The Power Emini Momentum Target System runs on the -M tabs in the Power Emini Desktop Alert Software.
Click the Settings Button and check the Momentum system checkbox for the instrument you want to follow and that tab will display in your Alert Software. The ES-M tab runs the Momentum Target System for ES / MES as pictured in the screenshot below.
Hours of operation:
The Momentum Target System is active from 5 minutes after normal market open (cash open) each day and runs up to the market close. You will typically see 1-2 Alerts per day, and the system will generate up to 3 Targets per Alert.
Basic Overview Of The Momentum Target System
The Momentum Target System attempts to follow the general intraday market momentum and keys off the first 5 minute range of the day as its balance point. The system will only issue long trade alerts ABOVE the first 5 minute range and only issue Short trade alerts BELOW the first 5 minute range. (Note: The first 5 minute range high and low will be displayed in the center section of the Alert Software on the ES-M tab where you would normally see the Dynamic Trigger Range. These numbers will remain static through the day.)
Basic Components Of The Momentum Target System
1.) Initial Morning 5 Minute Range
As mentioned above, the Momentum Target System keys off of the first 5 minute opening range as its main reference point for the session. We will always see strongly trending markets to the upside break out of this initial range and move higher and higher away from it. Vice-versa, we will always see strongly trending markets to the downside break down out of this initial range and move lower away from it. Dull trendless markets may cris-cross back and forth around this initial range to varying degrees.
2.) Trade Setup Alert
When price is trading outside the Initial Morning 5 Minute Range the system may issue a LONG – Trade Price Barrier Alert when ABOVE or SHORT – Trade Price Barrier Alert when BELOW. The Trade Price Barrier gives you a trigger line to work with in confirming your final entry. You will typically have 1 minute to confirm entries after a Trade Price Barrier Alert goes out. (Note: Just above the Alert you will see a time stamp for when the alert was received).
3.) Initial Protective Stop
When a Trade Price Barrier alert is issued by the system an Initial Protective Stop will be generated. This is a hard stop that you should place which protects against catastrophic loss should we see a runaway market against us. (Note: The initial system stops can be 5-8 ES points which is wider than what we use for Scalping strategies which utilize much tighter stops.)
4.) System Trailing Stop
When the market momentum heats up and price begins to trend the Initial Protective Stop will convert into a Trailing Stop and eventually begin to tighten against your position. As the Momentum Target System is designed to keep you in the market for extended moves throughout the session, you will notice that the system trailing stop will give price wider wiggle room and may seem to move slow in comparison to current price movement. In trending markets you will see the system trailing stop eventually pass your entry levels and move on to protect profits.
5.) System Delta Targets
When a Trade Price Barrier alert is issued the system will compute a Dynamic Target. Think of this as a high probability price target where you have the option to take all or a partial position off the table. In a strongly trending directional market we will see new Dynamic targets generated throughout the session. The Dynamic targets are computed off of current ATRs and adapt to changing market conditions. (Note: Only the current Dynamic Target is displayed in the Alert Software at any time)
6.) Parabolic Stop Alerts
In addition to the normal trailing stop the system may at times generate a Parabolic Stop recommendation. This occurs when we see price momentum and trajectory accelerate quickly to extremely Overbought/Oversold, i.e. unsustainable short term levels. A trader can use the parabolic stop on their entire position to squeeze out final profits after a good run or use it as a protection level on a portion of the trade holding the remainder with the normal trailing stop. Parabolic Stops only get issued when market momentum is extreme. (Note: The Parabolic Stop levels are currently issued through the System Notes Section of the desktop alert software)
7.) Confirming Trade Entries
When the system issues a Trade Price Barrier alert this is not to be interpreted as an entry signal. Instead this price level is a reference point which we use to confirm our entries. The Trade Price Barrier represents a “Line-in-the-sand” or “Price level to beat” before we pull the trigger. The basic trade entry confirmation is to wait for a 1 minute bar close PAST the Trade Price Barrier AFTER the alert is received. (Note: You may see 1 minute closes past the barrier before the alert was received. These are NOT valid.) You must wait for a 1 minute closing bar AFTER you receive the alert.
