Mastering the Art of Letting Your Winners Run: A Case Study on Super Micro Computer ($SMCI)

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Morpheus Trading Group
Rick Pedicelli

Ever left mountains of potential profits on the table by exiting your winning trades too soon? Kicking yourself for missing out on explosive gains because you got shaken out prematurely? Well, my friend, you’re not alone – but today, we’re going to equip you with the techniques to capture those mind-blowing winners that can truly transform your trading account. This is Rick Pedicelli, head stock analyst at Morpheus Trading Group, a 20-year trading veteran.

In this eye-opening post, I’ll walk through a real-life trade example from our powerful MTG Tribe: the recent 80% scorcher in SMCI that could have been a staggering 150% rip if played to perfection. Buckle up and prepare to level up your swing trading mastery to start capitalizing on those rare but imperative homerun trades.

The Power of a High-Conviction Watch List
Why was SMCI even on our radar to begin with? This mid-cap semiconductor stock had already shown its ferocious potential with a meteor-like 400% advance over just 6 months in early 2023. Stocks like this demand close attention – when a name demonstrates that kind of explosive capability out of nowhere, you’d better believe we’re going to keep laser-focused tabs on it for an encore.

After that blistering run, SMCI spent several months basing and digesting those monster gains. This sideways price action and tight consolidation was exactly what we look for after a vertical spike. As swing traders, we hunt for liquid stocks that have gone into an intense, fast uptrend over a multi-month period, then pulled back in a relatively mild and orderly fashion to allow that energy to reset before igniting once more.

SMCI checked all the boxes. The 37% retracement from the highs was a healthy breather after that 4-bagger run. With that reset complete, we eagerly awaited a breakout from compression for our green light to strike. We needed to see that type of explosive power returning before pulling the trigger.

The Explosive Entry Signal
Glimmers of that breakout began flashing in mid-December 2022 as SMCI started muscling through a key downtrend resistance line on increasing volume. But our attention was laser-focused by early January 2023 as the stock started punching through additional overhead supply in impressive fashion.

On January 18th, the real fireworks finally commenced. After the close, SMCI dropped a surprise earnings pre-announcement bomb – the type of fundamental catalyst that can launch even the strongest technical setup into the stratosphere. When the next morning’s opening bell rang, SMCI came blasting out of the gates, gapping up 10% above the prior day’s high on thundering volume.

For a trade setup this spontaneously combustible, we have a simple rule: get on board and hold on for dear life! Within minutes, we pulled the trigger on SMCI just above $354 to maximize our potential gain capture. By the closing bell, the stock had rocketed over 25% higher. This was a prize swing winner in the making – exactly what we covet in our strategy. It was time to go into handling mode.

Holding a Rocket Ship Winner Using Key Moving Averages
From our entry point, it was all about watching SMCI’s price action and letting the position breathe. We allow winning trades like this immense room to run using our trailing 5-day and 8-day exponential moving averages (EMAs) as guides. As long as the stock is tenaciously holding those short-term EMAs during its run, we’re giving it premium runway and avoiding premature abandonments.

SMCI spent the next couple of weeks gliding higher in extremely smooth and orderly fashion. It wasn’t until February 5th that we finally saw our first caution signal: the stock had extended over 20% above its 8-day EMA on the closing print. At this point, with our profits pushing towards 90% from our entry, we started considering our options to lock in some hard-earned gains.

On that very next session, SMCI triggered an additional warning with an initial price gap and failed follow-through shortly after the open. With our profits now stretched towards a triple-digit percentage gain, we chose to prudently lock in an 80% winner by selling into that day’s strength and mitigating further event risk.

In the end, the stock continued melting up over the next couple sessions towards the $1,000 level before finally buckling. This gave us a glimpse of what was ultimately possible if we tightened up our exit strategy.

Key Takeaways: Let Your Winners Breathe
While we secured an exceptional 80% gain on the SMCI trade, walking through the step-by-step process made it clear we left additional upside on the table that could have maximized the opportunity:

  • Trust your process and signals: Our trailing 5-day EMA adhered perfectly to the rhythm of SMCI’s run and could have been our ideal guide to simply locking in partial profits while letting the bulk of the position ride further.
  • Have a defined exit strategy: With profits pushing towards 200%, a disciplined strategy to partially sell into strength and use a logical pivot like the prior day’s lows as stop levels could have captured more of the explosive 150%+ move.
  • Allocate for homerun trades: This was a legitimate “swing for the fences” trade where our target should have been letting profits run towards a 200-300% gain before ringing the register. While that may sound extreme, those types of homeruns are vital for accounts aimed at serious growth.

At Morpheus Trading Group, our mission is to equip you with the methodology to never again leave your portfolio’s biggest winners on the table. The trading world is incredibly inefficient, and the way to exploit those inefficiencies is by holding your winners through their wildest streams.

It all starts with having an educated, rational process for identifying those big move candidates. Then you need symbiotic strategies for initial entries, adding properly to favorable positions, bracketing with intelligent stops, and ultimately delineating when to finally cash in your biggest chips.

Through our trading books, blogs, video lessons and even more importantly – going into the heat of battle together every single day in our trading rooms, we’ll get you adapted to spotting these potential rockets and give you the framework to create generational wealth by holding them through their wildest runs.

Stay focused, trust your strategy, and always leave room for those massive trend-catchers to truly flourish and meet their full potential. Trade with discipline and a plan, and we’ll see you smashing new personal bests through those legacy trades!

Engage: Stay active while watching by jotting down notes or questions.

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

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