how to find the best stocks to buy before they breakout

Download How To Find The Best Stocks To Buy BEFORE They Breakout

Post on 17-Aug-2014



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This was a live presentation delivered by Deron Wagner, Founder of Morpheus Trading Group, at the 2014 New York Traders Expo. Using a simple, but highly effective, trading strategy, Deron shows you why the Wall Street mantra of "Buy Low and Sell High" is completely wrong and does not usually work.


  • How To Find The Best Stocks To Buy BEFORE They Breakout Deron Wagner Founder, Morpheus Trading Group
  • Overview of core beliefs Swing trading in the near to intermediate-term timeframe 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 structure of every uptrending stock is: base, breakout, pullback (rinse and repeat)
  • 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
  • Primer To Buy Setups Before a stock makes our breakout watchlist, it must satisfy two key criteria: 1.) Stock must be in a clear and distinct uptrend 2.) Stock must have a valid basing pattern
  • Base Building The Key To Successful Breakouts! Base building is like the foundation of a house Base is crucial to an uptrend, as the stock builds a strong foundation to launch the next advance Before a stock can launch a big price run up, it must first have a solid base pattern to build upon Bases typically form after a stock/ETF has already experienced a substantial price increase of at least 30%
  • Basing Pattern #1 Cup and Handle
  • Spotting A Valid Cup And Handle Must form within an existing uptrend, AND stock must be at least 30-40% off the lows The best cup and handle patterns form near 52-week highs 50-day moving average should be above 200-day moving average, and 200-day moving average should have already been trending higher for at least a few months The base typically forms on a pullback of 20-35% off the highs (deep correction), and is at least seven weeks in length As the base rounds out and price returns back above the 50-day moving average and holds, look for the handle to form (usually 510% below the highs of the left side of the pattern) Handle should drift lower, and is typically 5-10% or so in width. Handles that retrace more than 15% are too volatile and prone to failure. Handles should be at least 5 days in length and NOT form below the 50-day moving average.
  • Basing Pattern #2 Flat Base
  • Spotting A Valid Flat Base As with the cup and handle type pattern, a flat base consolidation must form within an existing uptrend. Typically, it will form after a breakout from a deeper correction (such as a cup and handle). The best way to identify a flat base is by using the weekly chart timeframe. The majority of the base should form above the rising 10-week moving average (or 50-day moving average on daily chart). The 10-week moving average should be trading well above the 40week moving average. A flat base should be at least 5 weeks in length. Flat bases usually correct no more than 15% off the highs
  • 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)
  • Secrets Of A Valid Basing Pattern 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.
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