http://www.morpheustrading.com/blog Wed, 16 Aug 2017 20:07:45 +0000 en-US hourly 1 34320206 Limiting Trendlines: How To Predict Key Resistance Levels In Stocks http://www.morpheustrading.com/blog/limiting-trendlines/ http://www.morpheustrading.com/blog/limiting-trendlines/#respond Wed, 16 Aug 2017 18:59:21 +0000 http://www.morpheustrading.com/blog/?p=5100 limiting trendline predictionOne of the first things you probably learned while studying technical analysis is how to draw a simple trendline. Most books focus on drawing trendlines by connecting a series of “higher lows” to show support (in an uptrend), or connecting a series of “lower highs” to show resistance (in a downtrend). This is basic technical analysis […]]]>

limiting trendline predictionOne of the first things you probably learned while studying technical analysis is how to draw a simple trendline.

Most books focus on drawing trendlines by connecting a series of “higher lows” to show support (in an uptrend), or connecting a series of “lower highs” to show resistance (in a downtrend).

This is basic technical analysis 101.

But what’s lesser known is that you can also draw trendlines on the weekly and monthly charts in a way that forecasts resistance in uptrending stocks or indexes.

Even in steadily uptrending stocks trading at fresh all-time highs, “limiting trendlines” can accurately predict when rallies are likely to stop — or at least lose their momentum.

Continue reading to discover how limiting trendlines can improve your trading efficiency by maximizing your profits in uptrending stocks and ETFs.

What’s So Limiting About Limiting Trendlines? 

speed limit trendlines

A limiting trendline can be drawn by connecting the major “swing highs” (peaks) that appear on the chart of a stock’s long-term uptrend.

 

We refer to these lines as “limiting trendlines” because their presence can swiftly put the brakes on a rally — even with stocks at all-time highs that are otherwise lacking resistance.

This simple concept works best on weekly and monthly chart time frames, preferably using a linear (non-logarithmic) chart.

Determining how to precisely draw these trendlines is not cut and dry; rather, it’s a bit of an art form.

So, we try to keep it honest and filter out the “noise” by simply using logical swing highs as the connecting points on a chart.

Got it? If not, don’t worry!

Just check out the four annotated charts below and it will make perfect sense!

Limiting Trendlines: Nailing Resistance Levels In 4 Hot Stocks

Facebook ($FB)

Facebook is a pretty good example of a stock that had a limiting trendline that connected the highs during the summer of 2014.

It wasn’t until late 2015 that $FB cleared the top trend line and was able to improve the angle of its attack in 2016 and 2017.

Once a stock clears the trendline, the prior resistance line, that same line typically becomes support on the next pullback.
That’s what happened with $FB in early 2016.
$FB’s strong 2017 rally stalled at its limiting trendline in May, and continues to find resistance at the same line.
The touch of the line itself may not be a full sell signal, but can function as a warning that there may be several weeks of chop ahead:

$FB WEEKLY daily

Ollie’s Bargain Outlet ($OLLI)

Looking at the weekly chart of $OLLI below, notice the stock recently cleared two limiting trendlines, which are now acting as support.

A move through the highs of the current range and $OLLI is free of all price and trendline resistance, which means it has the potential to increase its angle of attack:

$OLLI weekly

Alarm.com ($ALRM)

$ALRM is a current long position in The Wagner Daily that recently stalled near the upper channel of its limiting trendline.

Since the touch of the trendline arrived only four weeks after a fresh breakout to new highs, we initially did not sell any of our position.

However, the trendline gave us a heads-up and we sold $ALRM for a 12.8% gain on July 28:

$ALRM weekly

iShares Russell 2000 ETF ($IWM)

The last chart is the weekly of Russell 2000 ETF ($IWM), which has stalled at the limiting trendline on every rally attempt so far in 2017.

A move through the highs of the current range would put the Russell above the trendline and potentially into strong rally mode.

$IWM weekly

The charts above are a few well-groomed examples, but these trendlines do work and have considerable value.

The next time you are examining a chart that is breaking out to new 52-week highs, take a look at the weekly or monthly time frames to locate potential limiting trendlines.

It may just prevent you from entering a trade that has limited upside and allow money to be put to work elsewhere while waiting for the stock to clear the top trend line.

By the way, it’s fine if you do not exactly agree with the way these trendlines at the highs are drawn — just figure out a method that works for you and stick with it.

If you enjoyed this mini trading lesson, sign up now to receive our nightly stock picking newsletter and learn a “no nonsense” trading strategy that simply works.

By the way, your Wagner Daily subscription now includes simple Option picks too — all for just $49 per month or $299 per year (save 50%).

What do you think about “limiting trendlines?” Drop us a comment below with your feedback or questions.

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Learning From Mistakes: Hold Your Winning Stocks Longer! http://www.morpheustrading.com/blog/hold-winning-stocks-longer/ http://www.morpheustrading.com/blog/hold-winning-stocks-longer/#respond Thu, 22 Jun 2017 14:32:20 +0000 http://www.morpheustrading.com/blog/?p=5075 As the first half of 2017 rolls to a close, we recently reviewed our year-to-date trading performance. Specifically, we’ve looked at what we did right and what could have been better. Regular and honest self-assessment of your trading performance is crucial to your long-term success. Our assessment of Morpheus is that stock trading has been […]]]> As the first half of 2017 rolls to a close, we recently reviewed our year-to-date trading performance. Specifically, we’ve looked at what we did right and what could have been better.

Regular and honest self-assessment of your trading performance is crucial to your long-term success.

Our assessment of Morpheus is that stock trading has been fantastic overall; our model portfolio is on track for another year of big wins.

However, we recently made the mistake of selling a winning stock way too early, and for the wrong reasons.

Continue reading for a humble walk-through of that trading mistake, and to pick up a valuable lesson that can help you avoid the same blunder in the future.

Report Card

The first half of 2017 has been great for our style of momentum trading because small and mid-cap growth stocks have been flexing their muscles.

A few stock picks from the newsletter and realtime trading room have produced big gains for subscribers this year:

  • +80% in $MOMO
  • +60% in $AAOI
  • +20% moves in $CTRL, $MDSO, and $BZUN

Our current model portfolio remains in pretty good shape too:

  • +39% in $SQ (open position)
  • +29% in $BABA (open position)

However, we have made our share of trading mistakes along the way.

