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Deron Wagner is the founder and portfolio manager of Morpheus Trading Group. His daily focus is managing and trading the Morpheus Capital Hedge Fund, which he founded in April of 2004. He also teaches his swing trading strategy with The Wagner Daily newsletter, which provides exact entry, exit,... More
My company:
Morpheus Trading Group
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Morpheus Trading Group - swing trading blog
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Advanced Technical Analysis of ETFs
  • How To Scale Out Of Winning Breakout Stock Trades For Maximum Profits 0 comments
    Jul 1, 2014 11:03 AM | about stocks: BDSI

    Traders frequently tell me that knowing when to sell a winning breakout trade is one of the more challenging aspects of having a consistently profitable trading strategy.

    Sell too soon and you fight the feeling of regret while the stock continues cruising higher.

    Get too greedy and try (typically in vein) to catch the absolute top and you give back too much profit when the stock unexpectedly corrects sharply off the highs.

    With my swing trading system (overview here), the goal is always to let the winners ride, while cutting losing trades quickly.

    Nevertheless, since my profit target of most breakout swing trades is a 25-30% price gain from the time of entry, I start raising stops when winning stock trades reach that general target price area.

    One of most successful ways I have found to lock in profits on winning trades is through using a "split stop" strategy.

    This means that my protective stop price gets split into two, with a tightened stop being used on a partial share size, and a looser stop deployed on the remaining shares.

    A current example of exactly how I do this can be found in...

    Biodelivery Sciences ($BDSI) - Protecting a 33% gain

    Since my May 23 buy entry in The Wagner Daily newsletter, Biodelivery Sciences ($BDSI) is presently showing an unrealized share price gain of 33.1%.

    This was aided by a recent breakout to a new all-time high in this hot stock pick, which is shown on the monthly chart below:

    (click to enlarge)

    Since $BDSI has already surpassed my general swing trade breakout goal of a 25-30% gain (when it broke out to a new all-time high a few weeks ago), I am now going with a split stop (a tighter stop on 1/3 of the position, with a looser stop on the remaining 2/3 shares).

    Overall, my goal is to stick with the $BDSI position as long as it holds above near-term support of its 20-day exponential moving average (highlighted beige line on the daily chart below):

    (click to enlarge)

    Specifically, I have just informed subscribers in today's newsletter that I have raised my stop on 1/3 share size of $BDSI to just below yesterday's (June 30) low.

    If triggered, such a stop price would still secure a gain of 30% for traders who followed my buy entry five weeks ago.

    The stop price on the remaining 2/3 position of $BDSI has now been raised to just below the 20-day EMA (presently at $11.48).

    For stocks that are breaking out to new highs (swing trades only, not core/position trades), the 20-day exponential moving average is typically my "line in the sand" that the price must hold above.

    Additionally, subscribing members should also note in the "Open Positions" section of today's report that I also raised stops in $TSLA, $SANM, and $WWAV.

    Since $SANM and $WWAV are reporting earnings in mid-July, the idea here is to protect profits and get out of the way before the earnings report if the price action doesn't hold up.

    With $TSLA, which is currently showing an unrealized gain of 15.2% since my June 12 buy entry, I will lock in our gains and look for another low-risk entry point to form if yesterday's ugly close leads to more selling.

    Don't Miss The Buy Entry In This International ETF

    Rather than only talking about how to exit a winning trade, I will close today's blog post by also sharing a new swing trade setup of an ETF we are currently monitoring for potential buy entry in the coming days. Bonus!

    iShares Philippines ($EPHE) has been forming a valid base of consolidation, which is one of the best ways to find breakouts in strong stocks and ETFs before they actually break out.

    The setup is shown on the daily chart of $EPHE below:

    (click to enlarge)

    $EPHE is forming a bullish base above the rising 50-day moving average (teal line), with the consolidation correcting more by time than price (the 20-day exponential moving average is still above the 50-day moving average).

    The recent bounce off the $36 support level stalled at the short-term downtrend line (just above $37).

    Now, I look for the action to pull back a bit further, but remain above the 50-day moving average (minus a shakeout bar or two).

    If that occurs, a bullish reversal candlestick around the 50-day moving average would serve as a low-risk pullback entry on weakness.

    An alternative buy entry would be a breakout above the downtrend line as an entry on strength.

    As always, regular subscribers of my nightly stock picking newsletter will be notified of my EXACT buy trigger, stop, and target prices in advance if this trade setup makes the cut to my "official" watchlist.

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    DISCLAIMER: There is a risk for substantial losses trading securities and commodities. This material is for information purposes only and should not be construed as an offer or solicitation of an offer to buy or sell any securities. Morpheus Trading, LLC (hereinafter "The Company") is not a licensed broker, broker-dealer, market maker, investment banker, investment advisor, analyst or underwriter. This discussion contains forward-looking statements that involve risks and uncertainties. A stock's actual results could differ materially from descriptions given. The companies discussed in this report have not approved any statements made by The Company. Please consult a broker or financial planner before purchasing or selling any securities discussed in The Wagner Daily (hereinafter "The Newsletter"). The Company has not been compensated by any of the companies listed herein, or by their affiliates, agents, officers or employees for the preparation and distribution of any materials in The Newsletter. The Company and/or its affiliates, officers, directors and employees may or may not buy, sell or have positions in the securities discussed in The Newsletter and may profit in the event the shares of the companies discussed in The Newsletter rise or fall in value. Past performance never guarantees future results.

    © 2002-2013 Morpheus Trading, LLC
    Reproduction without permission is strictly prohibited.

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