Rick Pedicelli. – Swing Trading Blog | Trading Strategy Articles | Trading Tips

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.

Striking Gold: How to Catch a Once-in-a-Decade Breakout Move

Deron Wagner — Fri, 15 Mar 2024 10:37:00 +0000

In trading, timing is everything. Catching that massive breakout move that can deliver life-changing gains is the dream of every trader. And according to veteran trader Rick Pedicelli from Morpheus Trading Group, we may be staring at just such an opportunity right now in the gold market. Read on as Rick breaks down this potential “trade of the year” setup.

Have you been patiently waiting for that perfect, low-risk entry to get aboard the next big market move? Well, according to Rick Pedicelli, head stock analyst at Morpheus Trading Group, the opportunity you’ve been hunting for may have just arrived in the form of a monster breakout in gold and gold ETFs like GLD.

Rick, a 20-year trading veteran, believes the recent smash through resistance to new all-time highs in the gold space could be the starting gun for a massive trend run coming off a multi-year consolidation period. And in this post, he’ll walk us through his analysis step-by-step, revealing specific price levels and techniques to capitalize on this potential “once-in-a-decade” opportunity.

The Big Picture: A Decade-Long Base is Breaking

To understand the full scope of this setup, we need to go back and look at the long-term monthly chart of gold. On this timeframe, Rick points out, the price action “speaks for itself”:

For over 10 years after the 2011 highs, gold traded in a massive basing pattern, testing and failing to break through those lofty peaks on multiple occasions from 2012-2022.
It wasn’t until late 2023 that gold FINALLY began showing strength, clearing the 2011 highs and entering a tight range just above that key resistance zone.
Then in March 2024, the fireworks truly began as gold blasted through this multi-year chop zone, taking out the prior peaks from left to right in a powerful breakout move.

As Rick states, “It doesn’t get much better than that in terms of just a ton of energy stored up here in the past few years and the price just busting through a big level.”

When you consider the length and tightness of this decade-plus long base, it highlights the potential energy that could be unleashed now that gold has cleared this stubborn ceiling. As the saying goes, “the bigger the base, the higher in space” – pointing to the possibility of an explosive longer-term uptrend if this breakout holds.

Finding the Ideal Low-Risk Entry

Of course, as swing traders, simply buying the breakout near current levels isn’t the ideal approach according to Rick’s methods at Morpheus Trading Group. Instead, he advocates patiently waiting for a pullback to develop within the new uptrend to get a more advantageous risk-reward entry point.

Some of the prime entry areas to watch for include:

A pullback to the rising 8-day EMA (the 9 or 10-day EMA works too depending on your preference)
A deeper retracement to test the rising 20-day EMA
Possibly even a flush to take out the prior breakout pivot area around $193 before resuming higher

The goal, as Rick explains, is to let the price action provide a lower-risk entry point from which traders can set a reasonable stop-loss, rather than simply chasing the breakout at current levels.

Rick notes that given the magnitude of this long-term breakout setup, taking an initial “position trade” entry now isn’t a bad approach, as long as traders are willing to give it plenty of room by setting an wider stop-loss, such as:

Below the rising 50-day MA (which is also conveniently below the $193 breakout pivot area)
Or by using the February lows as your final ‘line in the sand’ stop level

Taking this position trade entry approach provides some breathing room and allows you to have some “mal positioned” size on the trade to take advantage of the upside. Rick suggests that as long as the price action is holding above the 20-day EMA, additional entries on weakness can still be taken from there.

Key Takeaways

To summarize the core points covered:

A major breakout is underway in gold and GLD after over a decade of basing/consolidation
This is a potential “once-in-a-decade” opportunity given the length of the base
For optimal entries, wait patiently for pullbacks to the 8-day or 20-day EMAs
As an alternative, take an initial position trade entry now with a wider stop below $193
Trail stops under the rising 50-day MA or use the February lows as a final ‘line in the sand’ stop
Stay disciplined, manage risk, and be ready to capitalize on the next major gold uptrend

Having covered the key trading takeaways, let’s recap the overall game plan that Rick outlines in more detail:

The Position Trade Approach

While GLD isn’t offering a fresh, low-risk swing trade entry at the moment, because of the magnitude of this breakout from a powerful 3-year base, Rick suggests taking a more conservative “position trade” approach can be warranted.

The idea is to:

Buy some initial shares around the current $200 area
Then add to the position on any weakness back to the 8-day EMA over the next week
And potentially double-down again on a deeper pullback to the rising 20-day EMA zone

Rick’s rationale is that the massive energy from this long-term breakout could easily support a 15-25%+ advance from current levels. So while position trading often requires keeping wider stops, the large potential reward on this setup makes it acceptable.

The important keys with this approach are:

Only taking partial size at a time to limit initial risk
Averaging in more shares on any near-term pullbacks
Maintaining a reasonable stop under the February lows or below the rising 50-day MA

As Rick summarizes, “the price action on this breakout should hold above the 20-day EMA and should not pull back into the 50, especially with the 50 below the breakout pivot.”

By being patient, keeping risks controlled, and letting the uptrend confirm itself, traders can maximize their chances of catching the entire move if this breakout does continue powering higher as anticipated.

Key Takeaways (revisited):

Multi-year breakout = potential multi-year uptrend
Wait for pullbacks to rising 8-day or 20-day EMAs for entries
Consider taking initial position trade entry with wider stop
Trail stops under rising 50-day MA or Feb lows
Stay disciplined and let uptrend confirm before adding more size

Does this analysis of a potential “once-in-a-decade” trading opportunity in gold/GLD resonate with you? If so, head over to MorpheusTrading.com and check out Rick’s stock pick services to accelerate your trading success! And let me know if you have any other questions.

The following VIDEO is a MUST 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.
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!

Stay Connected:

Stay Informed:

The post Striking Gold: How to Catch a Once-in-a-Decade Breakout Move appeared first on Swing Trading Blog | Trading Strategy Articles | Trading Tips.