Probably the biggest slip we made this year was letting a broad market selloff influence our decision making in an individual stock trade.

Even for the most experienced trader, holding a winning position for a big gain when the rest of market is tumbling down is indeed challenging.

But in our continual quest for trading perfection, we are always looking for ways to improve on the challenges.

Here’s what we recently learned when Ring Central ($RNG) zoomed 40% higher after we made the mistake of selling it without a valid cause.

Give And Take

When aiming for quick stock gains of 10-15% over a 1-2 week period, swing traders can often sell into strength, not be forced to sit through an ugly market selloff.

However, the goal of our trading system is to produce super-sized stock gains of 40-100% with an average holding period of 2-6 months.

In order to generate these types of returns (as we recently did in $MOMO), we MUST be comfortable sitting through short-term pullbacks of 5-15% in a stock, or 1-3% in the S&P 500/NASDAQ while heavily long.

How we react under pressure during these brief, but often sharp, declines determines how well our Wagner Daily portfolio performs during any quarter or year.

Jumbo returns do not come easy, but they are possible when sticking to our trading plan and ignoring outside influences.

Ring Central Rally [$RNG]

Our biggest mistake this year was caused by a lack of comfort in holding our winning position in $RNG through an ugly, one-day selloff in the market.

But before we get into where we made the mistake, let’s first take a look at our initial buy entry into $RNG:

$RNG 1

As annotated by the blue horizontal line, Ring Central broke out to new all-time highs from a valid basing pattern in mid-February.

We missed the first breakout, but patiently waited for the price action to tighten up and produce a low-risk entry point.

That happened on March 10, when we alerted subscribers of our entry into $RNG over the prior day’s high, with a stop loss a few percent below the 20-day moving average.

After buying $RNG, the position immediately fell under a bit of pressure because the price closed well below the intraday day, and on increasing volume (on March 10).

$RNG bounced off support (at $26) to a fresh high less than two weeks later, but on lighter volume.

Lacking institutional accumulation, the breakout failed and $RNG tumbled 4% lower on higher volume on March 21.

Notably, that day’s selloff coincided with a decline of 1.4% in the S&P 500 ETF ($SPY).

The combination of the failed breakout in $RNG and ugly breakdown in the S&P 500 prompted us to ditch the stock to cut long exposure in case of continued market selloff — big time mistake!

React — Don’t Predict!

We should have carefully analyzed the price and volume action of $RNG then, or even its relative strength vs the S&P 500.

Instead, we unfortunately decided to sell, in trying to prevent what we expected (predicted) would become a loss.

And this is precisely where we went wrong.

Following our sale of $RNG on March 22, the stock cruised another 40% higher over the next two months.

It did not even close below support of its 20-day exponential moving average a single day during the rally.

Check it out:

$RNG 2

Even now, a few months after our mistake, the chart above is still tough to look at.

Yet, it provides us with an excellent reminder and valuable lesson.

Here’s the part you’ve been waiting for, so grab your smartphone or notebook and jot down these two tasty tips:

1. Always REACT to price action — Don’t PREDICT it!

2. Trade what you see, NOT what you think.

Although $RNG sold off with the market, its volume on the 4% down day (March 21) was not even above average.

Nor did the stock even break below near-term support of its 20-day exponential moving average or prior low.

Finally, our original stop was not even close to being triggered.

This means we violated one the most basic rules of trading: Plan the trade, and trade the plan.

It’s never comfortable to review a scenario and admit your mistakes, but doing so leads to massive personal growth as a trader — and in life too.

The Wagner Daily scored plenty of big wins in the first half of 2017, and we’re focused on profiting from the top stocks in the second half.

Subscribe now and come along for the ride!

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A Simple Options Strategy For Massive Earnings Season Profits http://www.morpheustrading.com/blog/options-strategy-earnings/ http://www.morpheustrading.com/blog/options-strategy-earnings/#respond Wed, 14 Jun 2017 08:09:09 +0000 http://www.morpheustrading.com/blog/?p=5058 trade options around earningsMomentum stock traders face the same dilemma four times a year: Hold winning stocks through earnings season OR close positions ahead of quarterly earnings reports. Selling a winning stock to lock in gains ahead of a company’s earnings report is obviously the safest bet. However, holding through earnings reports is often necessary to “catch the gaps” and yield […]]]> trade options around earnings

Momentum stock traders face the same dilemma four times a year:

Hold winning stocks through earnings season OR close positions ahead of quarterly earnings reports.

Selling a winning stock to lock in gains ahead of a company’s earnings report is obviously the safest bet.

However, holding through earnings reports is often necessary to “catch the gaps” and yield big winners — think 50% to 100% or more.

Ideally, you need an earnings trading strategy that gives you the best of both worlds; you need options.

Continue reading to find out about a simple options strategy that limits your risk and allows for unlimited gains around earnings season.

Profit Buffers Matter

The current amount of unrealized gain is one key factor that should determine if you hold a winning stock through earnings.

If you are already sitting on a bullish stock with a 30 to 50% gain from your entry point, the decision to hold through earnings isn’t that tough.

But what if you’re stalking a stock that is ready to break out, but it’s scheduled to report earnings within the next few weeks?

It’s a challenging dilemma.

Building a position in the stock before its obvious breakout point is tricky because there is no guarantee the stock will gap higher after earnings.

And if the stock remains in its base, you could be stuck with a position that has little to no profit buffer heading into its earnings report.

On the other hand, you can miss out on massive post-earnings gaps if you wait for the stock to report earnings before buying it.

Any way you cut it, trading around earnings season is always a bit of a gamble.

But there’s an easy option strategy you can use that is ideal for this type of situation.

Here’s how it works…

Simple Options Strategy For Earnings

At Morpheus Trading, we need a 10% minimum profit buffer to hold an individual stock through its earnings report (20% is even better).

This being the case, how can we build a position in a stock that is scheduled to report earnings in a few weeks, while keeping risk in line?

The answer is to buy “near the money” call options that are one to six months out (depending on expectations).

