The Momentum Method
A rule-based momentum practice: buy stocks breaking out on volume and relative strength, ride them with a trailing stop, and let the machine bench itself when the edge goes cold. Rules first, then test, then paper — live capital last.
The Gold Shovel Rule
Who makes the most money in the gold rush? The guy selling shovels. When a rush forms, we buy the suppliers — the companies selling tools, infrastructure, and rails into the boom — not just the miners chasing the gold. Find the shovel guy early. This rule governs which stocks we shortlist; the engine still decides every trade. (Tested honestly over 10 years: shovels tied miners — so it's a selection lens, not a proven edge.)
The three questions
Every trade answers all three. No answers, no trade.
1. View — what am I expressing? A stock breaking out of a basing range on volume and relative strength.
2. Timing — when does it trigger? Entry on a stop above the range — never chase the close.
3. Risk — where am I wrong? The stop below the range and the trailing stop define it before entry.
The setups
Call it what it is: a momentum system. Six systems tested over ten years; momentum passes, everything else fails. The regime gate is mandatory, not optional — setups only trade when the broad market is risk-on (SPY above its 200-day average). Trading against the regime has never worked.
The momentum system (trades)
The research shelf (watches, doesn't trade)
The graveyard (rejected, published)
Risk rules
Every trade enters on a stop-entry, not at market: price must confirm before you enter. The initial stop and the 3× ATR trailing stop cap the loss; never more than five concurrent positions. Risk 1–2% of equity per position. Never hold a loser hoping.
— Kill switch: the system watches itself. Rolling 20-trade profit factor ≥ 1.5 → full size; 1.0–1.5 → half size; below 1.0 → flat, stop trading it. No discretion, no hoping.
— Kelly sizing: risk per trade stays between sixth-Kelly and quarter-Kelly — the professional band where the math says the edge compounds and the drawdowns stay survivable.
The testing ladder
1. Backtest — 100+ occurrences per setup, 10 years of data, honest execution (stop-entries, gap fills, real commissions).
2. Paper trade — IBKR paper account, 30+ simulated trades per setup.
3. Live — smallest size. Scale only after three green months.
Macro discipline
The regime gate is the strategy's backbone, not an enhancement: risk-on, risk-off, or transition — setups only trade with the regime. Capital preservation first, conviction only when the market agrees, cut fast when wrong.
Without the regime gate the method loses money. The gate's directional value (filtering worse trades) held up in testing; its profitability did not — see the backtests page for the honest numbers, including the setups that failed.
— Fourth question: what would prove me wrong, and how fast would I reverse?
— Sizing: 1–2% base, up to 5% on high conviction — always with the stop and the trail defined first.