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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
My book:
Advanced Technical Analysis of ETFs
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  • Here's An Excellent Way To Quickly Measure The Strength Of A Rally

    In a recent blog post, I explained and illustrated how intraday moving averages can be used to improve your stock picking accuracy.

    Since I received a lot of positive feedback on that post, I penned this follow-up article to build on that mini-lesson by drilling down to focus on just one intraday moving average in particular.

    This incredible intraday indicator helps you quickly and easily do three things well:

    1. Measure the true momentum of a rally in any stock, ETF, or index
    2. Remain confident when holding stocks pulling back from their highs (to reap greater trading profits)
    3. Assists you in knowing exactly where to set protective stop prices with your trending swing trades.

    Want to know more?

    Just read on to discover the power of the 20-period exponential moving average on the hourly chart (hereinafter 20-EMA).

    Amazingly Quick and Effective Check

    Over the years, I have found the 20-EMA to be an excellent tool for assessing just how bullish any rally really is (the 10-day MA also works in a similar fashion).

    Simply put, it is tough to question the strength of a rally when the price of a stock/ETF/index is steadily trending higher and above a rising 20-EMA.

    It works so well that I am confident (but never backtested) that you have at least a 50% chance of a winning trade if you buy a stock exclusively because it is trending higher while holding above its 20-EMA on the 60-minute chart.

    Such price action shows the bulls are clearly in control.

    Conversely, a slip below the 20-EMA within a rally is frequently a warning signal of a possible correction by time or price.

    Shakeout Or Breakdown?

    If the move below the 20-EMA was just a minor shakeout, then the price action should reclaim the 20-period EMA within a few hours to a few days, or at the very least set a higher swing low below the 20-EMA.

    Smaller shakeouts will usually recover back above the 20-EMA within a few hours, which causes the 20-EMA to flatten its trend, but avoiding rolling over.

    However, when volatility picks up and there is a severe breakdown below the 20-EMA (1% or more for an index, 2% or more for a stock), the 20-EMA will usually break its uptrend and roll over.

    Accordingly, price action frequently becomes quite volatile, with multiple crosses above and below the 20-EMA over the next few days.

    Show Me, Don't Tell Me

    Rather than rambling on about the specifics of the relationship between price action and the 20-EMA, it is better to show you a few annotated charts that do all the talking.

    Below are three hourly charts of the NASDAQ Composite, spanning from mid-May of this year to the start of September.

    On each chart that shows several weeks of trading within an uptrend, pay close attention to how the price action reacts as it comes into contact with the 20-EMA:

    (click to enlarge)
    (click to enlarge)
    (click to enlarge)

    A Closer Look

    When you learn how to interpret subsequent price action that follows the touch of a 20-EMA, this stellar indicator can be used by swing traders as the proverbial "line in the sand" for knowing whether or not a trend is maintaining very bullish momentum.

    For example, a break below the 20-EMA, followed by sideways price action, and then a return back above the 20-EMA (while it trends sideways) is merely a shakeout that should not bother a trader who is seeking bigger gains with a longer holding period.

    This type of shakeout price action is shown as point "A" on the hourly chart of Tesla Motors ($TSLA) below:

    (click to enlarge)

    At point "B", there is a much clearer violation of the 20-EMA, which causes the moving average to roll over as well.

    Yet, if you are a swing trader looking to maximize profits, holding onto a winning position through a break of the 20-EMA is a necessity; otherwise you will continuously cut your profits short.

    Even at point "C," $TSLA is once again under pressure with a nasty break of the 20-EMA.

    However, after the initial sell-off finds traction, the price quickly reclaims the 20-EMA the next day and pushes higher (which is exactly what I like to see).

    Short-term Shakeouts

    Whenever a stock or index breaks down below the 20-EMA and quickly finds support, the price action should snap back above the 20-EMA the next day (points "A" and "C") OR at least form a "higher low" on the hourly chart the next day (point "B").

