Manas Arora momentum burst set up:

Too simple to be true?

Dear Aspiring Peak Trader.

This isn't your regular Homma weekly truth pill.

Today I am going to share with you, my understanding of Manas Arora (@imanasarora on twitter) and his momentum burst set up.

(Manas Arora Scanner at the end)

---

Who is Manas Arora?

Manas is an unorthodox, unconventional and a kick ass swing trader from India. Highly successful to say the least, he shares his trades real time on twitter with a mix of humility and swagger like no other.

I find him to be a cocktail of Minervini and Bonde, for his style is inspired by the former while his execution oozes the speed and agility of the latter.

Mostly revered for his ability to catch falling knives as easily as his 2 other simpler set ups.

1. The reversal (higher low) set up, and

2. The momentum burst set up.

(These names aren't universal and are named by me for ease of comprehension).

I will only talk about the momentum burst set-up here.

---

Momentum burst set up:

Volatility Contraction

The set-up has volatility contraction in its core. The premise is that, uptrending stocks which has strength behind them (visible from institutional volumes), bases (goes side ways) or corrects (pullback) in an orderly manner with decreasing volumes (volume contraction) before eventually bursting again upwards. This burst in momentum generally lasts for 3-4 days and are punctuated with orderly pullbacks. This cycle of burts and pullbacks repeats for some time before the stock breaks down to make a bigger and longer base.

Manas positions himself to catch this burst in momentum very early post the volatility contraction.

The contraction prior to the entry, almost always is less than 2-3% on a daily range, seldom exceeding 3%.

Inside bar

The day before the entry (or the entry day itself) therefore also happens to be inside bars (inside bar is a bar which is housed completely within the previous day's candle). The range of the inside bar is usually less than 2-3% and this represents extreme contraction in volatility.

Prior uptrend

A necessary prerequisite of his setup is a prior uptrend/strong move backed by strong volumes. He looks for atleast a 50% prior upmove. Without this upmove, no amount of contraction is enough for an entry.

Fast movers with high volume: Purple Dot

Just an upmove is also not enough. He looks for fast movers on larger volumes. A move larger than 5% daily with volumes more than 1 million is exactly what he looks for. The more the better. He uses a purple dot indicator to identify this on trading view.

Key MA: 21 day EMA

Manas uses the 21 day EMA (or 20 day SMA) as a guide or a confluence. Price while correction has to be above the 21 day EMA (almost always). Stocks contracting within 1-5% above 21ema are prime candidate for an entry. A low piercing the 21 Ema is an even better set up but a close below is seldom tolerated.

The entry:

Now here is where the magic happens. Most entries are not confirmatory, but are in anticipation of the momentum burst. A 4-5% move post the volatility contraction will be a confirmation but will also come at a cost of the 4-5% move missed and a larger stop loss. To avoid this, Manas always enters within the 1st 1-2% of this move (hence anticipation, as the move might not come, or worse might squat by the end of the day). He makes the trade off of lower accuracy for a smaller risk. This trade off allows him to size big, I mean really big, like fucking mammoth sized trades put in anticipation.

This is what separates him from everyone else in my opinion. Not just the size but putting that size in anticipation. Just wao.

Looking closely, his entries are actually reversal confirmation or breakouts on a smaller timeframe (5 min or 15 min candle).

Strong start (SS):

This is a key characteristic of his anticipatory entries early in the trading day. An SS is a minor gap up which signifies early strength. SS after a shakeout day, or an SS breaking above the Inside bar is a potent entry signal in Manas Arora playbook. An SS with all the above characteristics with price tantalizingly close to the 21 day EMA is a deadly signal.

Stoploss

This is dead simpaal. He doesn't break his head in complex calculation with regards to SL. Mostly often his SL would be a round figure 1-2% of the entry point or simply the Low of the daily candle, whichever is smaller. I believe the total risk on the portfolio is well within 1-2% per trade (an assumption at this point).

Trade management:

As you can imagine, not all of the anticipations work on the same day. Most end up hitting the stoploss, some do work but squat at the end of the day. In other cases, where it neither hits the stoploss nor gives a move but the overall set is still great, he gives a couple of days for the trade to work. If it still doesn't work, he closes the trade. He also closes a trade the same day above his SL if he sees a price rejection at a higher level or a plain inactivity of price with a bearish bias developing.

If his SL is hit, the stock isn't discarded but rather makes the top of his watchlist. He hunts for possible entries as long as the overall structure is still intact and volatility is still contracting.

When a trade moves in his favor with a momentum burst, he usually doubles down on the stock and buys more on the way up. This buying generally occurs on pullbacks and also has the familiar characteristics of the volatility contraction.

Sell rule:

Manas has mastered the art of selling into strength. Once a position has worked a good % for his entire PF, he sells partially into the 3-5% moves, with the final chunks sold eventually on the cessation of the uptrend. A break of the 21ema appears to be a definite sell signal.

---

I just realised that this has become an essay rather than a concise chapter on the set up. Apologies, but i couldn't resist.

Lastly, i will do 2 things. I will code a scanner which is a general template which Manas uses to narrow down the momentum burst or swing candidates. The template was provided by him in a youtube interview.

Below is the template:

1. Close above 30 rs.

2. Within 25% of the 52 week high.

3. Close > 50 day SMA > 200 day SMA.

4. 200 day SMA rising for atleast 3 months.

5. Close above atleast 50% of the 52 week low.

6. Stock has made a 52 week high within 6 months

Here is the link to the scanner:

https://chartink.com/screener/manas-arora-momentum-scanner-2

As this is not a set up specific scanner (Too many names where not all names will be ready to be taken an entry), I will try and make another scanner which to the best of my knowledge will resemble a list of names Manas would love to make an entry.

Reply to the email or let me know in the comments if you are interested to check this scanner out.

---

Lastly, a gentle declaration that, I don't claim that this is how Manas goes about his momentum trades. This is merely my account based on studying his momentum trades during this month April 2023. This is also far from a deep dive of his setups. Most of what I wrote is empirical and I haven't tested and measured it rigorously. Hope i can find some time to do that soon.

List of this month trades i studied below:

That's all for today.

Untill next weekend, keep rocking.

~ Homma