These near the money call options are reasonably priced because we buy most breakout trade setups within the base — before the stock actually breaks out of its range.

If we buy a call for $2 to $3, there are no surprises; we know exactly how much we are risking heading into an earnings report.

To show you how it works, let’s walk through an option trade we recently discussed in The Wagner Daily and real-time trading room on April 19 and 20.

paypal-pyplPayPal Pays Off

In late April, PayPal ($PYPL) was consolidating in a tight and narrow range above support of its rising 50-day moving average (just 5% below its all-time high).

Tight price action on declining volume within the range was a bullish sign, so we knew the move into the 50-day moving average (April 17 to 21) could be bought.

But with earnings in the way on April 26, we would be forced to sell $PYPL if it failed to move higher right away — remember the 10% minimum profit buffer requirement.

This is where the easy option strategy comes into play.

Rather than buying PayPal stock, we mentioned the idea of buying a $45 call option with July 21, 2017 expiration.

The call option was trading around $1.50 when we first alerted subscribers in the Realtime Trading Room on April 19 (it was also highlighted in the April 20 newsletter).

With the $45 call, we knew our maximum risk of holding through earnings was limited to the $1.50 paid for the $PYPL call.

Take a look at what happened next:

$PYPL OPTION AND PRICE CHART

As you can see, PayPal broke out above its base and followed-through just a few days before its April 26 earnings release.

Then, fueled by a 9% positive earnings surprise, the stock gapped up and zoomed sharply higher over the next six weeks.

$PYPL stock rallied from around $45 to $55 — roughly a 22% gain.

The $45 call option responded by rocketing from $1.50 to a peak of more than $10 on June 9.

It has since pulled back to the $7.50 area, but the call option is still up 400% since our April 19 trade alert.

Subscribers still holding the winning option contract can maximize profits by trailing a stop below the recent “swing low” support.

However, be aware of time decay as the July 21 expiration date approaches.

Conclusion

A 400% gain on a call option is obviously sweet — but even better is that our risk was limited to just $1.50 per contract, even if PayPal would have cliff dived after earnings.

To be clear, we do not use options with every stock trade; we still swing trade individual stocks, just as we have done since 2002.

Nevertheless, quarterly earnings season provides the perfect opportunity to “up your game” with a simple and effective options trading strategy.

Subscribe now to The Wagner Daily and be instantly alerted to our best option trades in earnings season (and much more).

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Trend Reversion: Can A Winning ETF Strategy Really Be This Simple? http://www.morpheustrading.com/blog/trend-reversion-etf-strategy/ http://www.morpheustrading.com/blog/trend-reversion-etf-strategy/#respond Wed, 07 Jun 2017 09:46:20 +0000 http://www.morpheustrading.com/blog/?p=5045 Jack Lofits ETF trade profitsEditor’s Note: The following is a guest post from Jack Loftis of ETFSwingTrader. Enjoy! Nine years ago, I began trading the “mean reversion” that I still use today. I was very unfamiliar with this type of strategy, and it seemed awkward to me. Nearly a decade later, I have a new name for my ETF trading […]]]> Editor’s Note: The following is a guest post from Jack Loftis of ETFSwingTrader. Enjoy!

Nine years ago, I began trading the “mean reversion” that I still use today.

I was very unfamiliar with this type of strategy, and it seemed awkward to me.

Nearly a decade later, I have a new name for my ETF trading strategy:  Reversion To The Trend.

In addition to becoming second nature, this trading strategy has also generated solid profits — trade after trade, month after month, year after year, and with over 700 trades publicly posted.

The graph below is a cumulative log of all ETF trades I have made so far this year.

Jack Lofits ETF trade profits

Jack’s ETF trades in 2017 (so far)

As you can see, my ETF trades (all of which were shared with subscribers of my service) have generated a steady net worth gain of nearly 4% in less than six months.

Technical Swing Trader

The reason my trend version strategy was awkward for me at the start was because I was conditioned to other, more common styles of trading.

So, let’s compare several typical trading methodologies to contrast what I am doing.

In ancient times, we compared to primary ways of investing: Fundamental and Technical.

Fundamental investing (for the longer term) involved detailed analysis of each company and its financial prospects.

Technical trading, however, relied on charts of the price movement itself, not inferences about future price based on “fundamentals.”

My ETF and ETF option trading strategy is a technical approach commonly known as swing trading.

This means I look for short-term “swings” in an ETF, based on what its price chart tells us.

Swing trading works great for me because it fits my personal disposition and attention span.

My typical holding time is 5 days; I’m safely in cash the rest of the time.

Trend Following vs. Breakout Trading vs. Trend Reversion

Within the realm of technical swing trading, there are a few popular trading strategies to choose from.

So, let’s look briefly at the other, perhaps more familiar, approaches to short-term trading.

Trend Following

Trend following is a proven method of identifying large trends in an equity’s price, hopping on that trend, and holding on for what is hopefully a long ride.

The Turtle Traders were a famous example of this approach, but this method involves many false starts (and small losses) before one of these trends is discovered.

How many veins of gold must the prospector try before he finds the one that goes on “forever?”

Breakout Trading

Breakout trading involves finding a stock with solid momentum that begins to pause and build a sideways base.

When the stock rallies above resistance and “breaks out,” breakout traders jump into the stock.

If you’ve picked the right stock, then a great deal of momentum has built up in the stock while it was building its strength.

Breakout trading is like grabbing a tiger as it escapes its cage, then holding on for dear life.

This trading strategy requires patience, but often results in double-digit percentage returns.

As you may know, Breakout Trading is the basis behind the Morpheus trading strategy employed every day in The Wagner Daily newsletter.

The infamous cup and handle formation is one well-known example of a breakout trade setup.

Trend Reversion

Both strategies above can be extremely successful when applied with a high level of discipline and patience.

But what if you are an impatient person who is not comfortable with the longer holding times required for Trend Following and Breakout Trading?

What if you possess a temperament that drives you to only be satisfied with the sweetest part of a stock or ETF’s move?

In these cases, Trend Reversion may be the perfect strategy for you!

Rather than build positions in a number of equities and patiently wait for them to break out into a strong profit, I prefer to make small percentage profits on trades that end up in the green 90% of the time.

