Ryan Mallory of SharePlanner.com: A Trader Profile

Tim Bourquin: Hello, everybody and welcome back to TraderInterviews.com. Thanks for joining me for another interview. We’re going to be speaking with Ryan — Ryan Mallory and we’re going to talk to him about how he trades, how he finds good opportunities in the markets, and basically maybe his story about a trade or two that he’s had recently if we can talk him into doing that. So Ryan, thanks very much for joining me on the phone today.
Ryan Mallory: Thank you. Thank you for having me.

Tim Bourquin: All right. So let’s first start off by asking you, what kind of trader are you — a swing trader, a day trader, that sort of thing, and then what markets do you like to trade?

Ryan Mallory: Primarily, I’m a swing trader. There are times when I’ll meddle in the day trades and it has to be a pretty good setup for me to like them. But primarily, I would say 90% of my activities is based on swing trades. Equity markets is my general focus so I really don’t do any options or futures trading but I do go long and short on anything in the equities basically.

Tim Bourquin: Okay. What percentage these days are you doing long and shorts of each other?

Ryan Mallory: Typically, the way I trade at times I will have a mixture of long and short setups, at other times I’ll be solely long. Right now I am completely long in the market but I have about 50% of my cash sitting on the sidelines waiting to put more to work.

Tim Bourquin: Okay.

Ryan Mallory: Oh, I’m sorry. Go ahead.

Tim Bourquin: No, I was just saying — actually, it surprises me a little bit because the people keep talking about, “Wow! This market is a little toppy” and that sort of thing, but I sense that you think there’s more room to go here.

Ryan Mallory: Well, it’s definitely been a tough market especially when you look where we came from the April highs and we pushed much lower and then — that summer was a very difficult time for trading with just the set and reversal that you have seen in the market. But since the September lows, the market has actually seemed to get a little bit more predictable and knock on wood, but I mean it seems that with the break in the recent April highs and it’s trying to move even higher today after a morning sell-off. It seems like there’s a lot of buying activities still making its way into this market here.

Tim Bourquin: Now, I know a lot of traders can get into trouble if they try to force their views on the market because the fundamental news says the market is going lower. Are you purely a technician or do you watch news and events and that sort of thing as well?

Ryan Mallory: I’m a technician, yes, because if I was trading off of fundamentals I think I’d be completely short because I — the economy doesn’t look that good. I mean even with the jobs report this morning. Yes, it was improving, but I mean you still have a lot of people losing their jobs right now and the unemployment rate isn’t improving and we’re spending money from a federal level just all over the place. So there’s every reason to think that from a fundamental level we’re going to go lower. But in the charts are as healthy as they can be when you look at it from the September lows and onward.

Tim Bourquin: I totally agree with that. There are all kinds of bad news and I think that inflation is coming, no one’s going to double in price tomorrow but let the markets — you got to — if you’re a technician you got to believe what the charts are telling you. So maybe we should focus on that and let’s talk about some garden variety charts that you like to watch. What kind of time frames are you interested in looking at and then indicators, that sort of thing? What kind of things do you put up on your charts? Ryan Mallory: Well, typically, I keep it very simple and I think that’s one thing that traders get themselves into a lot of trouble with is that they put too many indicators. They have the MACDs, the stochastic. They have all the RSI indicators, and they just have way too many — too much quote are on their charts basically and as a result they have all these mixed signals. They can never find themselves able to get into a nice clean trade. I typically like to keep it to price volume and look for chart — I use candle patterns for my price and I like to look for a different — whether it’s a cup and handle pattern or inverse head and shoulders or just a very nicely trending stock. I also look at stochastic. That’s about the one indicator that I will look at to see how overbought or oversold we are in a market.

Tim Bourquin: Okay. With so many stocks and so many choices out there for things to trade, how are you doing some of your filtering to find some of these patterns that you’re looking for?

Ryan Mallory: Well, oftentimes I look at stocks trend above its average true range and then try to find those stocks that are trading above the average true range with oversold conditions, and sometimes I can find good stocks that are trending upwards very nicely but on a healthy pullback. Other ways, it’s just basically to find stocks that are doing well above — trading above most of their major moving averages. I think a lot of times your screen has to be kept simple. I want a variety of different looks in my stocks. I don’t want to just focus in on one type of chart pattern or sometimes you can go days or weeks without getting a specific stock coming across your screen if you limit yourself to too many specifics. So I keep my parameters very broad.

