Our top 3 swing trading setups

Deron Wagner
Founder
Morpheus Trading Group

Overview of core beliefs

z

z
z

Swing trading in the near to intermediate-term timeframe is the

best fit for overall strategy
Trading with the intermediate-term trend
Momentum-based strategies work!
An object in motion tends to stay in motion
Stocks trading near 52-week highs have the least amount of
overhead resistance
Cheap stocks are cheap for a reason
We buy high and sell higher, not buy low and sell high
Human nature is to underestimate how long a trend can last
Main market structure is base, breakout, pullback

Trade with the dominant market trend

Momentum-based strategies work!

Momentum-based strategies work!

Momentum-based strategies work!

Buy stocks at or near 52-week highs

Buy stocks at or near 52-week highs

MTG buy setups

Our swing trading strategy establishes long positions using 3
types of entries:

Breakout entry Buying on strength when a stock

breaks out from a proper base of consolidation
Pullback entry Buying a stock that has put in a nearterm pullback (3 7 days) from its recent high
Trend reversal Buying a stock that forms a base after
breaking out to reverse above a substantial downtrend
line (only after a prolonged downtrend in the broad
market)

NOTE: Of the 3 types of buy setups above, the breakout and

pullback entries will account for the overwhelming majority of
trades you make.

Primer to buy setups

Before a stock makes our breakout watchlist, it must satisfy
two key criteria:

Stock must be in a clear and distinct uptrend

Stock must have a valid basing pattern

Trend qualifier
Stocks must be in a clear and distinct uptrend, as follows:
z

20dayEMAmustbetradingatornearthe50dayMAwhenthestock
isformingabaseandclearlyabovethe50dayMAwhenintrend
mode.Forpullbacktrades,the20dayEMAmustbeabovethe50day
MA.

20dayEMAmustbeabovethe200dayMA

50dayMAmustbeabovethe200dayMA

Boththe50and200dayMAsmustbeinaclearuptrendforatleasta
fewmonths.
Thepriceactionshouldbeinanuptrendwithaseriesofhigher highs
andhigherlowsinplaceoverthepast3 6months(attheveryleast).
Currentpriceshouldatleastbe30 40%abovethe52week low.

Trend qualifier rules for breakout setups

Trend qualifier rules for breakout setups

Trend qualifier rules for breakout setups

Stocks must have a valid basing pattern

z

A base (or zone of congestion) is anywhere from 1 month to 1

year in length. For our style of trading, we prefer bases that form
in a 1 - 3 month period that find and hold support of the 50-day
MA.
We want to see tight price action in the base, especially during
the last two weeks before the breakout.
A valid base should pullback anywhere from 10 - 30% off the
swing high. Once a stock retraces 40 - 50% or more, we begin to
question the strength of the uptrend.
We must see a higher low form within the base. This is crucial
to the pattern. Without a higher low forming, we have no way to
set a stop and therefore can not define the risk.
Volume should be declining during a base, or at the very least, not
heavier than average. If there are too many days of heavy
volume selling in a base, the base could be faulty.

Main characteristics of a valid base

Main characteristics of a valid base

The breakout entry

The breakout entry and follow-through

The breakout entry (example #2)

The breakout entry (example #2)

The breakout entry and follow-through (example #2)

A pullback setup occurs when a stock breaks out from a

valid basing pattern and then pulls back for 3 7 days:

Pullback buy entry

Pullback buy entry and follow-through

Pullback buy entry (example #2)

Pullback buy entry (example #2)

Pullback buy entry with follow-through (example #2)

The trend reversal setup

z

Trend reversal setups are used only when the main stock
market indexes have been in a bear market (downtrend) for
9 months or more.
The purpose of this setup is to locate early buying
opportunities in stocks that are about to reverse trend.
These setups do not require that an uptrend be in place
prior to the entry, so they are very different than a breakout
or pullback entry.
We do not use this buy setup when the markets are healthy,
as this would lead us to locating stocks that are showing
relative weakness.

Trend reversal buy entries

Trend reversal buy entries

Trend reversal buy entries

Trend reversal buy entries (example #2)

Trend reversal buy entries (example #2)

Trend reversal buy entries (example #2)

Risk-free 30-day trial subscription of our

winning swing trading newsletter at:
morpheustrading.com
Got questions? E-mail us:
editors@morpheustrading.com