NOTE: Your Power Emini Desktop Alert Software includes 2 separate ES trading algorithms. The ES-S tab in the software runs the ES Power Scalper System, which is for active intraday trading (in both directions) based on tight tolerances set for the Dynamic Trigger Range. The Breakout Momentum System ES-M (documentation below) is designed for less activity and to capture LARGE POINT MOVES (10, 20, 30, 50 points) on days where the market makes a big directional, trending impulse move. See this page for the Power Scalper Overview.
System Documentation for Power Emini Momentum Breakout System – ES Directional Impulse Moves
The Momentum Breakout System is designed to get you into the MAIN DIRECTIONAL IMPULSE MOVES of a TRENDING MARKET.
(This algo is currently hooked to the ES-M tab only. If you want shorter time-frame, multi-directional Scalp Alerts for the ES – follow the Power Scalper Algo on the ES-S tab.) At the core of the Momentum Breakout System is the concept of the Directional Impulse Move.
NOTE: The Momentum Breakout Systems come online 20 Minutes after the Equity Market Open. 9:50 EST / 8:50 CME Time
The Directional Impulse Move is a larger scale Price Acceleration in the direction of a Trending Market or a Market attempting to trend. If the market is going to attempt to trend to the UPSIDE for the day all the Directional Impulse Moves will be to the UPSIDE. If the market is going to attempt to trend to the DOWNSIDE all of the Directional Impulse Moves will be to the DOWNSIDE. The ES Momentum Breakout System does not generate alerts for wiggles or ripples in the market but is calibrated to alert you to the precise breakout levels most likely to get you into the BIG PRICE WAVES of the day should they develop.
Watch this video that explains how to trade the ES Momentum Breakout System
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. These are not to be confused with my Market Day Type Scenarios, which I cover in an article called -> An Introduction To Market Day Types – although the day type will influence the type and strength of Impulse Moves we get in the market.
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.
The Momentum Breakout System Core Principle
The core principle of the Momentum Breakout System is to trade at or around Break-Even (BE) or SCORE BIG. The Momentum Breakout System can alert you to the ginormous price moves and help you stay in strongly trending ACCUMULATION Days or DISTRIBUTION Days where large point gains can be captured – which put the odds in your favor OVER THE SERIES. (If you want quick point scalping action use the ES-S Power Scalper tab in the Alert Software) The Statistical Edge of the Momentum Breakout System mainly occurs over the series of trading sessions and not necessarily on a Trade by Trade OR Day by Day basis.
Taking Entries Off The Dynamic Trigger Range Breaks
Depending on the levels of Momentum in the market we will experience 2 types of Price Breaks across the Trade Entry Barriers at roughly 50/50 odds. During stronger market conditions we will see quick, clean breaks that can take off like a “Bat-Outta-Hell” and don’t look back at all. During weaker market conditions we may see a “Tug-O-War” battle commence complete with house-to-house fighting right at the line of scrimmage with a coin-flip outcome. The 2nd type of crossing can present us with challenges on our entries and also with protecting our positions once we are in, due to extreme volatility and indecision that can occur right around our Price Impulse Move alert levels (Trade Barriers). This is where your tactical trading skills will come in handy.
Position Sizes, Stop Placement and Trade Management
There are multiple ways the Momentum Breakout System can be employed. A trader can choose to trade the system alerts following one of the specific plans I will outline below, or mix and match as you see fit or as dictated by your account size considerations and current trading status as I will discuss. Let’s review the basics to start. The purest and easiest way to follow the Momentum Breakout System is with single entries, wide initial stops and exits based solely on the system trailing stop. The 2nd methodology is to split your positions and cut in half at a quick delta target anywhere from 1-2 points and then tighten your stop accordingly based on some of our published trade configurations.
Method #1 is to take single entries with wide stops and hold the position based on the System Trailing Stop Movement. An initial 4.00 point stop can be employed and then adjusted when the System Trailing Stop kicks in and begins to progress. A full stop out of 4 points equates to $200 per contract. A LARGE Runner of 30 points which is totally reasonable with the Momentum Breakout System brings in $1500 a 7.5 times differential. To put this in perspective.. if you captured a 30 point Accumulation Run (3-5 opportunities per month) this covers 7 future rolls of the dice utilizing a full 4 point initial stop. Think of it this way. It is not always a full win/loss equation. You will have many trades that begin to move and your stop adjusts to -2.00 or -1.00 or Break-even or +1.00 or +2.00 and so on which influences how things pencil out over the series. If the Momentum Breakout System is followed strictly with this methodology you can bank on a minimum 3.5 greater gain vs. loss over the series. What makes this ratio EXTREMELY SIGNIFICANT is that position sizes can be SCALED higher. A trader can start off employing 1 contract and over time progress to position sizes of 2 contracts, 3, 4, 5, 10, etc with the same MINIMUM 3.5 times profit ratio expectancy (if not more). You can employ this basic money management strategy when you have a larger account size of around 10k or by using my “Pay to Play” Risk Capital Methodology. (See Video – How to Trade Off Risk Capital) The PRO of this approach is that it is less work, and exposes you to BIGGER runs in the market. The CON to this approach is that you could incur larger draw-downs up front which might negatively affect a smaller initial account. We use a Maximum stop-loss of 5 points for the ES-M Alert History to give one extra point of padding to a full stop-out.
