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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
My blog:
Morpheus Trading Group - swing trading blog
My book:
Advanced Technical Analysis of ETFs
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  • How We Shook Out The Trading Profits In Shake Shack Stock

    In trading, when to "take the money and run" on a winning trade depends on whether the original trade setup (the reason for entering the trade) was a quick, momentum-driven swing trade or a core trade that is based on a combination of strong technicals and a history of high earnings growth.

    In the case of the 27% gain we recently locked in with the $NXPI trade, it was a core trade that we held for several months.

    But this time around, we walk you through a purely momentum-driven setup instead, a trade that bagged Wagner Daily subscribers about a 30% share price gain in $SHAK over a 3-week period.

    Continue reading to learn how this stock entered our radar, and why we bought and sold when we did...

    Nightly Process For Daily Profits

    Our daily stock scanning process is what keeps us in tune with the market, as the number of bullish chart patterns with leading stocks is one of the best indicators of the market's true bullish momentum.

    Each night, we run through several scans (using a combination of our online stock screener and good ol' fashioned elbow grease) to search for stocks and ETFs with valid basing patterns, which are then added to our internal watchlist to monitor for low-risk entry points.

    Specifically, there are 3 basic stock scans we run each and every night:

    • Combo - Scan for leading stocks trading near 52-week highs, with top -ranked fundamental and technical ratings (strong earnings and revenue growth).
    • Relative Strength - Scan for stocks that have made a strong advance over the past 6 to 12 months (a pure technical price scan with no fundamentals).
    • IPO - Scan all IPOs within the past two years, with an emphasis on those within the past 6 months, for bullish chart patterns.
    IPO + Strong Technicals = Explosive Action

    Although not many of the trade setups we detail in our stock picking report are from the IPO scan, we always look forward to trading those stocks that eventually appear in the IPO scan because we have learned over the years that a combination of an IPO with a bullish chart pattern leads to nice breakouts with a high level of reliability.

    About two months ago, $SHAK first appeared in our IPO scan and we first took notice of the price action as it set a higher low in late February, while holding the rising 10-day moving average.

    On March 12, $SHAK opened about 10% lower due to a negative knee-jerk reaction to an earnings report, but buyers immediately stepped in and not only erased the intraday loss, but surprisingly pushed the stock to a positive closing price!

    The result of that wild day of trading was the formation of a wide-ranged candlestick that closed above the prior day's high on heavy volume.

    This bullish reversal candle was certainly a clear buy signal; however, we patiently waited for a lower-risk buy entry to develop (because there wasn't one at the time).

    The Entry

    After a 3-day pullback (on declining volume) to the 10-day moving average (a bullish sign), we decided to list $SHAK as a buy limit or buy stop order (whichever triggered first was the one we would take) in the March 18 issue of The Wagner Daily.

    The daily chart below shows you how the chart looked when we bought the stock in mid-March:

    $SHAK ENTRY

    On the morning of March 18, $SHAK "undercut" the prior day's low and triggered our buy limit order at $45.10.

    Once again, buyers arrived on price weakness, enabling the stock to reverse and rally to close in positive territory and above the prior day's high.

    As anticipated, price action followed through to the upside over the next few days, and quickly cleared the high of the wide-ranged reversal candle from March 12.

    The Exit

    After a few weeks of consolidation at the $50 level, $SHAK exploded higher over two sessions, allowing us to sell two-thirds of the position into strength, netting a 29% price gain on the open of April 16:

    $SHAK exits

    Although we sold on the open of April 16, it would have also been a good exit to have sold partial size on the prior day's open or on the close of the second big up day as well.

    After such a massive rally in a short period of time, we made a judgment call to significantly tighten the stop on our remaining shares, in order to protect the profits while still giving the setup a small bit of breathing room.

    Just a few days later, $SHAK triggered our stop for the remaining one-third of the position, as it slipped below the prior day's low (32% gain on the remaining shares sold that day).

    How Long Do You Like To Hold?

    For a pure swing trader, selling into strength of an explosive move like this is usually the way to go.

    However, traders who are comfortable with being more patient with the action could alternatively have sold partial size (one-third to one-half of shares) into strength, then placed a very wide stop to hold the remaining shares longer.

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    Original source of 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.

    © 2002-2015 Morpheus Trading, LLC
    Reproduction without permission is strictly prohibited.

