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Mastering False Breakouts: Turn Market Disappointments into 20% Gains

Deron Wagner — Fri, 12 Jul 2024 10:37:00 +0000

Discover how a failed breakout led to a 20% gain in Arista Networks. Learn the secrets of turning market setbacks into profitable opportunities with our expert swing trading strategy.

Hey there, Market Warriors! Deron Wagner here, founder of Morpheus Trading Group. Today, I’m thrilled to share with you an eye-opening strategy that could revolutionize your trading game. Imagine turning a failed breakout into a whopping 20% gain in just a few weeks. Sounds too good to be true? Well, buckle up because that’s exactly what happened with our recent swing trade in Arista Networks (ANET).

We’ve all been there – watching a stock breakout, only to see it plummet days later, leaving a trail of discouraged traders in its wake. But what if I told you these failures could actually be hidden gold mines?

Today, we’re diving deep into the world of false breakouts, and our head stock analyst, Rick Pedicelli, is here to walk you through our potent strategy that’s been turning market disappointments into profit machines.

Understanding False Breakouts:

Before we dive into the juicy details of our ANET trade, let’s get crystal clear on what a false breakout actually is. Rick explains it beautifully:

“A false breakout occurs when a stock moves out from several weeks of sideways action, typically three to four weeks, breaks out, and then moves back into that base, undercutting the base high.”

The key here is timing. We’re not talking about breakouts that fail after two to three weeks – those are just pullbacks. We’re looking for breakouts that fizzle within five to seven days tops. This quick reversal is what creates our golden opportunity.

Why do false breakouts happen? It’s often due to late-to-the-party buyers jumping in at obvious entry points. When the stock fails to follow through, these newer traders are quick to exit, triggering stops and creating a snowball effect of selling.

The ANET False Breakout Setup:

Now, let’s dissect our ANET trade. This setup was particularly interesting because it wasn’t your typical two to five-day false breakout. Instead, we saw a pullback reset over several weeks.

Here’s how it played out:

The Initial Breakout: ANET broke out above an
obvious high.
False Move: It attempted to move higher but failed
within about eight days.
The Pullback: The stock pulled back, undercutting
the low of the breakout day.
The Setup: Price action tightened up significantly,
going from a 12% range to just 3.5-4%.
The Entry: On June 11th, we placed a buy stop
above the high of June 10th, which was also above
the downtrend line and the 8 and 20-day EMAs.

What made this setup so powerful was the combination of technical indicators aligning perfectly. We saw a touch of the 10-week moving average, bullish reversal action, and a tightening price range. This convergence of factors gave us the confidence to enter the trade.

Risk Management and Trade Execution:

One of the most crucial aspects of trading false breakouts is managing your risk. In the ANET trade, we placed our stop beneath the 289 level. This gave us enough room to withstand some volatility while still protecting our downside.

As the trade progressed, we took a tiered approach to taking profits:

We took some off the table for a 9% gain on June
13th.

We took more off for a 15% gain on June 21st.

We continue to hold a partial position with a 20%
gain, using the 8-day EMA as our trailing stop.

This approach allows us to lock in profits while still participating in potential further upside.

Key Takeaways for Trading False Breakouts:

1. Look for Gentle Pullbacks: Ideal false breakout setups often involve a gentle pullback rather than
extreme volatility.

2. Use Moving Averages: The 8, 20, and 50-day EMAs can provide excellent entry and exit points.

3. Be Patient: Wait for the price action to pause at a moving average, stall, and then push higher before
entering

4. Manage Your Risk: Have a clear plan for stop placement and stick to it.

5. Take Partial Profits: Don’t be afraid to take some money off the table as the trade moves in your favor.

6. Stay Flexible: Be ready to re-enter if you get stopped out but the setup remains valid.

7. Protect Your Mental Capital: Develop a systematic approach to exiting trades to avoid emotional
decision-making.

Bonus Tip:

If you find yourself caught in a false breakout, consider this strategy:

Place a stop beneath the low of the breakout day and
sell partial size there.
If it closes below the breakout day, sell more or all of
your position.
If it goes below the day that undercut the breakout
day low, exit any remaining position.