8.) Variations on Trade Entry
As mentioned above, the easiest method of trade confirmation is to place market orders after a 1-Minue bar close past the Trade Price Barrier price level. We can sometimes see this initial closing bar make a big move before closing – at times halfway to a target presenting us with a more complicated entry decision. The trader will have to decide whether to take the entry or wait for a
potential pull back towards the Trade Price Barrier. One method when trading multiple contracts is simply to hedge your bets and split your entry into two parts, i.e. half of your portion on the closing bar signal wherever it may be and the second half closer to the Trade Price Barrier. This way if the initial entry gives you any temporary drawdown it is only half size drawdown and you may have the opportunity of getting picked up on the second portion of your entry at a better price which will slightly adjust your average contract price. Also we may see instances where one or more 1-Minute bars can poke past the Trade Price Barrier without actually closing past. The aggressive trader can use the highs or lows of these penetration bars as trade trigger levels looking for 1 tick moves past as your entry confirmation on all or a portion of your trades.
9.) Variations On Following The Strategy
There are 2 basic methods to following the Momentum Target System.
Method 1: The first approach and simplest is ALL IN on entries and ALL OUT at the System Targets. So for instance, you enter long 2 contracts after a 1 minute confirmation past the Trade Price Barrier set your initial trailing stop and place your exit at the system target for 2 contracts. You follow the system trailing stop with your full position of 2 contracts until either the Dynamic Target is hit or the trailing stop is taken out.
Method 2: The 2nd variation is to scale out over multiple exits. You enter long 2 contracts after a 1-Minute confirmation past the Trade Price Barrier, set your initial trailing stop and place your exit at the system target for half your position, i.e. 1 contract. You follow the system trailing stop with your full position of 2 contracts. Once the system Dynamic Target is hit you exit half the position and let the remainder ride following the system stop price. If the market is robust and trending the system will issue a new price target where you can exit your remaining contract. When you graduate to larger position sizes you can do 3 stage exits, for example 2 contracts off at the first target, 1 off at the 2nd target and the remainder as a runner to hold towards the end of the session. In super hot markets on long range days, extremely large point gains can be captured simply by holding into the close.
Each method has it’s pros and cons. There are times during weak market conditions that we may have less follow through after entry and may only hit the first system target before price fizzles back below our entry price making it advantageous to close out the entire position at the first system Dynamic Target. Other times in super hot market conditions we may see price easily hit all 3 system Targets and then continuing on for a much bigger price move – allowing us to capture even bigger gains by maintaining a portion of the position as a runner.
Contract Progression Strategy
As a new trader following the Power Momentum Target Strategy you can get started with just 1 MES Micro Contract at very low risk. Then as time progresses you can gradually increase the number of contracts in you position. Your goal is to build up to 4+ contracts and multiples of 4. You will want to spend a quantified amount of time at each contract size level before increasing size. Building size based on performance at one month intervals allows you to progress quickly and methodically but not too quickly.
Your Goal is to build up to 4+ contracts with this system
– 1 contract Level – go for single targets to start, or plant and forget – let the trailing stop take you out.
– 2 contract Level – 1st and 2nd targets – or 2 on 1st target
– 3 contract Level – 1st, 2nd, 3rd targets.
– 4 contract Level – 1st, 2nd, 3rd targets – final contract runs with trailing stop
You get the basic idea. There are many variations on trade management. Let’s say you are on month 5 and are taking positions now with 5 contracts. Now you can pull 2 contracts off at the first target and continue on normally to 2nd, 3rd targets with final contract running with trailing stop. As you increase size get in the habit of pulling as many contracts off at the first target and let the remainder run scaling out. When the market trends significantly the Momentum Target System will issue up to 3 price targets per Alert as well as ratcheting the trailing stop.
Note: Regardless of how many contracts you are trading you can consider protecting all or part of your position at break-even when the first target gets hit or price gets extremely close. Once the price hits Target 2 it’s a good idea to move the stop on any remaining contracts to break-even regardless of where the Trailing Stop is at the time.
The important thing is to start off with the smallest unit and build size based on performance. In this way you can methodically and safely increase your trade flexibility and profitability.