This is also known as “high probability” trading.

By the way, this is not some “bright idea” I personally dreamed up one late night.

Larry Connors, famed hedge fund manager and system developer, created this basic approach that has been tested systematically and exhaustively.

Winning ETF Trend Reversion Strategy: How It Works

Generally, I am dealing with an ETF that has a general directional trend going, and has briefly pulled back from that trend.

I jump on this pullback and hold on for the 5 days or so it takes to “rubber band” back to its ongoing trend.

Then, in a whisker, I take my profit and am off in search of my next victim.

And with “inverse” ETFs, you can profitably trade when the market (or an individual ETF) is moving down as well.

Using leveraged ETFs, you can multiply your dollar profit as well.

Of course, buying something “on the pullback” is an approach we hear about all the time.

But instead of doing this based on “feel,” I select and execute these pullback maneuvers in a very precise and rule driven fashion; this means you can easily replicate my trading system.

To increase my win rate (which I’ve maintained at over 90% since August of 2011), I use a well-tested, methodical strategy of “averaging down” — progressively building trades, rather than jumping in all at once.

All this results in a well-focused trading approach in which I am only in 2-3 trades at a time, but committed with a large position of each ETF in my portfolio.

This requires a very well-honed selection process, as well as careful trade management of positions after they have been established.

But with my daily newsletter service, I have made this winning trading system dead simple to follow!

One hour before the market closes, I simply send you a Final Trade email with the trades I am taking (or selling or holding) that day.

I do my trades with Market on Close orders to simplify the ETF trading process; it could not be easier to do.

Works Great For Options Too

If you have a smaller account that requires exceptional performance, please note that I also provide OPTIONS versions for many of these ETF trade setups.

So far this year, I have won every option trade since the first week of 2017.

That equates to 21 option trades, with an average gain of >20% per trade.

Here’s the proof:

Jack Loftis option trades

Jack’s option trades in 2017 (so far)

If you have a small account, you may also be interested to know that I began trading an actual $5,000 account this year, withdrew $4,000 in profit, and still have a $5,000 account balance.

Here’s a screenshot from my broker that shows it (press image to enlarge):

Jack Loftis account statement

Jack’s option account statement

After seeing the all the winning trades above, let’s get one thing clear: I do not win on EVERY trade, but I do consistently keep up a win rate of >85%.

Do you think you personally could make money with an approach that has been fine tuned for the past 8 years to consistently yield the kind of outstanding results discussed above?

I’ve reached the point where I can now support myself with my trading profits.

Start your trial subscription now to find out if this winning system is right for you too.

As always, please feel free to personally contact me by email or phone with any questions or comments.

Cheers,

Jack Loftis, PhD | founder
ETF Swing Trader - Jack Loftis

PS – Join nearly 13,000 followers of my StockTwits feed to see the thousands of trade ideas I have publicly shared over the years.

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Realtime Trading Room: Like Sitting Next To A Pro Trading Mentor http://www.morpheustrading.com/blog/real-time-trading-room/ http://www.morpheustrading.com/blog/real-time-trading-room/#respond Thu, 18 May 2017 11:16:57 +0000 http://www.morpheustrading.com/blog/?p=5034 deron wagner rick pedicelli morpheusThe Wagner Daily is a nightly swing trading report that is ideal for stock traders who work during the day and can not actively watch the market when it’s open. However, traders who can follow the market actively also receive access to an incredible service we have never discussed before on this blog: the Morpheus Realtime Trading Room. Keep reading to discover how the […]]]> deron wagner rick pedicelli morpheus

Deron Wagner & Rick Pedicelli — Morpheus HQ in the early years (when we had more hair)

The Wagner Daily is a nightly swing trading report that is ideal for stock traders who work during the day and can not actively watch the market when it’s open.

However, traders who can follow the market actively also receive access to an incredible service we have never discussed before on this blog: the Morpheus Realtime Trading Room.

Keep reading to discover how the Realtime Trading Room can help YOU get “the edge” and speed up your journey to becoming a master trader.

No Ordinary Trading “Chat Room”

The Realtime Trading Room is a text and image-based “chat room” that enables you to receive the best swing trading picks and buy signal alerts — LIVE as we see them.

Since you receive these trade alerts in real-time (not while the market is closed), there is a bit more flexibility with the types of stock trade ideas you will receive.

In the Morpheus trading room, you also can ask questions about individual trade setups and receive a personal, direct reply from the Morpheus Trading team.

Don’t worry about disturbing others with your questions because the Realtime Trading Room is “broadcast only.”

The only publicly visible commentary comes from Rick Pedicelli, your professional trading mentor and nightly author of The Wagner Daily report.

Working closely with Deron Wagner (Morpheus founder) for the past 15 years, Rick truly loves to share his immense trading knowledge with people like you — people who are serious about trading success.

That’s why being a member of the Realtime Trading Room is like having a 15-year trading veteran sitting right next to you every trading day!

The best part is that there is no extra cost for trading room access, since it’s included with your Wagner Daily subscription.

And if you miss a day, you can log in and see a transcript of the previous day’s action too.

Below, check out three recent stock picks that have blasted off since Rick’s initial buy alerts in the trading room.

Applied Optoelectronics ($AAOI)

+33% gain in 8 days

This high-momentum trade is a fantastic example of how the trading room gives subscribers a bit more flexibility with buy signals than just the Wagner Daily newsletter alone.

On May 5, Rick detected that $AAOI gapped sharply higher on the open, back above its 50-day moving average and on massive volume.

After reversing off the 50-day MA, he believed $AAOI was a low risk entry point around $49.90, using the 50-day MA as support.

$AAOI followed through nicely by the end of the day, finishing with a 20% gain on volume that was 250% greater than average.

Currently, $AAOI is up about 33% from our trading room entry at $49.99:

$AAOI daily

Weibo ($WB)

+35% gain in 7 days

$WB cleared the downtrend line of the handle part of a cup and handle pattern on May 5, which could have served as the first buy entry point.

The following day, $WB plowed through the handle high with a +4% gain on double the average volume.

$WB was mentioned as a buy on the breakout around $58.70, AND we informed subscribers of our intention to hold $WB through earnings prior to the report.