Tim Bourquin: Do you have a basket of stocks that you like to trade on a daily basis or watch, at least, on a daily basis?

Ryan Mallory: I like a lot of the stocks for the more traditional ones to watch on a general basis. That would be like your Google, your Apple. Baidu is one. In fact, I picked up some shares on that this morning. Research in Motion is another one that I do like to watch, Goldman Sachs. Yeah, but I’m not always trading in those. I would say out of all those I probably trade Apple the most.

Tim Bourquin: All right. Let’s talk about Baidu because I read that post just before we got on the phone. The chart had two bull flags and was coming close to its 20-day moving average. Is that a typical type of trading setup you’re looking for?

Ryan Mallory: I do like the bull flags a lot and then if I can find something that I can overlay as well to show that it’s going to provide some support or potentially balance from there, I’m willing to more or less pull the trigger at that point. With the Baidu, yeah, it get very close to the 20-day moving average and the last time we got a bull flag which was back in September and October that it was forming that pattern. It bounced just perfectly off into the 20-day moving average after hugging it for about six or seven days. Then today we got a bounce off of that 20-day moving average as well which gave me a good entry on it. So it’s hard to always tell how high a stock will go so my philosophy to take profits along the way. If I can go 5%, 6% higher then I’ll move my stop loss accordingly and then probably at some point take about half my position off the table.

Tim Bourquin: We’ll post that chart if that’s okay with you in the transcript so our listeners can see what you were looking at at that time. Now, Baidu is about 106 bucks. What’s your typical share size for the positions in trades you’re taking?

Ryan Mallory: Oh, as far as how many shares that I’m buying or —

Tim Bourquin: Exactly. Exactly.

Ryan Mallory: Oh, I have no problem — typically, I’ll buy in groups of — the more expensive stocks, yeah, you’re definitely wanting to buy and probably smaller lumps probably about 100, the smaller stocks groups of 1,000.

Tim Bourquin: Okay. Are you scaling in? You sound like — you mentioned you scale out of things as you take profits. How about going into it?

Ryan Mallory: With going into it, I don’t like to scale in too much on a stock like Baidu where you have the market where it’s dropping very fast, very sudden. That’s usually a good time to try to scale in. But when it’s — when you’re trying to play the momentum, you definitely want to go all in at one time, in my opinion.

Tim Bourquin: On the Baidu chart, that was a daily chart that you saw these bear flags on, correct?

Ryan Mallory: Yes, that was a daily chart. Yes.

Tim Bourquin: Okay. The 20-day moving average, is that exponential or is that simple moving average?

Ryan Mallory: A lot of people claim that exponential gives you a better reading but I’ve — I guess, I’ve been trading probably since I was 11 years old, believe it or not, and so there’s — I’m sort of stuck in my ways, I guess, to some degree as far as whether I use exponential or simple. I like the simple moving average. That’s for sure.

Tim Bourquin: Yeah, that seems to work and I like the charts, of course, where you see a couple of things, some confluence of things that would point at a trading opportunity. Can you talk about another recent trade you’ve had recently where you saw a couple of things that looked good and that worked out for you?

Ryan Mallory: Yeah. Let me try to find one here. Apple would probably be a good one to start with. This is maybe not the greatest example but I’ll tell you why I bought this. When it had reported its earnings it did not have the great earnings reported. In fact, by most standards people thought it quite disastrous and their margins were shrinking and whatnot. But I have held that stock long enough to know that when you have over — just a sell-off that just seems way over the top like we had after the recent earnings report, the drop from $318 all the way down to, I want to say, $297 and that just to me just did not seem right. And I can remember a few years back when there was a significant sell-off that dropped the share price from below 100s down to $77 off of rumors and then before the day was over the stock was back in the positive territory. So with Apple, it just felt that it’s the same exact way to me. So I bought shares that are around $297 and basically just held the shares until I got taken out of my stop loss which some would probably say I got taken out too early. I probably should have been a little bit more aggressive with my stop loss but —

Tim Bourquin: So you held it — when you say stop loss, it was a trailing stop loss. You were profitable but it just took you out because you trailed it.