    Apr 22 5:50 AM | Link | Comment!
  • 3 Top Tips From A 20%+ Winning Stock Trade

    Recently, we locked in an average share price gain of 23% through buying and selling shares of NXP Semiconductors ($NXPI), and we are still long one-third of the initial position as well.

    As always, a few valuable lessons and tips from this trade can be added to your trading arsenal, so let's take a simple, objective look at why we bought $NXPI in our nightly stock picking newsletter, and what was learned from it as well. Read on...

    The Setup

    At the beginning of the year, $NXPI first caught our attention after following up an impressive 40% rally (from late 2014) with a period of price consolidation above its 50-day moving average.

    As January progressed, the price action tightened up a bit more, causing the semiconductor stock to oscillate in an 8% price range, while still holding above key support of its 50-day MA.

    On February 6, $NXPI tested the high of its band of consolidation by probing above the $82 level on heavier than average volume.

    Two days later, the stock formed a tight inside day on lighter volume, giving us a pretty low-risk entry point based on the bullish price and volume action of February 6.

    The Buy Entry

    After forming the inside day, we listed $NXPI as a potential buy entry in the Watchlist section of the February 11 issue of The Wagner Daily.

    Specifically, we told subscribers we were placing a buy stop to enter the trade on a move above the high of the February 10 inside day.

    The daily chart below shows the actual trade setup at that time:

    $NXPI BUY SETUP

    As anticipated, $NXPI triggered our buy entry that day and subsequently cruised 6% higher before stalling and waiting for near-term support of the 10-day moving average to catch up to the price (which it did on February 23).

    As shown on the following chart, $NXPI gapped sharply higher on a news-driven move that occurred on March 2, then again traded in a tight, sideways range while waiting for the 10-day MA to catch up (which occurred on March 12).

    The First Exit (27% Gain)

    On March 23, the stock showed its first sign that a potential short-term pullback may be around the corner by forming a bearish engulfing candlestick pattern.

    As such, we made a judgement call to lock in some profits by selling about 1/3 of the position size the following day (March 24).

    On that first exit at $104.83, subscribers who followed the trade setup netted approximately a 27% gain.

    On the chart below, notice how a touch of the 10-day MA (dashed blue line) perfectly acted as near-term price support several times after the initial February 11 breakout:

    $NXPI first sell

    The Second Exit (18% Gain)

    After locking in profits on partial share size, we tightened the protective stop to protect gains on another 1/3 of the position size.

    On April 6, $NXPI gapped down on the open and clipped that stop (beneath the April 1 low), enabling us to lock in an 18% price gain on the second third of the position (sold at $97.65).

    The second exit is shown below:

    $NXPI second sell

    As of today (April 15), we remain long the final third of the position with an unrealized gain of about 20%.

    From here, the plan is to buy more shares with another low-risk entry of a pullback to the area of the rising 50-day moving average (currently just below $95).

    Top 3 Takeaways

    There are a few great tips (mini lessons) to be learned from this trade review, which will surely help to increase your profits in any stock trades you make in the future:

    1. On high-momentum stocks that have broken out and then enter into a sideways consolidation pattern, the 10-day moving average is a simple, yet highly reliable indicator to help determine when the stock may be ready to resume its ascent.
    2. When sitting on a winning stock, patient and disciplined traders are rewarded. Although we bagged a 27% gain on the initial exit of one-third of the position, realize that its required the patience to hold the trade for six weeks.
    3. Proper trade management is nearly as important as picking the right stocks. $NXPI is just one of many stocks that have zoomed sharply higher in recent months, but even traders who picked one of the right stocks could still have easily realized a much smaller gain (or possibly even loss if the timing is wrong). That's why we always provide exact and updated entry, stop, and target prices for each trade setup in our swing trading newsletter; picking a winning stock is one thing, but knowing the right time to buy and sell is a whole different ballgame.

    Overall, perhaps the biggest tip for newer traders (and a reminder for experienced traders) is that losing trades should always be dumped quickly and without hesitation, but winning trades should always be held until price action gives a valid reason to sell.

    As long as the price action of $NXPI remains bullish, we will continue to hold (and possibly add to) the remaining third of our position that is currently showing a 20% unrealized share price gain.