$WB closed with a 25% gain on 400% higher than average volume on May 16 (post-earnings release).

We remain long $WB and see no reason to sell here, as the stock could continue to rip higher over the next two months:

$WB daily

Momo ($MOMO)

+80% gain in 3 months

$MOMO broke through the handle portion of a cup with handle pattern on February 8, and was mentioned in the Realtime Trading Room as a buy around $23.60.

For stock traders who like to hold swing trades for a few weeks, $MOMO could have been sold into strength for a 30-40% gain, around March 7 or 8.

With $MOMO moving to new all-time new highs on March 7, Rick mentioned that traders could have sold partial share size, while holding the rest of position for a bigger advance.

Marching steadily higher and closing above its 20-day moving average every day since the March 7 gap, $MOMO is certainly an appropriate ticker symbol for this beastly stock!

Presently, $MOMO is up a whopping 80% since Rick’s alert and remains in a rock solid uptrend (upcoming earnings report on May 23):

MOMO daily

As you can see, subscribers who spend their days trading alongside of Rick in the Morpheus Realtime Trading Room have “the edge” they need to succeed.

But the only way to know if the trading room is right for YOU is to GIVE IT A TRY!

TIP: Use promo code “mtgwins” on the sign-up page to receive your amazing, discounted rate of $49/month or just $299/year for your Wagner Daily subscription.

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Candlestick Patterns: A Simple Tool To Improve Your Trading Success http://www.morpheustrading.com/blog/candlestick-patterns/ http://www.morpheustrading.com/blog/candlestick-patterns/#respond Tue, 16 May 2017 09:20:15 +0000 http://www.morpheustrading.com/blog/?p=5003 candlestick patternsAlthough literally thousands of technical analysis strategies exist, we avidly believe in applying the K.I.S.S. principle to trading. Why? The more complex the trading system, the greater the risk of human error while following the system. That’s why the Morpheus stock trading strategy is mainly focused on buying base Breakouts and Pullbacks within uptrends. However, there are easy ways to improve […]]]> candlestick patternsAlthough literally thousands of technical analysis strategies exist, we avidly believe in applying the K.I.S.S. principle to trading.

Why? The more complex the trading system, the greater the risk of human error while following the system.

That’s why the Morpheus stock trading strategy is mainly focused on buying base Breakouts and Pullbacks within uptrends.

However, there are easy ways to improve your existing trading strategy without complicating it.

Continue reading to find out why candlestick patterns are an excellent tool to improve your trading success in a simple way.

Candlestick Patterns For Confirmation

Like other types of stock charts, a candlestick chart displays the high, low, opening and closing prices of a stock for a specific time period.

However, candlestick patterns give valuable clues about the short-term momentum of a stock that are not as easily derived by traditional line or bar charts.

As such, candlestick chart patterns are excellent for confirming any type of pattern you normally trade.

When doing nightly scans to find breakout and pullback setups for the Wagner Daily stock pick service, we use candlestick charts to help confirm bullish or bearish patterns.

We do NOT use candlestick patterns as an actual trading strategy; rather, we use candlestick charts in a complimentary way to help improve our trading accuracy.

Specifically, candlestick patterns are great for confirming the timing of a new trade entry into a breakout or pullback chart pattern.

To see how candlestick patterns can improve your trading success by supplementing your existing trading strategy, check out the video below:

While watching this video, I highly recommend you keep a notebook handy because you may want to jot down some notes on the various candlestick patterns.

Since the video is 20 minutes long, I also suggest you kick back with your favorite coffee, tea, water, soda, beer, wine, or whiskey before getting started.

The robotic narration voice is a bit annoying, but the content is worth it (you can also turn off the audio and read the subtitles instead).

After watching the video, please drop us a comment below to let us know what you think.

We value your opinion, so let us know if you enjoy this type of content and would like to see more in the future.

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Jack’s Back: Here’s A Simple Way To Successfully Trade ETF Options http://www.morpheustrading.com/blog/etf-options-trading/ http://www.morpheustrading.com/blog/etf-options-trading/#comments Tue, 09 May 2017 11:07:09 +0000 http://www.morpheustrading.com/blog/?p=5005 etf options tradingNote: The following is a guest post from Jack Loftis of ETFSwingTrader. Enjoy! Last month, I explained why there is no need to master the “psychology of trading” IF you have a trading system that generates consistent profits with minimal drawdowns. After publishing that article, many traders told me they wanted to try my ETF trading system with a 90% win […]]]> etf options trading
Note: The following is a guest post from Jack Loftis of ETFSwingTrader. Enjoy!

Last month, I explained why there is no need to master the “psychology of trading” IF you have a trading system that generates consistent profits with minimal drawdowns.

After publishing that article, many traders told me they wanted to try my ETF trading system with a 90% win rate, but they felt their trading accounts were too small to successfully follow the method.

Fortunately, there is a simple solution because my ETF trading strategy is designed to easily work for trading ETF options as well.

Continue reading to learn why profiting from options trading can be much easier than you think!

Is Options Trading Complex? Only If You Want It To Be!

Imagine if I told you that, in order to successfully trade options, you do NOT need to know about things such as:

  • “The Greeks”
  • How to construct a spread
  • How to construct an iron candor
  • Determining the implied volatility through dividing by the square root of some calendar spread’s first derivative (this one makes my head hurt)

Indeed, options trading can be quite complex…but only if you want it to be!

For example, if you simply knew whether a stock or ETF will be higher or lower five days from now (nothing more), could you find a way to simply buy a call or a put and make money on it?

Of course you could!

Just like my friend Deron, the founder of Morpheus Trading, I believe a winning trading strategy should be easy to learn and apply in the real world.

options-guruNot An Options Guru

I have never been one of those guys who claims you can get rich from trading options (but there are many out there).

People take course after course, then lose dollar after dollar on the “incredible money making opportunities provided by options.”

I hear such war stories all the time when chatting with subscribers of my service.

Yet, I still don’t want to be that guy.

I don’t want to teach anyone how to trade options; I am not an options guru.

When Size Matters

As you may recall from my previous post, I have a finely-tuned trading strategy that consistently wins 8-9 of every 10 ETF swing trades.