    Short-term shakeouts, such as those shown at points "A" and "B," tend to last an average of just 1 to 3 days.

    But if a stock or index trades below the prior day's low (on the next day following a break of the 20-EMA) and continues lower after the first opening hour, the price action may be headed for a deeper correction that could lead to a longer consolidation period.

    Another Tool In Your Arsenal

    Despite my previous implication that a trader may even be able to be profitable using the 20-EMA along, you should not look at the 20-EMA on the hourly chart as some kind of magic indicator that will instantly cause you to become the greatest trader in the world.

    Rather, the 20-EMA is a very helpful tool, just like several other reliable technical indicators used in the stock and ETF trades of my nightly swing trading newsletter (try it risk-free for the first 30 days).

    Any indicator that helps remove human emotion from a swing trade ultimately increases your trading profits, and the 20-EMA on the hourly chart certainly fits the bill.

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    Original Article

    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.

    Sep 15 1:31 PM | Link | Comment!
  • 9 Hot Stocks Poised For Breakout In The Coming Days

    Using the preset "Potential Breakout" scan of the Morpheus Stock Screener, this 5-minute video briefly walks you through the bullish chart patterns of 9 stocks that may soon be ready to blast off to new highs.

    Specifically, each of these stocks are forming bullish basing patterns near their recent highs (these are not stocks that have already broken out and are too extended to buy).

    The 9 stocks setting up for momentum breakout swing trade entry are: Radnet ($RDNT), Tower Semiconductor ($TSEM), Illumina ($ILMN), Abraxas Petroleum ($AXAS), Alcoa ($AA), Warren Resources ($WRES), Hawaiian Holdings ($HA), Natus Medical ($BABY), and Super Micro Computer ($SMCI).

    As a bonus, this video also highlights a few weak stocks that could be put on a short selling watchlist (only if the stock market suddenly enters into correction mode).

    Click here to view the video on our blog.

    Sep 05 12:16 PM | Link | Comment!
  • How To Improve Your Stock Pick Win Rate With Intraday Moving Averages

    In the past, I have shared with you how multiple timeframes analysis substantially increases your trading profits (check out this post for a simple overview).

    But since the Morpheus system focuses on short to intermediate-term swing trading, my blog posts have always concentrated on daily, weekly, and monthly chart timeframes...until now.

    This time, I share with you my favorite methodology for using moving averages on intraday timeframes, rather than the much longer periods typically discussed on this blog.

    Spend a few minutes reading this blog post, apply the simple technique, and your stock picking win rate is bound to improve.

    Not Really New

    Although I have been using this trading technique in the Wagner Daily newsletter for more than 10 years, this excellent strategy for fine tuning your intraday entry and exit points has rarely been explained.

    It's not that using moving averages on intraday charts is some kind of big secret; the concept itself is pretty basic.

    Still, I typically avoid discussion of intraday trading techniques to avoid confusion about the Morpheus trading strategy, since the average holding period of our stock and ETF trades is several weeks to months.

    So, before we dive in to this mini trading lesson, let's be clear on two things:

    1. We have not suddenly ditched swing and core trading in favor of daytrading.
    2. This strategy is merely designed to supplement your existing trading system by increasing your odds of buying at the right time.
    Establishing Trend Confirmation

    When determining which stocks to buy (in bull markets) or sell short (in bear markets), we typically scan for trade setups and look for ideal entry points on the weekly and daily chart intervals.

    Assuming the weekly and daily charts look good, and all the key moving averages are in order, the next step (usually) is to wait for any current, multi-week price consolidation to run its course, which is typically necessary before a stock can move higher in earnest.

    For example, the current daily chart of SolarCity ($SCTY) below shows all moving averages in the proper order to confirm an uptrend.