Remember, Market Warriors, failed breakouts aren’t failures – they’re profit opportunities in disguise. By mastering this strategy, you’ll be able to feast while others starve in the market jungle.

Conclusion:
Trading false breakouts requires a combination of technical analysis, risk management, and psychological fortitude. By following the strategy outlined in this post, you’ll be well-equipped to turn market disappointments into profitable trades.

There’s a lot more in this video. So WATCH!

Elevate your trading journey with Morpheus Trading and Rick Pedicelli’s wealth of experience.

If you found these insights valuable, hit that like button and subscribe for more in-depth analyses.

For precise entry and exit points on top swing trade setups, visit MorpheusTrading.com and join our MTG Tribe.

In trading, the learning never stops. Keep pushing, keep growing, and always trade with confidence.
And always remember, trade what you see, not what you think!

Join the exclusive MTG tribe in uncovering potential profit opportunities with a proven swing trading strategy.

Thanks for joining us on this journey, and until next time, happy trading!

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The post Mastering False Breakouts: Turn Market Disappointments into 20% Gains appeared first on Swing Trading Blog | Trading Strategy Articles | Trading Tips.

Mastering the Art of Holding: A Case Study with Nvidia from Morpheus Trading Group

Deron Wagner — Tue, 20 Feb 2024 11:37:00 +0000

Unlock the secrets of mastering the art of holding onto winning trades with Morpheus Trading Group’s latest blog. Join seasoned trader Rick Pedicelli as he takes you through an in-depth analysis of a recent trade in Nvidia, revealing strategies that led to an impressive 40% gain. Learn the intricacies of trade management, the significance of explosive price action, and the power of doing nothing. Whether you’re a short-term swing trader or a longer-term position trader, this blog provides valuable insights to elevate your trading game. Don’t miss out on the potential for big wins—subscribe, hit the like button, and trade what you see, not what you think.

Are you tired of selling your winning trades too soon? If you’ve ever wondered how to maximize gains and avoid missed opportunities, you’re in for a treat. In this comprehensive blog, we’re delving into the recent Nvidia trade from the renowned swing trading letter, The Wagner Daily, by Rick Pedicelli of Morpheus Trading Group. This trade is still open, boasting an impressive 40% gain. Join us as we break down the strategies and tactics employed to ensure you never miss out on those significant gains again.

Unveiling the Nvidia Trade
I’m Rick Pedicelli, and with over two decades of trading experience, I’m here to guide you through the intricacies of holding on to winning trades for substantial gains. If you’re eager to enhance your trading skills and make informed decisions, hit that like button, subscribe to our channel, and let’s dive into the Nvidia trade.

Why Nvidia?
With thousands of stocks to choose from, why did Nvidia make it to Morpheus Trading Group’s watch list? The answer lies in the quest for explosiveness. Morpheus looks for stocks with the potential to surge 30%, 40%, or even 50% higher over a few weeks. How is this potential identified? By examining the stock’s historical performance. In the case of Nvidia, a remarkable 160% move in late 2022 to early 2023 caught Morpheus’s attention.

What’s even more impressive is that following this explosive rally, Nvidia only retraced 22% of the advance. A tight consolidation phase ensued, indicating strength and resilience, key attributes of a quality leader in the midst of a robust run.

Nvidia’s Journey to the Watch List
Nvidia’s journey to Morpheus’s watch list involved careful observation of its price action. A failed breakout attempt in late November, marked by a 22% pullback and oscillation around the 10-week moving average, became a positive sign. This pullback, unlike previous instances, showcased a change in character, holding above the moving average.