Ryan Mallory: Yeah. One of the biggest things that I try to avoid and I think not only from a capital standpoint but also from a psychological standpoint is allowing winners to turn into losers. When that happens, I think a lot of times people start doubting themselves as traders and the one thing that I don’t want to do as a trader is to allow myself to lose my mental edge in the market. So if you continue to have stocks that go against you — and this kind of market that we’ve had this year, I mean this is one of the most difficult markets I’ve ever seen just because of how quickly a market can reverse on you. I’ve always been determined not to lose my profits, to turn the losers. One of the worse things is when you have a significant profit at hand you just don’t really use that risk management like you should and then right thereafter you see the stocks not only go below your entry price but you take a loss as a result and whether it’s at your original stop loss or not but either way it’s just very detrimental to your mental well-being, and the one thing you can’t afford to lose is to lose that belief in your ability to trade. I’ll tell you an expression that I call for that. I call it a “pick sticks.” I mean when you watch a football game you see the worst thing that can happen to a quarterback is to be right near the end zone and throwing in a reception to the opponent and the guy takes it down the field for seven points and not only does the quarterback loses that opportunity to score touchdown but you just gave the other team seven points. In the same way when you have a good profit in hand and you’re not taking profits along the way or you’re tying your stop losses accordingly to ensure that you get that profit, it’s like the same thing in football. I mean you’re just giving away a huge opportunity to profit from the markets and you’re setting yourself back unnecessarily.

Tim Bourquin: Yeah, we all have times that we’re going to lose and we don’t need to compound the losses. We’re inevitably going to have with winners that turn into losses. You’re right. I think that’s even worse for somebody. It’s almost like for the same people missing a trade is worse than losing money on trade for a lot of people.

Ryan Mallory: Uh-hmm, right.

Tim Bourquin: All right. So that makes sense. How do you know then how behind you trail the stop? How does that work?

Ryan Mallory: Many times I use basically support and resistance. If there is a logical reason where it breaks through support and it holds it over a couple of days and now it’s starting to move higher then I’ll put a stop loss or I’ll raise my stop loss underneath that moving average or if there is just a previous price level where the bears have not been able to push the stock below then I’ll raise my stop loss up to that level as well. I think one of the hardest things in trading the market is when do you take profits? And I don’t think there’s any perfect science to it, but I do know the one thing that’s perfect is not allowing your winners to turn into losers. So you got to protect those profits. I mean that’s what you’re trading for is these profits and just to allow them to evaporate because you have some unfounded belief that it’s going to go much, much, much higher is ridiculous and one of the — one chart that I would point to recently was J-A-C-K, Jack in the Box. I had traded that off of a very impressive breakout pattern that it was forming and it went up for about three days and then on Thursday when we had that huge market rally last week, it started getting back its games after it had opened. Well, I see the market going higher but I see the stop going lower and I’ll be darned if I’m going to let this stock turn into a loser on me. So I try to protect as much of the profits from that day and as a result when I — after I’ve gotten out on that same day in the market, the stock — you see is about four days of consecutive selling. So today it’s about some percent lower than where I got in.

Tim Bourquin: I know for me the thought would have been “Let’s hold onto it. Let’s wait because eventually it’s going to catch up to this other market rally,” and that’s the killer. That’s when — for four days it goes down and goes against the market, the one stock, of course, that goes against the market for whatever reason, and you take this big loss and it’s — you’re right. It’s damaging to your account. It’s damaging to your mental well-being and your faith in your trading ability and your system. So I guess just not to have that ding on your mental confidence is reason enough to do it let alone keep in more money in your account.

Ryan Mallory: Right. You know what, if you get stopped out prematurely, it’s not the end of the world especially if you’re coming away with a profit. There’s a lot of people — what they get upset about is they see themselves get stopped out and then what happens, the stock sometimes will stop out or it will come all the way down like to the penny of where their stop loss is, take their shares, and then just rock it right back up. That’s always very upsetting to a lot of traders. So the next time they say, “Well, I’m not going to keep my stop losses tight. I’m going to be a lot less aggressive,” well, that’s probably the worst thing that you can do because you’re just inviting more losses or to lose more of your profits. There’s always going to be another trade. There’s always going to be another stock that’s on fire. You just got to go out there and find them each new day.