    Specifically, the 20-day EMA is above the 50-day MA, 50-day MA is above the 200-day MA, and all three moving averages are in an uptrend:

    (click to enlarge)

    With the price action tightening up around the 20-day EMA (beige line) lately, $SCTY may soon be ready to push higher (especially if support holds at $70).

    Conversely, a breakdown below the 20-day EMA would suggest the chart may need a few more weeks of consolidation before it is ready to move higher.

    Top-Down Chart Analysis

    Now that we know the daily chart pattern is solid (meaning a dominant uptrend is already in place), we next zoom in for a closer look at the intraday charts (60, 15, and 5 minute intervals) to get an idea of where the price action is, in relation to these moving averages.

    Hourly Chart

    After the daily chart, we next look for the following criteria on the hourly (60-minute) chart timeframe:

    • When dealing with a tight-ranged consolidation, it is important for the price of the stock to be above the 200-period MA on the 60-minute chart (this does not apply if seeking a pullback entry to the 50-day MA on a daily chart).
    • Price should be above, or ready to break above, the 20-period EMA, which should also be rising (or at least have flattened out).
    • 20-period EMA should be above, or ready to cross above, both the 50 and 200-period moving averages.

    On August 25, $SCTY gave the "all clear" signal on the hourly chart, around the $71.15 area, because the price was trading above all three moving averages.

    Take a look:

    (click to enlarge)

    15-Minute Chart
    • As with the 200-period MA on the hourly chart, we also look for the price to be above the 200-period MA on the 15-minute chart.
    • All moving averages should be in the proper order (shorter periods above the higher periods), or at least close to crossing over and trending in the same direction.
    • Again, $SCTY gave the "all clear" signal on the 15 minute chart, when it began trading above all three moving averages.

    Do you see the similarities to the hourly chart on the 15-minute chart below?

    (click to enlarge)

    5-Minute Chart
    • Once again, we want to see the price trading above the 200-period MA on the 5-minute chart, and for the average to be trending higher or at least have flattened out.
    • It is usually a bullish sign when the price action moves above a tight range on the 5-minute chart, especially when all the moving averages are clustered together (as they were late in the afternoon on August 22).
    • On August 22, around the $70.50 level, $SCTY shouted the "all clear" signal on the 5-minute chart, as the price began trading above all three moving averages (50-period MA was just below the 200-period MA, but still trending higher).

    This is all shown on the 5-minute chart below:

    (click to enlarge)

    If you were to analyze any one of the above charts by itself, without any other context, it would be difficult to spot this ideal buy setup.

    However, upon basic analysis of the 5, 15, and 60-minute charts, it is easily seen that the price was above all the major averages by the $71.15 level.

    On the daily chart, the move above $71 also put the price above all major moving averages (10-day MA, 20-day EMA, 50-day MA, and 200-day MA) as well.

    Although the weekly chart was not shown, the price was also above the 10-week MA ($70 area) and 40-week MA ($63.95).

    Put The Wind At Your Back

    With the price now trading above all important moving averages on the weekly, daily, and intraday charts, $SCTY now has a pretty good shot at zooming higher after a few weeks of consolidation (sometimes sooner).

    By patiently waiting for the three main moving averages to line up on multiple time frames, you will always be placing the wind at your back and increasing the odds of a profitable outcome when entering new stock and ETF trades.

    Obviously, there is more to successful trade entries than just price and moving averages.

    Reliable technical indicators such as volume, price movement of a stock's industry group, and the overall stock market itself are other crucial factors that must be assessed.

    But when all of these elements are in sync with one another, you are definitely looking at the potential for a superb winning trade!

    To profit from our top nightly stock and ETF picks, and to learn a proven trading system while doing so, sign up now for your risk-free trial subscription to The Wagner Daily newsletter (includes free access to the MTG Stock Screener)

    Follow Us: Follow us on Google+ Follow us on Twitter Join us on Facebook Our trading blog - RSS feed

    Original Source

    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.

    Aug 28 6:09 AM | Link | Comment!
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