    This article first appeared at MorpheusTrading.com

    Apr 15 8:11 AM | Link | Comment!
  • 2 Hot Stocks To Buy While The S&P And Nasdaq Take A Rest

    Although the main stock market indexes have been in pullback mode the past few days, overall market conditions remain bullish.

    As such, the current pullback presents a lower-risk buying opportunity for top stocks and ETFs that have been showing relative strength with tight chart patterns.

    Two such swing trade buy setups we are stalking for potential buy entry in The Wagner Daily over the coming days are biotechnology firm Cytokinetics ($CYTK) and software development company Rubicon ($RUBI).

    Let's take a quick look at why these equities may be excellent stocks to buy in the coming days...

    Small-cap poised for big breakout ($CYTK)

    $CYTK is a small-cap biotech stock that is setting up for a base breakout from a first-stage base (see How to Make Money in Stocks: A Winning System in Good Times and Bad by William O Neil for a great explanation of base reading and stage counts). Take a look:

    $CYTK stock chart

    $CYTK grabbed our attention when it gapped sharply higher about three weeks ago, on volume that was more than 400% greater than the stock's average daily volume (see black rectangle on the chart).

    Since then, $CYTK has been trading in a tight, sideways range above its 50-day moving average, with both the 10 and 20-day moving averages sitting above the 50-day moving average.

    The combination of the high volume gap, price action above 50-day MA, and the 20-day MA trading above 50-day MA means the stock possesses 3 of the top 5 qualities of the best stock breakouts.

    If the price of $CYTK rallies above the March 4 high (marked by the horizontal line), the stock could attract enough buying interest to enable it to break out above its tight, three-week range.

    Regular subscribers to our nightly stock picking newsletter should note our preset buy trigger, stop, and target prices for this trade setup in the "Watchlist" section at the top of today's report.

    If $CYTK meets our exact criteria for buy entry, we will buy the stock with reduced share size because it is not an A-rated setup.

    Liquidity in this small-cap stock is also a bit on the light side, which we compensate for by lowering our share size.

    Crossing The Rubicon ($RUBI)

    To "cross the Rubicon" means to pass a point of no return.

    Given the solid, earnings-driven breakout from a first stage base two weeks ago, it indeed appears The Rubicon Project ($RUBI) has definitively passed the point of no return (to its prior trading range).

    After gently retracing from the February 25 high of its recent breakout and trading in a tight range for more than a week, the 10-day moving average has caught up to the price.

    As with the $CYTK setup, the stock also shares the key breakout attributes of a high volume gap, trading above the 50-day MA, with the 20-day MA above the 50-day MA:

    $RUBI PULLBACK ENTRY

    For this momentum trade setup, we are looking for potential buy entry on a slight pullback from the March 4 move (the price must drop to the exact buy limit order listed in today's Wagner Daily in order to trigger the trade).

    RUBI is not an A-rated stock, but does have strong revenues and two quarters in a row of improving EPS growth.

    Although we are primarily technical traders, most leading stocks in the market share these two fundamental traits.

    Key Support Levels To Watch (S&P 500)

    Our trading system forces us to focus much more on the performance of leading stocks, rather than the price action of the main stock market indexes.

    Nevertheless, because we are trend traders, it is always beneficial to make sure the broad-based indexes remain healthy as well (put the wind at your back).

    Despite the substantial pullback of the past few days, the S&P 500 technically remains healthy.

    As shown on the chart below, the benchmark index bounced off near-term support of both its 20-day MA and prior highs yesterday (March 4):

    $SPY chart - March 2015

    Given the bullish intraday price reversal that converged with two near-term support levels, the March 4 low of 2,087 now becomes a key price level to watch.

    If the 2,087 support level fails to hold, next support is near the 2,065 level, which represents convergence of the rising 50-day moving average and the 10-week moving average (similar to 50-day moving average).

    As long as the S&P 500 remains above that 2,065 level and leading stocks continue to hold up, the current pullback in the market must be viewed as a buying opportunity.

    Having an objective, rule-based market timing system (such as this one) is a great way to ensure you remain positioned to take advantage of profitable opportunities when the time is right (and on the sidelines otherwise).

    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.

    © 2002-2015 Morpheus Trading, LLC
    Reproduction without permission is strictly prohibited.

    Mar 05 7:44 AM | Link | Comment!
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