Deron Wagner Founder Morpheus Trading Group Our top 3 swing trading setups
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Deron Wagner
FounderMorpheus Trading Group
Our top 3 swing trading setups
Overview of core beliefsSwing trading in the near to intermediate-term timeframe is the best fit for overall strategyTrading with the intermediate-term trendMomentum-based strategies work!An object in motion tends to stay in motionStocks trading near 52-week highs have the least amount of
overhead resistanceCheap stocks are cheap for a reasonWe buy high and sell higher, not buy low and sell highHuman 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 setupsOur 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 near-
term 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 qualifierStocks 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 patternA 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 toset 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” setupTrend 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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