Although there are probably a dozen different scenarios for how a Trade could play out after you take the entry, there are 4 main PLAYS that will occur with great frequency which we will review here.
The Momentum Breakout System is designed to detect Building Momentum at Strategic Breakout points that I have discovered occur during certain market conditions. When these breakouts occur the market is primed for a BIG MOVE out of a congestion zone, but everything depends on the LEVEL and strength of Momentum.
We will see 4 basic types of Momentum conditions in the market.
(1.) STRONG Momentum. (2.) Moderate Momentum. (3.) Weak Momentum. (4.) No Momentum.
STRONG MOMENTUM: When there is super strong momentum in the market we will see clean setups form and very quick fills at the 1 point Delta Target shortly after we take our entry. When the Momentum is Super High, trades tend to take off like a rocket and “Never Look Back” going on to hit 4+ point targets with speed and ease – like a runaway freight train smashing through any obstacle in its path.
Moderate Momentum: This level of momentum will get us to the 1-point Delta Target quickly but then somewhere along the way, after advancing toward our target.. the momentum drops out of the market and we slide back to hit a Trailing Stop that the system has issued. The buyers or sellers who initiated the breakout might have simply run out of steam, or price might have gotten bogged down in a new congestion level that it is unable to work through. This trade profits on half from the 1 point delta target and then whatever the point gain is from the 2nd half of the position stopped out at the trailing stop.
Weak Momentum: At this level the buyers or sellers who break us out have just enough strength to get us to our 1 point Delta Target but not enough energy to run us any further. Typically the price move will fizzle quickly and back slide to hit our Delta Stop 1 point back behind entry. This trade is still considered a WINNER as we planted a seed in the market with the opportunity of gain and even though there was no follow-through we did not suffer a loss for the exposure.
No Momentum: Just enough temporary momentum to trigger us into a trade, but afterwards there is absolutely no follow-through to even get a fill at a 1 point Delta Target. Either there is just no interest by the reinforcements after the buyers or sellers attempt the breakout or perhaps we get an abrupt change in the momentum against us sparked by a news event, etc. In either case this trade quickly runs against us to hit our full 2 point initial stop loss. (Needless to say… we don’t like this outcome)
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 hit 4+ point targets 3-4 times without breaking a sweat. Other days when there is little or no momentum it may be impossible to get any traction on our entries and we may suffer successive stop-outs on our trades.
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 after we take our entry. (…as well as the degree of price volatility currently in the market.) We are “playing the odds”. The Momentum 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.)