Tim Bourquin: Going back to that Baidu chart, let’s talk about how you set the stop loss there and maybe your profit target because we have a chart of it. Is the stop below that 20-day moving average? And maybe talk about this in this particular example where you set your stop and what you’re looking for in terms of profit.

Ryan Mallory: Yeah. On the Baidu chart, basically, what I wanted to do there is try to find a place and I try to — oftentimes when I get into a trade I try to think about a candle pattern or what kind of price action would it take for me to know that this trade was going against me and that might do this for getting in or just to know that my trade was null and void that I needed to take the remaining capital off the table. So in this case it was one of the 475 and that basically represents just below some price action here that we saw from November 1st. It also represents, basically, the lows from October 22nd primarily which is where we gapped up and basically consolidated for about two or three weeks. If it breaks below that, I know that my trade is done and over with. I’ll lose about 5% of my capital on that trade, not my overall portfolio but just on that trade and I have to move on. It’s something that’s easily recoverable, but for it to go any lower than that what am I looking for at that point if it goes below 104.75? It’s clearly rolling over at that point.

Tim Bourquin: All right. So maybe you look at past month lead lows or places where it seemed to bounce off of some sort of support in the past and if it breaks through that — and I’m finding for myself the longer term the chart, the stronger that level is. So I’ve been going back, which I haven’t always done, going back on a yearly chart and seeing are there any places where it bounced off a yearly low or some big area and the longer term it is, the more important that level is. Do you find the same thing?

Ryan Mallory: Oh, yeah, I agree and oftentimes I look at the weekly charts just to see what the weekly candles look like and just to see if there’s any kind of price pattern that’s going on there that’s not easily visible on the daily charts. So with that 104.75 stop loss on Baidu, not only in my looking at some price support below the October 22nd lows which represented the gap up in that stock but I also got the support of a 20-day moving average in between there where the stock, like I said, many times off of that 20-day moving average. So I’ve got two levels of support backing me up on that stock.

Tim Bourquin: Now, how about on the profits side, is it kind of the similar thing or are you looking for an area of resistance in previous weekly charts or monthly charts?

Ryan Mallory: Yeah, I will and in a case like Baidu, I mean this particular stock is just gone into the stratosphere as far as the long-term investment would have been. But there’s not really an easily identifiable profit target for the stock because it makes it —

Tim Bourquin: Yeah, that makes it harder. That makes it harder because you don’t have any. It’s gone so far above everything else in the past for so long. It’s hard to find anywhere that it might have resistance.

Ryan Mallory: Exactly. So what you have to do is you have to be even more aggressive with your stop losses. You have to make sure that on a daily basis you’re reviewing those stop loss to make sure, okay, is this the place where I should be taking profits or a place where I should be tightening the stop loss? And oftentimes one of the best ways to do that too is look at the overall markets. Last Thursday was a perfect example when we start about 23 points on the S&P. One of the things that made me sell all my positions, except for two of them which basically bought me down from being 62% invested in a market down to about 10% invested, was — and then I actually lumped on a couple of short positions on top of that but the reason why I did that was because the stock price had extended so far into like the Bollinger Bands and like two standard deviations and beyond of what typical price action would dictate at that point. And I’m talking about the S&P there. The overall market actually was very extreme and so I took all my profits off. Now, if I had been holding Baidu at that time, I would have sold Baidu as well regardless of what I thought it might do over the next couple of days because if you don’t have the market working in your favor it’s very difficult to profit on individual stocks.

Tim Bourquin: So even more important, I guess, to watch overall markets. Anything outside of the S&P, do you watch any currencies or commodities? Anything else that gives you some kind of a feel for the market?

Ryan Mallory: Yeah, I do. I do watch the dollar and do watch gold prices and some other commodities like silver. But I don’t trade primarily off of those. I do trade primarily off the S&P. I don’t trade off of the Dow. I know a lot of people like to quote the Dow but I don’t even pay attention to the Dow just because it’s more priced with it rather than weighted by — rather than the stocks being weighted by the market cap.