I prefer trading ETFs because they are comprised of groups of individual stocks.

As such, ETFs act like statistical entities and their movements have predictable characteristics.

Because of this, I have been supporting myself by making large bets on small movements of ETFs — bets that are successful nearly 90% of the time.

With a $1 million account, you too could trade this way and make a living.

But what if you have a much smaller account, say in the range of $5,000 to $30,000?

Since my ETF trading strategy is based on small price movements, it would probably not be realistic to expect to earn a living from trading ETFs with an account of that size.

Rather, the only way to significantly grow a small account with my ETF trading methodology is through some kind of options strategy.

Applying ETF Trades To Options

For the past nine years, I have been publicly posting around 10 ETF trades per month, with an average win rate around 90%.

About half of these trades have been appropriate for an options trade version.

Since the first week of 2017, I’ve scored a 20% average gain on all my option trades, with 17 winning options trades in a row (no losing options trades yet this year).

And here’s the best part…

simple trading strategy

All I do is buy calls or puts, based on the normal ETF setups I am trading in my large account.

Like I said, no complex knowledge of options is needed.

And since you would be a fool to think I can predict perfectly when an ETF is going to reverse direction, I build these option trades progressively.

This greatly improves the win rate.

Again, I am no options guru and I don’t want to teach anyone how to trade options.

But if you are at least used to the volatility of options trades, and know that 9 out of 10 times the underlying ETF will move in the direction of the option over the next few days, do you think you could make money?

When you sign up for my service, you will receive an explanation about every ETF trade setup I share with you.

I also provide you with both a relatively aggressive and relatively conservative equivalent options trade version (when appropriate).

If you want to see my results for yourself, here is a list of my actual options trades in a $30,000 account, as well as trades I have executed this year in much smaller accounts.

These are trades that made the money to keep taking my wife out to dinner (so she lets me keep on trading).

For just 30 bucks, you can test drive my service for a month and see if its right for you too.

As always, please feel free to personally contact me by email or phone with any questions or comments.

Cheers,

Jack Loftis, PhD | founder
ETF Swing Trader - Jack Loftis

PS – Join nearly 13,000 followers of my StockTwits feed to see the thousands of trade ideas I have publicly shared over the years.

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5 Tips For Buying The Best Breakout Stocks (With Less False Signals) http://www.morpheustrading.com/blog/tips-best-breakout-stocks/ http://www.morpheustrading.com/blog/tips-best-breakout-stocks/#respond Mon, 01 May 2017 20:28:53 +0000 http://www.morpheustrading.com/blog/?p=4990 tipsBuying a range breakout is a popular stock trading strategy, but which breakout stocks have the best chance of following through for monster gains? Continue reading to learn five valuable tips that will help you buy the best breakout stocks (with less false signals). The wide popularity of breakout stock trading is owed to the simplicity of […]]]> tipsBuying a range breakout is a popular stock trading strategy, but which breakout stocks have the best chance of following through for monster gains?

Continue reading to learn five valuable tips that will help you buy the best breakout stocks (with less false signals).

The wide popularity of breakout stock trading is owed to the simplicity of the concept — a stock that is range-bound must eventually “break out” in order to move higher.

Breakout stock trade setups are relatively easy to spot when scanning charts, but you may need to deal with a high percentage of false buy signals if you do not have objective guidelines to follow.

In this article, we will share with you a handful of simple rules we discuss a few techniques to help reduce the number of false breakouts.

In order to improve your performance in breakout stocks, you should first look to trade only valid basing patterns.

If you are not familiar with basing patterns, you may press here for a quick primer before proceeding.

5 Tips For Buying The Best Breakout Stocks (With Less False Signals)

In a recent blog post, we alerted you to a potential breakout in New Relic ($NEWR) and highlighted several basing patterns on the stock chart.

Now, we again use charts of $NEWR to demonstrate the five tips to improve your performance when buying breakout stocks.

The first three tips below reference the first weekly chart that follows.

1. Be wary of wide bases

The first base (A) is wide, with nearly a 50% pullback off the highs.  In general, patterns where the price corrects more than 30-40% off a recent high are not ideal. In this chart, we also see the majority of that base formed well below support of its 40-week moving average, which is also not ideal. Since the rally off the lows of that base (~$20) shot the stock 90% higher to the $38 area, the stock probably won’t have much gas left in the tank to break out to new highs without first going sideways for at least several weeks.

2. Use caution with V-shaped patterns

In the second base (B), the stock corrects about 27% off its high and dips below the 40-week moving average again.  However, this dip below the 40-week MA isn’t nearly as bad as the prior base, and is not a deal breaker.  Nevertheless, the sharp run-up from the lows of the base to the highs in just four weeks (in January) gives the pattern a V-shaped look.  A V-shaped pattern, especially with a very quick move up the right side of the base, is a red flag.  We would have preferred the price action stall for a week or two to form a handle (short pause) before breaking above the prior high.

3. Shallow corrections are best

The correction in the third base (C) is shallow, with a pullback just 17% off the high.  It is easily the tightest correction of the three, with several weeks of tight price action holding above its rising 10-week moving average.  We also see the entire base forming above a newly rising 40-week moving average.  This is the sort of basing action that frequently leads to an explosive breakout.  Of course, we have no way of knowing for sure, but this is the breakout to buy (if the price breaks out above the range).

MONTHLY

4. Aim for early entry points

As soon as a stock rallies above the high of its range, it prompts many breakout stock traders to buy the breakout at the most obvious point. However, you should instead consider buying a stock “early,” prior to its blatantly obvious breakout pivot. By getting an early entry, only within a tight base nearing a breakout level, you reduce your risk in the event of a false breakout. You can further reduce your capital risk by reducing the share size of your initial entry, then adding to the position when the breakout is confirmed (only add to a winning position).

5. Use the Relative Strength Line for confirmation

Measuring a stock’s strength relative to the S&P 500 is a reliable way to to confirm a bullish chart pattern, as explained in this article.

The relative strength line is a technical indicator available on many trading platforms that helps confirm a stock’s true strength in current market conditions.

The relative strength line used here is calculated by diving the price of $NEWR by the price of $SPY.  This line is not to be confused with the RSI indicator.

