the Momentum Breakout System may not deliver over the long haul.
With the Momentum Breakout System the profitable result is generated over the series of many trading days as a whole and not necessarily on a trade by trade basis. You can incur drawdown over multiple consecutive days but SCORE BIG on one Long Range day – which makes everything up plus some and pads your account with nice gains and future risk capital. Every system has an ebb and flow of profitability based on the time frames and tolerances employed by the strategy.
IMPORTANT CONCEPT: If you STOP trading the system after a few days while it is at the bottom of its profit cycle through fear, frustration or impatience, you lock yourself out and CANNOT catch the HUGE IMPULSE MOVES that occur on Long Range Days. It is highly recommended that you strictly follow the Momentum Breakout System on SIM for a 3 week stretch and track your results in a spreadsheet before committing live capital. Once you catch and stay in HUGE Runner and see the power generated off of Long Range Accumulation Up Days/Distribution Down Days you will build the confidence necessary to follow the system signals without hesitation or fear. The system must be employed over the series to attain the inherent statistical edge.
Understanding The Power Of The Long Range Day
The real power of the ES Momentum Breakout System is in catching Long Range Days. This is where the BIG POINT GAINS are made. There are 2 important facts to fully comprehend. (1.) We make the BULK of our point gains on LONG RANGE DAYS. (2.) 80% of the time long range days close within 10% of the HIGH/LOW of the daily price bar. We want to play the system like a lottery that has good odds of hitting a decent jackpot on a regular basis. As long as you keep playing the game you have almost guaranteed odds of hitting a long range day and winning a jackpot. I hear time and again.. “I just can’t hold on to runners..” It is as easy as scaling out at the Targets and holding onto a position INTO THE CLOSE on a long range day and you will have your big runner. These types of days the Trailing Stop may never get hit.
How to Interpret the System Notes
When you are trading the Momentum Target system you want to have the System Notes section expanded so you can follow along with the play-by-play action. The System Notes are automatically generated by the software each time something important happens.
Each trading day at 9:35 Eastern Time you will see a note posted that the system is online. This is when you will also see the Dynamic Trigger Range appear. When the system generates a Trade Alert you will see the line appear in the system notes and whether it’s a Long or short and the “Alert Price”. As you know, an alert is not “triggered in” until / unless there is a 1-minute close past the Alert Price / Trade Price Barrier so there will be times when you see an alert in the Notes that didn’t get filled.
Here’s an example of an Alert to go Short at 9:38 that didn’t trigger because there was no 1-minute close past the Alert price.
So what happened in the example above is that the price initially broke down below the low of the Dynamic Trigger Range and the system gave an alert to go Short at 3359.00. That alert never triggered and then the price reversed back up and broke out of the top of the Dynamic Trigger Range and you can see that an Alert to go Long was issued at 9:52.
Once there’s a 1-minute close past the Alert Price, you will see a confirmation line appear in the System Notes “1-minute close past” (the alert price). On the same line to the right you will see the Target 1 level – “1st Target”. At the same time in the section above the System Notes you will see the Dynamic Target and Trailing Stop appear to the right of the Dynamic Trigger Range.
When (if) Target 1 gets hit, the System notes will automatically post a line “New Target at…” the level for Target 2. When (if) Target 2 gets hit there won’t be any more targets. The system only issues 2 Targets per alert. After T2 gets hit then the Dynamic Target block goes blank and the Trailing Stop takes over – which you would follow with any remaining contracts.
NOTE: At the point in time that Target 2 gets hit, you want to have your stop at least at breakeven on any remaining contracts – no matter what the trailing stop in the software shows.
Dealing With A Full Stop-Out
As mentioned above, there will be the occasional “Trend Failure Day” and the system will take a full stop-out. Fortunately it’s a fairly rare event but you will still experience them on occasion. This is where the price breaks out of the Range in one direction and isn’t able to make it to the 1st Target, then the trend reverses and the price moves in the opposite direction all the way to the Trailing Stop on the other side of the Range.
Depending on the ranges at the time the full stop out can be a few points or something more significant. Generally speaking a full stop-out will wipe out the profits from an Alert when the price hits both Targets. The full stop out day is the worse case scenario but you want to accept that they will happen and it’s a function of the market price action. The price breaks out of the range with just enough follow-through to trigger us into a trade, but just doesn’t have enough “forward thrust” to make to the first target before it reverses.
There will be times where we get triggered in a trade and then the price reverses and moves back into the Trigger Range – then turns back around in the direction of our trade and continues on to hit the Targets. This is why the Trailing Stop starts off wide enough to allow for normal price fluctuation. That’s why the Trailing stop is designed to hang-back and sometimes appears to move slow. In a situation like I just described the Trailing Stop will ratchet just under the last pivot low that was made. But in the case of a full stop out, there wasn’t enough of (or any) reversal for the Trailing Stop to tighten.
Typically a full stop out will happen on non-trending, indecisive and choppy days. Sometimes if this happens early in the session, a second Alert might get triggered in the opposite direction and work out well. Remember, every “day type” is slightly different and we are playing the odds that the market will serve us up enough trending days to hit multiple targets and only on occasion will we have to deal with a full stop out.
A good rule of thumb is to only take a second trade if it happens in the first couple hours of the day. If you take a full stop out and the market is choppy or just zig-zagging up and down with no discernible trend, it’s best to avoid taking another attempt and risking another full stop out – even if the system gives another alert. It’s programmed to give the alerts no matter what, but that doesn’t mean you want to trade an Alert that shows up in the latter part of the day – unless there’s some news or some sort of catalyst that provides good odds of a trend move that will follow-through.
Watch this short video about Day Types and Stop-Outs
Using the Trailing Stop, Aggressive Protection Level and Parabolic Stop