Tim Bourquin: Let’s talk about how you get the good entries. What kind of charts do you look at? Are you looking at short-term charts for your entries and then how picky are you on a price like in that Baidu trade where you want to get as close to a price as possible?

Ryan Mallory: Well, a lot of people, they like to point to like an exact price. For instance, they might say, “Oh, I bought Baidu at 109.36,” and they won’t deviate from that at all. Oftentimes, what I’m doing is I’m trying to mesh what I see in the markets with what I see in individual stocks. So oftentimes I’m not very picky on my entries. If the chart is lining up and it looks good and it looks like it’s going to break out, I’ll go ahead and buy it. So when I sold Baidu testing at 20-day moving average, I knew to pull the trigger right then and there and not worry about a few pennies.

Tim Bourquin: So you put in a market order, basically, at that point?

Ryan Mallory: Yes, I will. Yeah, I’ll put in a market order. Typically, I’ll just do a limit order right at the ask price.

Tim Bourquin: Now, I know a lot of people have kind of switched their execution strategy a little bit because of high frequency trading and all the stuff that goes into their depth of market screens that is not real or it’s just people playing games they think. Has the high frequency trading and all of that affected your strategy at all?

Ryan Mallory: No, it’s hard to tell what’s causing you to get stopped out at times. I have one position that I hold in my account right now for more than two months and that one is TICC and then this morning — I mean the stock has trended up perfectly since its March lows, but the stock was just got hammered. So you might put in 200,000 shares and dropped it from almost $11 down to $10.18. I have never seen the stock move like that before, and then now it’s right back up to around $11 again. So that’s a pretty significant move for that stock. I don’t know if that came from the people who are doing the high frequency trading or whatnot or the computers. It’s hard to tell. You really have to start — I really don’t try to make excuses for whether — for when I get stopped out or not because then it causes me not to take responsibility for my trading decisions and it’s easier for me to lay the blame at the foot of “Oh, the high frequency traders” or “Oh, man, he wouldn’t keep his mouth shut” then I would have to get stopped out of position. It’s ultimately me who’s responsible for the gains and losses. So there’s no way for me to really take things on the high frequency traders or whatnot. So being able to change my strategies around as a result of that, it’s hard for me to really see anything that needs changing in my strategy in regards to those market forces.

Tim Bourquin: Now, I want to shine a light on what you just said there because I think that’s very important. You say you took responsibility for what happens in your trades. You’re not trying to find other blame for getting stopped out and then having the market reverse on you. Why is that important to you as a trader? Why was that an important — I’m assuming it was an important part of your evolution as a trader.

Ryan Mallory: Oh, most certainly and it’s easy to get caught up into “Oh, the market makers wanted to steal my shares and that’s why I got knocked out” or whatever. I mean the thing is if you don’t take responsibility for your actions, you’re just going to lose more money. I mean that’s basically what it will go down to because those people who want to blame somebody else for their trading decisions or “Oh, I know, I shouldn’t have listened to that stock tick guide I got off the fax machine” or something else. I mean, ultimately, you’re the person that pulls the trigger on it so you got to be responsible for it and manage it accordingly. So many people want to lay the blame off of some kind of trading service that they got a bad takeoff off or whatnot. But ultimately, if you’re willing to take responsibility for your actions then you’re more than likely willing to learn from those trading mistakes that you’re making and as a result you’re going to grow as a trader.

Tim Bourquin: So how long did it take you to become confident enough in your trade that you think, “I can make money doing this on a regular basis”? Maybe not every day, maybe not even every week, but “I know I’m confident in my strategies. I can make money doing this.” How long did it take you to get to that point?

