Last week was an exceptionally interesting week for the Power Emini Momentum System.
There were lots of little “behind the scenes” things that occurred – both with the market and the way the system reacted to the price action. So I thought it would be useful to do a little recap and explain some of the little nuances that aren’t apparent just looking at the raw data.
So here’s a snapshot of each alert that came through the ES / MES Momentum System last week. This assumes trading 2 Contracts and just shooting for Target 1 and Target 2 (selling a contract at each target).
There were 7 Alerts and 6 of them hit Target 1. That’s a little above average as the system is calibrated to achieve a 75% hit rate on Target 1. The Targets shaded in green were hit.
When you look at the data, keep in mind that the distance from the Entry to Target 1 is a function of the ATR’s in the market each session, so last week was relatively tame in the big scheme of things. In other words, when Target 1 is less than 5.00 points, it means the market itself is “not as volatile as usual”.
This makes sense because the VIX is around 15 and that’s indicative of a “tame market environment”. I’ve heard some traders like to trade NQ when the VIX is under 20 and switch to ES when the volatility picks up. The takeaway here is that the Momentum System adapts to the ever-changing market conditions. In the past – and sometime in the (hopefully) near future, Target 1 averages more like 6-8-10 points.
You have to trade the price action the market serves up.
Back to the Alerts from last week…
Take a look at the first alert of the week on Monday 3/4. You see that the price hit T1 and then hit the (raised) trailing stop for basically a breakeven trade. As you’ve probably seen in our material, part of the “magic” of our strategy is that we shoot for an “easy to hit” Target 1 – and at that point the trade is basically at breakeven. By “basically” I mean that there’s some give and take on how far on either side of breakeven the trade is based on the “fill” of the entry. But I won’t get into that here – it’s covered in the training video.
But the important thing about this particular alert on 3/4 is that it came within 1-tick of hitting Target 2. Pretend you were in this trade and you saw the price at 5147.25, one tick away from T2 – you might have just said “good enough” and taken the profit somewhere within a few ticks of T2. In that scenario, instead of the alert showing just a +1.50 gain, in real-life trading you might have grabbed another 4-5 points up near T2.
We actually encourage using a little discretion here and there and this is a good example.
The other thing this is a good example of is the “smallest ranges you’ll ever see”. What I mean is that I don’t remember ever seeing Target 1 at 2.00 points. I honestly thought it was set for a minimum of 3.00 points because I’ve never seen it that small before. That session was an anomaly.
Maybe because “participants” were waiting on the economic numbers (GDP) that were coming out the following day on Tuesday 3/5 at 10:00 Eastern time.
Which leads to the next important “behind the scenes” observation.
So you see the one and only full stop-out of the week there on 3/5 right? That happened right when the “breaking economic news” hit the wire. The system was in a short trade and when the GDP numbers were released, and there was a quick price spike that hit the stop-loss.
Price frequently spikes on news. One way or the other – and sometimes both ways! And honestly there’s no way to tell which direction the “instant reaction” will be. That’s up to the HFT algos I guess. It’s like when the Fed announcement hits the wires if there’s an open trade in our system it’s either going to hit both targets or the trailing stop within a minute or two – and it’s really just a coin flip on which it is. That’s why we don’t recommend holding through the Fed interest rate announcements if there happens to be an open trade in progress at the time.
But the point I was going to make is this: Suppose you knew the market was waiting on the 10:00 “Breaking Economic News” and chose to sit on the sidelines and avoid that early alert. The outcome would have been totally different. You would have avoided the one and only stop-out of the week. Passing on trading an Alert here and there is a reasonable discretionary tactic you can use from time to time. If we know that important news is going to hit the wire at a specific time, we can choose to be flat at that time – or just skip an alert that fires off in the first half-hour that particular day.
The only full stop-out all week occurred in the minutes following an important economic number news release. We knew it was coming and could have chosen to avoid trading ahead of it.
I’ve had a few users ask me whether they should avoid trading ahead of a 10:00 news release and my response is that “over the long-term it will all even out”. There will be times where the news doesn’t really cause much of a market reaction. (the real “market moving news” typically happens pre-market or on Fed days). And there will be other “news events” that spike the price in your favor, hitting both Targets in a matter of minutes.
Interestingly enough, right after the news release that caused the momentary spike up, the price reversed and headed back down and we got another Short alert that triggered-in at 10:09 – and you can see on the graph that one hit both targets – and then just kept going – and going.
But here’s what you don’t see in the raw numbers above. Even though Target 2 was 11.25 points from the Entry, the price blew through Target 2 and ended up with 46 points of “traction” at the lows. Meaning the Entry was 5109.00 and the subsequent low was 5063.00 so it’s possible a discretionary trader could have caught even more of that move. I usually suggest that pro-actively managing the trailing stop is one of the best ways to capture additional points if you’re just trading 2 contracts and shooting for the 2 Targets.
Here’s the chart that shows what I just described:
Look at the chart above again and imagine this:
You knew the GDP numbers were coming out at 10:00 and that the market was going to react. So you decided to go into the first Alert with just 1 Contract and shoot for Target 2. You figured that there would be a big move when the news hit the wire, but trading 1 Contract using the levels from the software was a decent bet – with your lunch money. So that spike-up stopped you out, but then you took the second Alert with the standard 2 Contracts – and it worked out great – whether you just took profits at both Targets – or held past T2.
The levels from the software can be used for discretionary trading.
There are actually quite a few little discretionary tactics one can employ when trading the Momentum System and we have a whole section in the documentation that gets into that. I always say that using a little common sense discretion should generate significantly better results than just the raw alert data. It’s just a matter of how you want to approach it. The system can be traded purely mechanically and that’s fine – it’s designed to provide an edge over a long series of trades and put the odds in our favor. But using a little discretion here and there can give the nimble trader even more of an edge.
Moving on, the last three days of the week were fairly typical. The action picked up a bit and the ATR’s / ranges expanded and Friday was actually a “more normal” session than Monday. The opening 5-minute range was 9.50 points as opposed to the 3-point range Monday. It’s interesting to see how the distance to the Targets varies based on the ATR’s. Anytime the distance to Target 1 is less than 4.00 points, it indicates the market is fairly dull.
Bu the market environment is constantly evolving and the system adapts no matter what the current conditions. We’ve been through periods where Target 1 was averaging over 20 points! As we head into Spring we’re approaching what has historically been some of the best trading conditions for the system over the years. And with everything going on with the macro environment and the fact things will probably get crazy as we get closer to the election – I expect the volatility to pick up.
Here’s a screenshot of the Alert Software from Friday 3/8/2024 to give you an idea of how it looks:
(Read the System Notes from the bottom up)
It’s going to be a great year for trading and the Power Emini Momentum System might be just the tool you’ve been looking for.
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