The subsequent price action revealed a tightening pattern, with pullbacks reducing from 22% to 11% and then 6%. Simultaneously, the 10-week moving average transitioned from a sideways trend to an upward trajectory. The breakout eventually occurred, leading to Nvidia making it to the daily watch list.

Decoding the Breakout
Analyzing the daily chart, the breakout on January 8th became a pivotal moment. The decision to buy Nvidia was not based on a perfect setup but on the explosiveness of the price and volume action. The breakout was supported by strong volume, well above average, signaling a green light for Morpheus to enter the trade.

While the entry point at around 510 wasn’t perfect, the explosive nature of the price action superseded the need for perfection. In a bull market, Morpheus typically aims for at least a 20% return with stops ranging from 4% to 8%. The objective is to catch a 20% winner, with the potential for gains exceeding 40% considered highly lucrative.

The Importance of Doing Nothing
Once in the trade, the number one rule for holding on for a bigger gain is surprisingly simple—do nothing. When a stock is cooperating in a strong market, there’s often no need for constant intervention. The best trades are often the easiest ones to sit in, requiring minimal management.

During the Nvidia trade, holding above the 8-day Exponential Moving Average (EMA) became the guiding principle. As the price action remained above this critical level, there was no reason to panic or sell. The strategy involved selling partial size at a 20% gain and letting the 8-day EMA guide further exits.

Trade Management: A Fine Balance
Trade management involves striking a balance between maximizing profits and minimizing risk. Depending on your trading style—short-term swing trader, intermediate-term trader, or longer-term position trader—decisions on when and how much to sell vary.

For short-term swing traders, selling a partial size at a 20% gain is advisable, with the 8-day EMA serving as a guide for the remaining position. Intermediate-term traders might opt to sell half the position and hold on to the rest, while longer-term position traders could hedge risk with options or sell a third of the position, holding through the earnings report.

Navigating Earnings Season
As Nvidia prepares to report earnings, the cautious approach is to lock in gains, especially if holding a substantial position. The risk of a gap down after earnings could result in a significant loss. Traders can choose to sell into strength, giving them control and peace of mind.

For those with a more extended trading horizon, holding a smaller portion through earnings might be an option. However, this decision is subjective and should align with individual risk tolerance and trading plans.

The Power of Simple Techniques
The success of holding onto Nvidia with an unrealized gain of approximately 42% boils down to the application of simple techniques. The rule of doing nothing until there’s a close below the 8-day EMA eliminated unnecessary emotional interference. Following a plan, sitting on your hands, and letting the trade play out were the keys to success.

Trade What You See, Not What You Think
In wrapping up this in-depth analysis of the Nvidia trade, the Morpheus Trading Group emphasizes the importance of staying disciplined, following proven strategies, and letting the market guide your actions. The journey from identifying explosive stocks to executing trades and managing them requires patience, but the potential for substantial gains makes it worthwhile.

The following video is a MUST WATCH!

Join the MTG Tribe Today
For in-depth analysis, top swing trade setups, and a supportive community dedicated to successful trading, visit MorpheusTrading.com and click on stock picks.

Join the MTG Tribe today and trade what you see, not what you think. Elevate your trading journey with Morpheus Trading and Rick Pedicelli’s wealth of experience.

Elevate your trading journey with Morpheus Trading and Rick Pedicelli’s wealth of experience.

If you found these insights valuable, hit that like button and subscribe for more in-depth analyses.

For precise entry and exit points on top swing trade setups, visit MorpheusTrading.com and join our MTG Tribe. Thanks for joining us on this journey, and until next time, happy trading!

Join the exclusive MTG tribe in uncovering potential profit opportunities with a proven swing trading strategy.

Thanks for joining us on this journey, and until next time, happy trading!

Stay Connected:

Stay Informed:

The post Mastering the Art of Holding: A Case Study with Nvidia from Morpheus Trading Group appeared first on Swing Trading Blog | Trading Strategy Articles | Trading Tips.