The 10 Commandments Of Trading The Momentum Breakout System
Here are some additional tips for trading the Power Emini Momentum System:
– Start off slow when you’re just beginning with the Power Emini system.
When you first start off with the system, take some time to just observe (maybe a few sessions or even a week). Learn the Entry Trigger strategy first and make sure you understand how the software “triggers-in” a trade with the Entry Confirmation.
There’s a lot to take in all at once. In order to get a good grasp on the software / system / strategy you will want to experience multiple market sessions – to see how the system reacts in different situations. There’s no rush to trade live and you don’t want to risk real money until you fully understand all the little nuances of the system. If you just spend a few sessions observing – while going back over the documentation, you’ll have a good understanding of how everything works in a short amount of time.
– Start off slow 2.
First Alert on a Monday morning you might consider trading just 1 Contract. Let the market get settled-in a bit and ease into the week. Don’t just jump right in first thing Monday morning trading full-size. Ease into things.
– Don’t expect every Alert to hit the Targets.
The system was designed to have an “edge” over a long series of trades. There will be lots of stop-outs, so you can’t let any one stop-out or bad session bother you. Every trader and every type of system experiences stop-outs. It’s just “the nature of the business” and one of the outcomes that goes along with trading. Every successful trader knows that there will be trades that don’t work – stops get hit – and learns to shrug them off and move on to the next trade.
In any type of trading there are always hot and cold streaks. The Momentum System performance goes through periods where targets are getting hit like shooting fish in a barrel, and “rough patches” where the price action and behavior isn’t as conducive to the nature of the system. Remember, the system is at the mercy of the market behavior and the way the price manifests after an Alert is given. It doesn’t try to predict market behavior, it simply sets a “structure” around the current price action. If the market is choppy and erratic, there may not be follow-through in the direction of the Range break.
– The system can be traded purely mechanically – but using some discretion will improve your results.
Over a long series of Alerts and market sessions, you will see certain price action where it makes sense to use some “common sense” discretion.
Perhaps you’re trading 2 contracts and shooting for both Targets and the price gets in between Target 1 and Target 2. Maybe you’re up 10 points on the second contract and you see the Trailing Stop is way back around your Entry. You might go ahead and decide to take the 10 points and just call it a day, rather than take the chance the price works its way all the way back to the Entry. You could also choose to use a tighter stop than the system shows – maybe move your stop to a tick past the high or low of a couple bars back – protecting most of the gains.
At any point in time, you can choose to use a different trailing stop then the system shows. Remember, the Momentum System is attempting to play the major trend of the session and as such, the trailing stop “hangs back” at a distance designed to prevent a trade from getting knocked-out from normal price fluctuation, volatility and counter-trend moves.
If price gets within a tick or two of Target 1 – and the T1 is actually a significant distance from the Entry, you might consider protecting the gain or even going ahead and taking profits a little early – as opposed to taking the chance of a stop-out. This is typically a strategy you would consider if the range is wide and T1 is 6 or more points from the Entry.
– If you see the 18 point “fixed maximum stop” is in play – don’t trade (or just trade 1 Micro Contract).
It’s very rare to see the 18 point max stop come into play – though eventually you will see it. When you do, you must realize that market conditions are not normal. The risk is extremely high and you have to decide whether you’re willing to take an 18 point (ES / MES) stop-out and be able to just shrug that off. When the market experiences periods of extreme volatility the numbers get a lot bigger. Stops and Targets are “way further out” and you have to adjust your expectations based on the wider ranges.
If the 18 point max stop is in play – and you want to participate – just trade 1 Micro Contract and just take 1 Alert / trade that session. It might not be a bad idea to skip the first alert on those days, and take your one shot on the second (or third if there is one) Alert.
– Some days if you get stopped-out on the first Alert – quit for the day.
Occasionally the market will serve up a “rotten session” where it’s possible to get stopped out multiple times (3 max). This occurs when the price chops above and below the range just enough to trigger-in a trade, then reverses and goes all the way past the opposite side of the range in the opposite direction. The system is set to issue a maximum of 3 filled alerts per session, however you can improve your results by identifying market conditions that just aren’t conducive to trading the system in certain sessions – and call it a day after one full stop-out. This is particularly relevant if you get an alert early in the day that hits the stop, then the market meanders around for hours with no real directional bias. You might want to avoid alerts that fire off just prior to the cut-off time of 2:30 Eastern if the market is dull or just drifting.
– ES and MES are going to trade a little differently at times
The Alert software and Ninja indicator run on the full size ES (and other instrument) contract data. There are times where the price of ES and MES diverge ever so slightly and can differ by a tick or two. This usually doesn’t make any difference to the system, however there are certain inflection points where it might. It’s entirely possible for MES to hit a Target or Stop when the ES never traded at that exact level or vice versa. It’s going to be rare but it will happen. So it’s possible when trading MES that the system is going to register the Stop getting hit, or a Target getting hit where there was no fill on MES. So the occasional slight difference can work for you and against you, but over the long run it should all even out and isn’t a big deal.
– ES / MES is the best instrument for the Momentum System
The Momentum System was originally designed and calibrated specifically for ES – back before the Micro contracts even existed. NQ is better for scalping. NQ tends to trade more erratically and typically doesn’t trend as smoothly as ES / MES. YM and RTY are also viable instruments for the Momentum System however RTY tends to trade in its own world many sessions. You can compare the results from day to day in the system notes for each instrument to see the difference – and eventually you will probably come to the same conclusion we did – that ES is the best instrument for the Momentum System. We highly recommend when you’re just starting out, focus on ES and trade MES.
– Watch the “Comprehensive Training Presentation” Again
The 3-part video presentation is a must-watch for new Power Emini Software users. But the thing is – the first time you watch, you’re probably not going to grasp everything. Once you’ve spent some time actually observing / trading the Momentum system live, if you re-watch these videos – the light bulb will come on in your head. Parts of it will make perfect sense all of a sudden. Personally, when I read something or watch a video, everything doesn’t always sink-in the first time around. But reviewing the training videos after you’ve spent a week or two with the system will drive home some important points and give you a much better understanding of what to expect – and how to best trade along with the momentum system.
The presentation is meant to be a comprehensive training session for new users – and cover most of the topics you need to get started.