The higher the reading of the relative strength line, the more bullish for the stock.

If a breakout stock moves perfectly in sync with the S&P 500, the relative strength line would move in step with the price of the stock.

But what we’re really looking for is the relative strength line to rally to new highs ahead of the price, which would offer a valuable clue that the stock is quite strong.

On the weekly chart of $NEWR below, the top half shows the price action of the stock, while the bottom half shows the relative strength line:

Point A – $NEWR has rallied almost 100% off the lows and is close to the prior high of $40 (~ $38.70).  The relative strength line does not confirm the price, as it stops well shy of the prior high.  $NEWR lagged the S&P during that advance.  With the relative strength line not confirming after a 50% correction, point “A” would not yet be an ideal time to buy the stock in anticipation of a breakout.

Point B – $NEWR breaks out in late January above the highs (point “A”).  But, the price action is once again not confirmed by the relative strength line, which this time isn’t anywhere near the last high at point “A” (negative divergence).

Point C – $NEWR clearly shows a base with the most potential, forming a tight-ranged pattern above the rising 10-week MA.  The relative strength line finally confirms the price action here, as the line has moved in step with the price action and has actually outperformed, making a “higher high” at point “C” ahead of the price. THIS is what you want to see and indicates the stock may soon breakout of its tight range.

 daily

$NEWR – Poised For The Best Breakout

Applying your five new tips for buying breakout stocks, the tight basing action and confirmation from the relative strength line suggest that $NEWR could now be ready to stage a powerful breakout.

Subscribing members are already long New Relic in The Wagner Daily newsletter, from earlier buy points of $38.60 and $39.50.

Again, we have no definitive way of knowing if $NEWR will follow through with its breakout, but we believe the odds of a successful breakout are now in your favor.

When buying breakout stocks, keep in mind that overall broad market health and volume analysis both remain factors to consider.

Also, be aware that $NEWR is tentatively scheduled to report its quarterly earnings on May 9.

What is your favorite tip for buying the best breakout stocks? Drop us a comment below to share your thoughts.

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Breakout Alert: Why New Relic Is Poised To Explode Higher [$NEWR] http://www.morpheustrading.com/blog/breakout-stock-newr/ http://www.morpheustrading.com/blog/breakout-stock-newr/#respond Thu, 20 Apr 2017 12:19:35 +0000 http://www.morpheustrading.com/blog/?p=4983 new-relic-logoSan Francisco-based software analytics firm New Relic ($NEWR) is a relatively new IPO from late 2014 with explosive potential. Continue reading to see why this stock is so hot. With $NEWR forming a tight-base near the highs its two-year trading range, let’s walk through the charts of multiple timeframes to analyze the breakout setup. The Big […]]]> new-relic-logo
San Francisco-based software analytics firm New Relic ($NEWR) is a relatively new IPO from late 2014 with explosive potential. Continue reading to see why this stock is so hot.

With $NEWR forming a tight-base near the highs its two-year trading range, let’s walk through the charts of multiple timeframes to analyze the breakout setup.

The Big Picture

Many traders place too much emphasis on the daily chart timeframe, with very few looking at monthly, or even weekly charts.

But this is a mistake because longer-term charts provide so much “big picture” insight.

The monthly chart of $NEWR really shows just how tight the price action has been as of late, with two months in a row of tight ranged trading prior to this month’s breakout.

Last month’s action produced an inside candle as well.

Whether a daily, weekly, or monthly chart, an inside candle shows price contracting, which leads to price expanding (although not always in the desired direction):

$NEWR MONTHLY

Now that we have a stock that is trading near the highs of a two-year range, let’s take a look at the weekly chart to see if we can identify any valid basing patterns.

If there isn’t a valid base in play, then we are forced to sit on the sidelines and wait for one to develop.

Three Bases

Looking at the weekly chart below, we see three bases that have formed since late 2015.

The first base at point A was a bit too wide in pulling back nearly 50% off the high.

The second base at B was much more healthy correction off 25% off the high, but note how the right side of the pattern ran from the lows of the base to the highs in just a few weeks.

That sort of rapid run up is not ideal. Note that the price stalled at the prior high before reversing lower.

The current base at C has the most potential, only pulling back less than 20% off the highs while holding above the rising 10 and 40-week moving averages.

Note the tight closes from week to week before breaking above $37.50, which is a sign of accumulation:

$NEWR

With a tight weekly base in play and a monthly that is potentially ready to set a new all-time high, $NEWR is an ideal buy candidate, so let’s find an entry.

Off To The Races

In early April, we were monitoring $NEWR for a potential breakout entry around $37.50.

That breakout did arrive on April 5 in the form of a 3% opening gap up that closed with a 5% gain.

Volume confirmed the price action as it was 260% greater than average (bullish day to say the least).

After stalling at $40, $NEWR began to pull back in, closing in on the 10-day MA.

However, since the breakout was so strong, we decided to place a buy limit order above the rising 10-day MA on April 11, which triggered at $38.60:

$NEWR DAILY

After a few days of light volume chop, $NEWR sold off with the market on April 13, but swiftly bounced back after closing in the top third of the day’s range and finding support at the breakout pivot.

The reversal action on an ugly down day in the market reveals $NEWR’s relative strength, which should be your main trading focus in the current market environment.

Because of its relative strength, $NEWR also has a good shot at becoming a new leading stock when overall market conditions improve.

Subscribe now to be alerted of our exact entry and exit points in $NEWR and other top relative strength stocks setting up for swing trade buy entry.

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Relative Strength Trading: How To Pick Winning Stocks In A Choppy Market http://www.morpheustrading.com/blog/relative-strength-trading/ http://www.morpheustrading.com/blog/relative-strength-trading/#respond Wed, 12 Apr 2017 11:21:16 +0000 http://www.morpheustrading.com/blog/?p=4971 choppy roadIn a raging bull market, you can do pretty well by simply buying nearly any stock that breaks out to new highs on strong volume. After all, as JFK famously said in 1963, “a rising tide lifts all boats.” But when the stock market is in correction mode, breakouts and other reliable bullish patterns have a greater […]]]> choppy roadIn a raging bull market, you can do pretty well by simply buying nearly any stock that breaks out to new highs on strong volume.

