Our top 3 swing trading setups Deron Wagner Founder Morpheus Trading Group
Overview of core beliefs Swing trading in the near to intermediate-term timeframe is the best fit for overall strategy Trading with the intermediate-term trend Momentum-based strategies work! An object in motion tends to stay in motion Stocks trading near 52-week highs have the least amount of overhead resistance Cheap stocks are cheap for a reason We buy high and sell higher, not buy low and sell high Human nature is to underestimate how long a trend can last Main market structure is base, breakout, pullback
Trade with the dominant market trend
Momentum-based strategies work!
Momentum-based strategies work!
Momentum-based strategies work!
Buy stocks at or near 52-week highs
Buy stocks at or near 52-week highs
MTG buy setups Our swing trading strategy establishes long positions using 3 types of entries: Breakout entry Buying on strength when a stock breaks out from a proper base of consolidation Pullback entry Buying a stock that has put in a nearterm pullback (3 7 days) from its recent high Trend reversal Buying a stock that forms a base after breaking out to reverse above a substantial downtrend line (only after a prolonged downtrend in the broad market) NOTE: Of the 3 types of buy setups above, the breakout and pullback entries will account for the overwhelming majority of trades you make.
Primer to buy setups Before a stock makes our breakout watchlist, it must satisfy two key criteria: Stock must be in a clear and distinct uptrend Stock must have a valid basing pattern
Trend qualifier Stocks must be in a clear and distinct uptrend, as follows: 20 day EMA must be trading at or near the 50 day MA when the stock is forming a base and clearly above the 50 day MA when in trend mode. For pullback trades, the 20 day EMA must be above the 50 day MA. 20 day EMA must be above the 200 day MA 50 day MA must be above the 200 day MA Both the 50 and 200 day MAs must be in a clear uptrend for at least a few months. The price action should be in an uptrend with a series of higher highs and higher lows in place over the past 3 6 months (at the very least). Current price should at least be 30 40% above the 52 week low.
Trend qualifier rules for breakout setups
Trend qualifier rules for breakout setups
Trend qualifier rules for breakout setups
Stocks must have a valid basing pattern A base (or zone of congestion) is anywhere from 1 month to 1 year in length. For our style of trading, we prefer bases that form in a 1-3 month period that find and hold support of the 50-day MA. We want to see tight price action in the base, especially during the last two weeks before the breakout. A valid base should pullback anywhere from 10-30% off the swing high. Once a stock retraces 40-50% or more, we begin to question the strength of the uptrend. We must see a higher low form within the base. This is crucial to the pattern. Without a higher low forming, we have no way to set a stop and therefore can not define the risk. Volume should be declining during a base, or at the very least, not heavier than average. If there are too many days of heavy volume selling in a base, the base could be faulty.
Main characteristics of a valid base
Main characteristics of a valid base
The breakout entry
The breakout entry and follow-through
The breakout entry (example #2)
The breakout entry (example #2)
The breakout entry and follow-through (example #2)
A pullback setup occurs when a stock breaks out from a valid basing pattern and then pulls back for 3 7 days:
Pullback buy entry
Pullback buy entry and follow-through
Pullback buy entry (example #2)
Pullback buy entry (example #2)
Pullback buy entry with follow-through (example #2)
The trend reversal setup Trend reversal setups are used only when the main stock market indexes have been in a bear market (downtrend) for 9 months or more. The purpose of this setup is to locate early buying opportunities in stocks that are about to reverse trend. These setups do not require that an uptrend be in place prior to the entry, so they are very different than a breakout or pullback entry. We do not use this buy setup when the markets are healthy, as this would lead us to locating stocks that are showing relative weakness.
Trend reversal buy entries
Trend reversal buy entries
Trend reversal buy entries
Trend reversal buy entries (example #2)
Trend reversal buy entries (example #2)
Trend reversal buy entries (example #2)
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