Ryan Mallory: Gosh! It had its peaks and valleys, really. I mean I started trading off of a very small inheritance I got when I was 11 years old. It was supposed to go into the college plan. I convinced my father to let me learn how to trade the markets. What possessed me to do — I don’t know. Maybe I saw something on the news that night. But throughout the ’90s, I was literally trading with the help of my father and everything. But when 2000 hit and that NASDAQ bubble exploded, I saw a lot of my money just disappeared. So for most of my life at that point, all I knew was that stocks only go up and they don’t go down because the ’90s was just an incredible growth period for stocks. Well, then that taught me something right there is that I need to do something that better prepares me to not lose money in these markets. So what I do is I just applied myself to technical analysis. For me it just meant to try to jump into fundamental analysis. I can’t compete with Goldman Sachs and all these other big brokers firms who just have hundreds of thousands of analysts studying the fundamentals of these companies and have interviews of CEOs and everything else. You can’t compete with that. But on technical analysis, you can see the footprints of these brokers firms and what they’re doing to buy stocks and oftentimes that’s what creates those technical patterns that you’re able to profit also. So I guess the answer to your question, I might have gotten a little derailed there but you were asking me —

Tim Bourquin: Yeah, just the time it took you to feel confident in your strategies. Can you pick a time when you said, “At this point, I know that I can do that” or is it just kind of a slower process as you can’t really put your finger on when that happened?

Ryan Mallory: I really can’t put my finger on it because I think, primarily, because I started at such a young age and then I think with more of like evolutionary type process. You just grow as a trader and you become more confident in your skills and abilities.

Tim Bourquin: Was there anything you did during your learning process that you can point to now and say, “This really took my trading to the next level. At this point, I maybe wasn’t profitable all the time but really after doing this or having this mindset, it took me to the next level”? Anything like that you can point to?

Ryan Mallory: Oh, each trade that I’ve made because I have a duty to each one of them has helped me out a lot. I will say what’s probably more beneficial to me than anything is starting my own blog and that has actually helped me be more responsible with my trades, with what I trade. So I’m not just trading for myself to where nobody knows what I’m doing and I can make a stupid trade and no one’s going to question me on it. When you’re putting it out there for the world to read then it becomes much more transparent and so it causes you to think more through your trading decisions and how you’re going to trade the markets. So what I actually say being very open with each of my trades has helped me quite a bit.

Tim Bourquin: Yeah. That goes almost back to the whole “take responsibility” even if you keep a trading journal that’s private. Putting it out there for the world, you can’t go back and say, “Oh, no, no, I really didn’t mean to make that trade” or something along those lines.

Ryan Mallory: Right.

Tim Bourquin: It kind of held your feet to the fire as they say and makes you take responsibility for it. So that’s interesting. We’re going to mention your blog here in just minute. But just one of the questions here about your trading, how many trades at one time are you comfortable having on?

Ryan Mallory: Well, the more trades that you have, the more you become like a mutual fund. So for me to put 200 positions on the table and start trying to manage those, 1) I can’t manage 200 trades, 2) I might as well just go by SPY and trade off of that. So there’s really — you really got to be selective. You got to put a percentage of your capital behind it like 5% or 10% of your capital for you to really see a significant return on your technical analysis. I don’t usually feel too comfortable if I have more than 15 or so trades going on at once.

Tim Bourquin: Why not trade the SPY or the E-Minis? So many guys say, “Look, I don’t have to worry about an individual company earnings or a CEO fraud. That’s why I like just trading E-Minis.” Why not just trade the broad market?

Ryan Mallory: Well, you definitely can and in a lot of things about it is very appealing for one knowing the downgrade in the S&P overnight to where all of a sudden your stock that you had at $15 is now worth $13. You’re not going to get those big fluctuations. Oftentimes, I will trade the S&Ps but only as like a single position that isn’t really any more than any of my other trades. But I think for the most part there are more opportunities to profit in the individual securities especially like your small and mid cap stocks that if you practice risk management and you take profits in and don’t let them turn into losers along the way then honest-to-goodness I think that you’re much better off.

Tim Bourquin: One last question here, just on the business side. I always like to understand how traders manage the business side of their account. Do you trade through a corporation and then secondarily to that, do you pay yourself a salary out of your account? How do you handle that sort of thing?

Ryan Mallory: No, I mean I have some different strings of revenues that I have that are coming outside of my trading but I try to put as much my money back into my portfolio. So it’s just the whole theory of compounding. I don’t like to take a lot of money out of it. I’m pretty young. I don’t need that money right now and I like to be able to walk away from trading knowing that I have a secure retirement in hand.

Tim Bourquin: All right. Ryan, I really appreciate you taking the time to talk to us today and talking about your strategies and some of the things you look at. Thanks for being on the phone with me.

Ryan Mallory: I appreciate you having me.