Watch this video on the different day types and how they affect the system results
Keep in mind that the Momentum System does not try to “predict” anything. It sets a logical “structure” around the current price action and “reacts” to what the market serves up on any given trading session.
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.
