The 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 and maintains 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 3 potential outcomes.
(1.) Price does not make it to the Macro Target.
(2.) Price hits the Macro Target and reverses.
(3.) Price continues past the Macro Target.
As you watch the System Alerts over the series 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 when a Trade Alert Is Sent Out. When the system resets the boundaries of the Dynamic Trigger Range the Macro Target will disappear.
A Trader can incorporate the System Macro Targets in one of several ways. The entire position can be held and exited at the Macro Target or it can be incorporated into your scaling out trade configurations. One approach is to pull half your position off at a 3-tick to 1 point delta neutral target from your entry and hold the remainder for a run to the macro target. Another approach would be to take some profits at the Macro target and hold the remainder with as a runner with a Trailing Stop. The methodology between these two may be dependent on the day type we are experiencing and the level of “Trendieness” we are seeing in the market for that day.
Price Can Trend When It Moves Into The Free and Clear
A basic concept of a trending market is that price needs to get Free and Clear of entanglements before it can really run. The Power E-Mini Momentum Breakout System is designed to spot these entanglements and incorporate them into the Dynamic Trigger Range. (Half the battle is knowing when to STAY OUT OF THE MARKET and NOT attempt to trade.
This forces you to only focus on the Stronger Impulse Moves that occur when price is able to free itself of restrictions. Sitting on the sidelines is an important part of the trading process.
System Trade Scenario Examples using a 4-Point Macro Target
While the System will automatically calculate and display a Macro Target based on current structure, we’ve found that 4-point Targets get hit with a high frequency. In a reasonably active market with lots of participation you’ll notice the Macro Targets are often 4-points above the Trade Price Barrier.
Here are the 4 typical trade scenarios you will encounter.
Scenario 1 – After taking an entry – there is no follow-through and the trade fizzles and hits the full stop-out.
Scenario 2 – After the Entry the price is able to reach the Delta Neutral Target and then reverses stopping us out at “breakeven”.
Scenario 3 – Price moves in our favor and we’re able to get to Delta Neutral – but doesn’t quite reach the Macro Target and we get taken out with a Trailing Stop.
Scenario 4 – Price moves to our Delta Neutral Target and continues on to hit the Macro Target.
Scenario 1 – where we take a full stop-out – happens infrequently, but it will happen. We don’t like to take full stop-outs but we are never ever risking more than 2-points on any trade.
Be sure to review the section on The Delta Neutral Stop Strategy.
Getting to Delta Neutral is our #1 Goal on every trade.
The Momentum Breakout System is designed to get us in on a Strong Trending Move – What we call a Trend Runner (4-6-8-10 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.
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. An erratic Non-Trending market makes things more difficult as price has a hard time escaping out of the Dynamic Trigger Range in any one direction. Our Tick Traction may be limited playing the EDGES of 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 price targets, and not being too aggressive comes into play during low momentum market conditions.
Related Article: Understanding Market Day Types
Understanding The Auto Trailing Stop
The System Auto Trailing stop is designed for RUNNERS. i.e. once a trade takes off in our favor the trailing stop will kick in when the system detects there is enough wiggle room between price and the barrier. This will typically be a move of 1.5 to 2 points past the barrier.
It is recommended you use an INITIAL protective stop based on the specific trade configuration you are using and employ the trailing stop for a secondary part of your trade AFTER you hit your first delta target.
Once a trade moves in our favor we will see scenarios where we price will be bracketed in between our Macro Target 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.