High Momentum Pocket Setups (HMPS) Explained

High Momentum Pocket Setups (HMPS) are one of the most reliable swing trading patterns. This strategy identifies stocks breaking out of consolidations with strong momentum and volume confirmation.

What is a "Pocket"?

A pocket is a consolidation pattern where a stock trades sideways for 1-4 weeks, creating a base. The stock is "digesting" recent gains and building energy for the next leg up. Think of it like a coiled spring - the longer it consolidates, the more explosive the breakout.

The HMPS Criteria

Our scanner looks for these specific conditions:

• Consolidation Period: 5-20 days of sideways price action
• Prior Uptrend: Stock made new highs before consolidating
• Volume Confirmation: Breakout day has 50%+ higher volume than average
• Relative Strength: Outperforming SPY during the consolidation
• Tight Range: Low volatility during pocket (ATR compression)

Why HMPS Works

Consolidations create clear support/resistance levels. When a stock breaks above the consolidation with heavy volume, it signals:

1. New buyers entering at higher prices
2. Shorts covering their positions
3. Institutional accumulation completing
4. Resistance becoming new support

Historical backtests show HMPS setups have 62-68% win rates when combined with positive relative strength and volume confirmation.

Real-World Example

A stock rallies from $50 to $60 over 2 weeks, then consolidates between $58-$61 for the next 10 days. Volume dries up during consolidation. On day 11, the stock breaks above $61 on 2x normal volume. This is an HMPS buy signal.

• Entry: $61.50 (breakout level)
• Stop: $58 (below consolidation support)
• Target: $68 (measuring move from prior rally)
• Risk/Reward: $3.50 risk for $6.50 potential = 1.86:1