Method #2 is to “Tread Lightly” and risk less up front utilizing my Delta Neutral Strategies I have outlined in other places. This approach requires at least 2 contracts in a scaled out configuration. A Position can be entered using my basic 1-Minute Chart entry triggers and a quick Delta Target of 1-2 points is taken on half the position. When the first target is acquired, the initial stop of 2.00 points can be adjusted accordingly, i.e. if you capture a 1.00 point ES gain oh half your position you move your stop from -2.00 to -1.00 from your entry thus creating a BE (Break-even) trade give or take a tick or two. This can require a bit more fancy footwork in your trade management and there will be time you get knocked out of a runner because of your tightened stop.. BUT.. someone with a smaller account size that is trying to get the system off the ground initially can prevent a string off stop outs that might create too much draw down to begin with.
Summary: Someone with a 10k futures account can easily start out with a single ES contract scaling up to bigger position sizes over time and weather the statistical draw-downs that can be incurred. A trader with a smaller futures account might need to focus more on protecting his/her original capital and therefore think about tightening stops quicker up front and utilizing the Delta Neutral Target methodology to protect original capital. When sufficient gains have been captured a trader can convert over to the looser trailing stop methodology. This is a balancing act IN THE BEGINNING and dependent on the individual trader’s situation.
Remember the GREAT ADVANTAGE of the futures market is the high built-in leverage. However this can be a double-edged sword for someone just starting out with a smaller account size. Here is an example to put things in proper perspective. A Trader that started with a LARGE 50,000 dollar futures account for example could begin following the Momentum Breakout System with a single contract and EASILY weather any sustained upfront draw-down period BEFORE the system corrected itself and went into the positive allowing the trader to begin SCALING UP IN POSITION SIZES for further larger gains. Any string of losses on 1 contract positions, no matter how sustained would be a drop in the bucket for an account of this size. A Trader with a small account of 2k-3k however could potentially hit a nasty draw-down phase upfront which could cause them to lose a substantial portion of their account (based on their small account size retaliative to minimum tick worth of the ES Futures market) and this might cause them to ABANDON the system and prevent any future BIG GAINS the system might deliver in order to correct the upfront draw-down.
This is what I call the “Small Futures Account Size Dilemma”.
Simplifying Your Entries With A 5-Minute Chart
Watch for your first 5 minute bar to close at least 1 tick past the System Trade Alert Barrier before you decide on an entry.
Protecting Your Entries With A 5-Minute Chart
If you are in a situation where you wish to protect your position as quickly as possible you can watch for 3 HIGHER LOWs above your entry point on a 5 minute chart for a long position and 3 LOWER HIGHs below your entry point in the case of a short.
System Hours Of Operation
The ES Momentum Breakout System goes online 20 Minutes after the normal equity market open. You will see the ES-M TAB become active at 9:50 am EST, 8:50 CME Chicago time, 6:50 PST. The Momentum Breakout system utilizes market structure and pre-market profile factors including after the open to begin to build it’s playbook and may or may not incorporate the first 20 minute range into it’s equations. The main purpose of the 20 minute delay is to avoid potential early morning NON-DIRECTIONAL whip-saw which can be especially bad right at the open, i.e. let the dust settle a bit. (You can get good ES trading alerts right from the open using the M1-Scalper Tab.) Once the first 20 minutes have passed the market is typically ready to pick a direction and make some type of Macro Impulse Move Attempt at some point. Note: There will be some occasions where we may see the market blast off strong right at the open and we may miss a good portion of price movement but this will be negated over the series by the numerous times we could get sucked into highly volatile false moves that fizzle quickly and hit our stops costing us. The ES Momentum Breakout System is NOT focused on wiggles or quick price moves but is designed to line us up with the predominant TREND MOVES of the session, so at the open you have twenty minutes to relax, enjoy your coffee and let the market digest the early morning volatility.
Focus On Time Goals Not Point Goals
In order to get the most out of trading the Momentum Breakout System you should focus more on Time Goals and not necessarily point goals. An underlying premise in following the system is to establish positions and HOLD THEM INTO THE CLOSE.
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 holding a position INTO THE CLOSE on a long range day and you will have your big runner.
ZEN and the Art of The Momentum Breakout System
You can think of playing the Momentum Breakout System by keeping the concept of Yin/Yang in mind. The ancient Chinese Yin/Yang symbol represents opposite or contrary dualities that interrelate and counteract each other. Here is how to think about it. Every session you trade the Momentum Breakout System will result in either a Yin or Yang day. A “Yin” day is a COLD/DULL session that most likely is narrow ranged or has confused price action. A “Yang” day is a HOT/ACTIVE will deliver a wide range day that can deliver LARGE POINT GAINS. If you think about the system this way you can avoid getting frustrated or confused about the minutia of market movement in relation to your trades. Every day you trade the system you will end up with a Yin or Yang type of day. The Yang days we SCORE BIG while the Yin days we break-even or take acceptable drawdowns. You could experience 3 dull Yin days in a row followed by a massive Yang day which scores BIG and puts you out in front. NOTE: We will ALWAYS experience a combination of Yin/Yang Days, expect this. There is nothing to get frustrated about. BIG YANG days will always eventually occur. You just have to be in the game to take advantage of them.
How To Use System Price Targets
The ES Momentum Breakout System will at times project a Dynamic Price Target. You might ask, if my goal is to hold towards the close, what good are the system dynamic targets and how do I incorporate them? The Dynamic System Targets are high probability levels for price movement, so if you are in a multiple contract position you may wish to take some off the table at these targets in an effort to “hedge your bet”, i.e. A bird in the hand is worth 2 in the bush. In sketchy days that may not end up becoming a long range day and may in fact reverse, this will allow you to capture some point gains which could help to offset other losses. To follow the system take the positions (up to 3 attempts per session) and let the outcome be what the outcome will be. The system is calibrated with large odds in your favor – you MUST PUSH THROUGH THE SERIES Yin or Yang, day after day to reap the benefits.
Knowing When To Stop For The Day
Make no more than 3 entry attempts during one session.