Winning Over The Series
Trading is a game of odds based on timing and tolerances and repetition. A crucial concept to keep in mind regardless of the exact approach you take in following the Momentum Breakout Target System is that the statistical edge is attained by taking many trades over time, i.e. we win over the series. All strategies and systems have some failure rate and seeing good results from futures trading can at times be slow and frustrating for days when we experience sluggish market conditions. What this means is that you must plan ahead to reserve judgement on your P&L until you have completed a decent number of days following the system, i.e. 10-20 market sessions In order to manage this though and stay in the game you should start off with very small position sizes so you can push through the series regardless of any temporary upfront drawdowns which would otherwise cause you to halt your trading activity and abandon the system. If your initial position sizes are too big to start with, this is very likely to happen. As your trading performance and profit edge are achieved over a decent set of trades you can begin increasing your position sizes pyramiding to greater and greater size over time, thus increasing your profit potential. It is highly recommended that all new followers of the system spend at least one week trading on SIM mode to work through the basic mechanics and get a feel for follow-through before trading in a live account.
Summary – How To Think About The System Alerts
The Momentum Target System is designed to get you into, and keep you in a directionally trending market throughout the day session. It is not a short term scalper system and does not attempt to call every twist and turn of the market. As a follower of the system you want to make the assumption each day that the market wants to trend either to the upside above it’s initial 5-minute range or to the downside below this initial range and the system’s job is to alert us to the best levels to plant seeds in the market that can grow as the market momentum heats up and begins to trend. The system is not designed around individual trades, but instead gives us a “Playbook” or “Framework” to key our trades off of, i.e. the system issues key price level information which we use as reference points to trade around. The ultimate goal is to be plant positions in the market and take advantage of super strongly trending momentum, i.e. long range days, capturing large point gains. The Momentum Target System system works great over the series and is designed to be easy on your nerves when trading it with the MES Micro futures contract.
Focus On Each Day Type Instead Of Each Individual Trade
You will do better following the Momentum Target System if you get away from thinking about individual trades and focus instead on results from each of the day types the system operates in. We basically see 3 flavors of intra-day market sessions which have a direct correlation to the degree of point capture we will experience following the system.
The first is the super hot trending day where the market is under heavy accumulation or distribution and we see massive amounts directional price movement. These days are by their very nature conducive to large point gains.
The second type we will experience is the V-reversal day where the market first makes a strong move in one direction for a certain amount of time during the session then quickly changes direction to sling-shot back in the opposite direction. These days can blast off from the open and then return sharply back to the open where they either stop, or continue on crossing the opening price zone and making another large move on the other side of the open. Since the system trades Long above the opening zone and Short below the opening zone, the first example will give us only one good momentum run to work with in one direction and the second example will see two price impulse moves to work long/short.
The third session type is the super dull churn day with limited directional price movement typically unable to ever really break very far away from the opening price level. We often see price move back and forth across the opening price zone in cycles of varying magnitude never able to ignite into a full blown directional trend. These days can hook us into positions with limited follow-through and this is where we typically experience market reversals that run to hit our full initial stops. This day many times ends as a narrow-range Doji (Open = Close) bar with no considerable price advancement either way. Just confused price action and lack of commitment.
Think of the system as a filter that these different day types must PASS THROUGH each leading to different results.
(1.) Hot Trend Day $$$
(2.) V-Reversal Day $$
(3.) Trend Failure Day ?
The system if followed over the series of days will self-correct after periods of drawdown. The goal is to attempt to maintain a relative break-even status (over a 2-3 day average) until we hit pockets of market action where we Score Big and lock in gains.
Final Recommendations To Get Started
New traders following the Momentum Target System should start off with 1 micro contract and gradually increase position size as performance warrants and experience is gained. This go-slow approach will keep you in the game and allow you to work through the series which allows the statistical system edge to unfold. Following this “Pull-yourself-up-by-your-own-bootstraps” approach will help you avoid large upfront drawdowns as you push through the series and you can methodically pyramid your way to bigger and bigger position sizes and greater and greater point captures over time. Eventually when you reach the 20 micro contract size you will want to graduate to 2 contracts of the regular ES contract to take advantage of more efficient commission rates offered by the larger contract.