After all, as JFK famously said in 1963, “a rising tide lifts all boats.”

But when the stock market is in correction mode, breakouts and other reliable bullish patterns have a greater risk of failing.

If you’ve been getting chopped up by your trading lately, you know exactly what I mean.

In sloppy markets like the current environment, you need a more effective stock picking strategy and relative strength trading is the answer.

Continue reading to find out how relative strength trading can increase your profits and lower your frustration now.

Not In Kansas Anymore

The overall stock market trend remains bullish, with most broad market indices still trading above their respective 50-day moving averages.
However, the short-term trend has been choppy and most indexes have been hanging around their (flat to slightly declining) 20-day moving averages in recent weeks.
When the intermediate-term market uptrend is still intact, but the short-term trend is sideways, it can be challenging to find low-risk stock breakouts to trade.
This is because bullish momentum helps stocks trend higher, but choppy and indecisive near-term momentum makes it difficult to remain in positions without your stops getting hit.

As such, it is crucial you do not continue to operate as though stocks are still in a strong (short-term) bull market that can generate winning stock trades because of a dominant market trend.

With the major averages now in “chop mode,” most new trade entries will have a tough time following through due to the lack of help from the broad market.

It’s time to be more selective and more careful.

It’s time to start trading only stocks with clear relative strength to the market.

relative strength

Relatively Simple

The concept of pattern relative strength trading is relatively simple.

When the short and intermediate-term timeframes of the market are out of sync with each other, most individual stocks simply trade alongside of the averages, content to oscillate in a range.

But one benefit of a choppy, range-bound market is that it’s faster and easier to spot stocks that are clearly outperforming the S&P 500 or other indexes.

Stocks with the best relative strength will continue printing “higher highs” and/or “higher lows” while the S&P 500 is doing the opposite.

At the very least, stocks with relative strength should at least continue holding onto support of a prior low while trading in a tight range.

Quiz Time

QUESTION: If a stock is so strong that it continues higher (or at least sideways) while the S&P 500 and other major indices are trending lower, what happens when the S&P 500 eventually finds support and starts rallying again?

ANSWER: Aided by a broad-based bounce, the stock with relative strength rockets to new highs (way ahead of the major indices). As a bonus, if the S&P 500 continues much too low before bouncing, stocks with relative strength are typically the last to fall.

relative-strength-stocks

4 Stocks With Relative Strength Now

With the S&P 500 drifting sideways to lower for nearly two months, The Wagner Daily has been focused primarily on buying stocks with relative strength.

Below are four clear examples of stocks currently showing relative strength to the S&P 500 that subscribers traded in recent weeks.

1. Momo ($MOMO)

Chinese Internet ADR Momo ($MOMO) has been on our radar since we first mentioned it as a buy setup in the Morpheus chat room (included with Wagner Daily service) on February 8.

Subscribers were alerted to the buy entry near the $24 level, enjoyed a 30% rally in $MOMO, then sold in the low $30s a month later.

On April 6, $MOMO re-appeared on our intraday buy watchlist after forming a bullish reversal candlestick.

The next day, subscribers once again received a heads-up that $MOMO was a valid buy entry around the $35 area.

On April 10, the stock broke out from its base to a new high and we remain long the position (from chat room entry).

Looking at the chart below, notice how pattern relative strength became apparent well before that breakout:

$MOMO relative strength

As the S&P 500 ($SPY as ETF proxy) began forming lower lows in March, $MOMO started printing higher lows.

This early display of pattern relative strength enabled the stock to breakout to new highs as soon as the S&P 500 began stabilizing in April.

2. Innoviva ($INVA)

Like Momo above, Innoviva ($INVA) is an excellent example of a stock with relative strength.

While the S&P 500 ($SPY) has been in pullback mode, $INVA has been setting higher highs and higher lows.

We listed $INVA in the April 10 issue of our stock trading newsletter as a potential buy entry at $13.86.

Fueled by pattern relative strength, $INVA broke out to new highs that day while the S&P 500 was stagnant:

$INVA relative strength

3. Xcerra ($XCRA)

$XCRA was another trade setup shared with subscribers in the chat room on April 7, with a potential buy entry above the high of the previous day’s bullish reversal candlestick.

The next day, $XCRA gapped sharply higher on the open and subscribers sold into strength for a quick 10% gain on a two-day hold:

$XCRA relative strength

Admittedly, the massive gap up on April 10 was just lucky.

However, when a stock exhibits relative strength to the broad market, it only takes a little bit of good news to generate an overly positive price reaction.

That’s why, after nearly two decades of trading stocks, we have learned that “luck” happens a lot more when you’re already trading stocks with relative strength to the market.

By the way, did you notice that the relative strength in $XCRA is not as obvious as the first two examples?

Both $MOMO and $INVA were setting higher lows while the S&P 500 was setting lower lows.

But with $XCRA, the stock merely held support of its prior lows and traded in a sideways range.

This is generally not as bullish as a stock that’s setting higher lows instead, but it still indicates relative strength.

4. Clean Energy ETF ($PBW)

The last example of relative strength is PowerShares Clean Energy ETF ($PBW), a green ETF that tracks a group of stocks in the clean energy sector.

While the first three examples all showed early relative strength versus the S&P 500, $PBW generally traded in sync with the S&P 500 during the first month of the market pullback.

However, $PBW began showing relative strength about one week ago, which was confirmed by its April 10 base breakout to a new high:

$PBW relative strength

Time For Action

Nobody knows how long the stock market will continue to oscillate in a range before establishing a new, short-term trend.

If your usual bullish trade setups are not working in this environment, don’t fight it!

Now that you know how to find stocks with relative strength, use that powerful tool in your trading arsenal instead.

Don’t overcomplicate it either.

In choppy markets, just stick to trading stocks that hold up best while the market moves sideways to lower.

If you don’t have the time or desire to scan for stocks with the most relative strength now, we’ve still got you covered.

Sign up now for your subscription to The Wagner Daily and receive the best stock trade setups with relative strength daily.

By the way, remember to use promo code “ny49” to receive our 15-year anniversary pricing (just $49/month or $299/year).

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