Better Trades Versus The Best Trade | Podcast Episode #497

0:00
Hey everybody, this is Ryan Mallory with shareplanner.com. Swing trade in stock market. In today’s episode, we are going to talk about taking the better trade versus the best trade and how to distinguish between the two. Now, the person who is writing today, he’s a member of the Trading Block and he’s a permanent listener to the podcast and he’s provided me with some great material in the past and here he’s provided me with some really good unique topic discussions here today.

0:27
So we’re going to call him Uncle Bubba because that’s the name that he went by before. And if you’re under him, why in the world is he calling somebody Uncle Bubba? I’m from Florida, I consider myself redneck. I yes, I’ve been trading for 30 years. That doesn’t mean that you can’t be a little redneck as well. But anyways, I give everybody a Florida redneck name because I don’t want to use their true identity on the podcast because you never know when they might down the road hate the idea of being having their identity used.

0:52
So any case, we’ll stick with Uncle Bubba for this case for this e-mail and Uncle Bubba writes, Hey, Brian, Uncle Bubba here. Last time you used the question on the podcast, I was referred to as Uncle Bubba, which is what we’re doing again here this year. So far in the trading block has been eye opening and then some.

1:09
When I wrote to you last time, I was beat up, battered and bruised from trading in the stock market and and getting knocked around on the Internet and in the in the market as a whole. So much noise, so many obstacles out there, but I was determined to find my way through all of that and of course, of just a few earning cycles.

1:26
The SharePlanner community has stood me up, dusted me off, and got my head screwed back on straight. I have leveled up and all ways including new tools and better trading platform, but more importantly a better understanding of the story a chart is telling you over time. Just recently I’ve started using the playback feature in the trading view and I highly recommend it.

1:46
I’ll pause it at any point in the past and see if I can anticipate direction based on my most reliable indicators and analysis of the chart, then play it forward day by day, like using flash cards to memorize patterns. This has built up my ability to interpret what I’m seeing on the charts.

2:04
Having your custom analysis on the live streams and discord channel is a huge confidence booster. You’ve kept me out of some bad trading decisions, encourage me into some really good ones, especially lately. I’ve even bought some profitable trades to the group, which is a great feeling to their. Things seem to be clicking on the on a whole new level, and with that comes a new level of challenges.

2:25
I’m at the point where I feel good about ruling out bad trades, but what I’m trying to understand now is how to choose the best ones or the best of the good ones. How do you determine the best reward to risk ratio from a list of healthy looking charts? In other words, how do you judge the reward part when flipping through the charts on a regular basis?

2:45
And then how do you compare the potential to take only the best of the best? For example, let’s say energy is leading and we can have five solid looking charts in that sector, all with similar share price and stop loss points. What is the rank that causes one of those to stand out or score higher?

3:05
Like a poker pro, I’m sure you start getting familiar with the odds for certain setups. Some patterns are more reliable, so are some equities. But all things being equal, how do you judge the risk versus reward across those good looking charts? This is This is a great problem to have, by the way.

3:22
There are so many hours in the day and so many positions that I can hold at once when things are going well. Strategy means deciding what not to do Choosing between a bad trade and a good trade is a lot easier now, but choosing between a good and a really good one, as it turns out, is not so easy. Thanks for everything, Uncle Bubba.

3:39
Now it’s a great and I don’t think that there is always perfect answers for some of these questions. I’m going to give you my, my best, best thoughts on it my my best analysis that I can provide. But in the end, we’re all beholden to the market and what it decides to do.

3:55
So a couple of points. First off, I love this idea and I’ve I can’t say I’ve really done it in the past except for maybe a few times. But for a new trader, what a great idea going back and look, looking at some like charts and you can really choose like any time frame depending on how far back trading view will let you go.

4:16
But going back in time and, and, and just going through a chart, finding a setup and then trying to figure out how you would manage it and go day by day to figuring out how you would handle the stop losses. Because if you go back in time far enough, you’re not going to remember all the price action. Like for me, I can probably chart SPY not perfectly on a day-to-day basis, but if you gave me a pad and paper, I could take what you have in SPY and probably chart you out the the patterns that took place over the last 10 to 15 years.

4:44
But if you’re going like let’s say Wayfair or CMI or any, anything, you could go take any stock Palantir and go back years and then just try to see how you would do the analysis on that particular chart and whether or not there was a trade setup and then how you would manage the trade.

5:01
And it is a lot like flash cards. I remember growing up, we had these vocabulary tests in our English class and you had this little thin book. Every week was like a set of new 15 new words. And you would have to know the actually it’s 21 words.

5:16
I don’t know why they did it. Maybe it was actually, it was 20 words, 20 words. But the way it worked is my mom was very involved in this. Every night I had to memorize 7 words and I had to memorize the definition, if it was a noun, if it was an adjective and how to spell it.

5:33
So and then on Friday, there was a test. And my mom always felt like if you’re going to get an A in English, this is one of the best ways to do it because you have a test every week. Just memorize the words. I hated it ’cause she would go over it with me every night and I’m thankful looking back to that now. But what’s so crazy about that is, is that I would I would memorize these words.

5:53
I do 7 on Monday, another seven on Tuesday, and then six on Wednesday. But on Tuesday I would not only do the seven new ones, but I would also rehash the the previous seven that I had learned the day before. And then on Wednesday, I would rehash the previous 14 from the previous two days and then learn the new 6 new words on Wednesday.

6:13
And then on Thursday I would do all 2020 words. And then Friday I would take my test. I think she even made me wake up early and make me take that test. But what’s so cool about that is so many of those words that I use now came from those vocabulary tests.

6:29
And so I’m glad that I took them. Tedious, yes. Annoying at times, yes, especially for a teenager. I didn’t care what some of these words meant. Now as an adult, especially as an adult who does a podcast kind of big, so a huge thing for me.

6:46
And it’s just like that with the the going back in time and be able to look at some of these charts. It’s a lot like the vocabulary test or like flash cards or, or just memorizing. You’re learning these patterns, you’re learning what you’re seeing and you’re learning how to react to them. And while it might seem tedious right now down the road, that can really be a valuable experience that you gave yourself early on.

7:09
I wish when I first started trading the, the tools that are out there now were there back then and they weren’t. It’s just like with sports right now. I, I played quarterback in high school and got my head handed to me on a weekly basis. And I look at some of the tools the kids have now. I’m like, how are you guys not just phenomenal athletes with all the tools that you guys have?

7:29
I mean, there’s so many things that teach you coverages and teach you how to read defenses that I never had. I mean, I was like watching VHS just trying to figure out anything. Nobody was teaching me this stuff. But same thing with trading now you have so many tools at your disposal. Take advantage of them.

7:44
And in the case of trading view and being able to go back in time and and look at these charts, that’s awesome. So that’s, that was one of the points that I wanted to, to, to mention. And then uncle, uncle Bubba, he mentioned how he’s part of the, the trading bloc and he’s adding really good trades to the group.

8:02
And that’s one of the cool things that I love to see in the trading group, especially people who come in, they’re new and they just jump in there, They get their feet wet and they’re not afraid to be right. They’re not afraid to be wrong. And they’re just willing to learn. And eventually you start seeing them bring some really good trades and setups to the group.

8:18
And, and a lot of times some of my best trades comes from what other people were are recommending. They see a chart and I’m like, holy cow, I missed that in my scans, but that’s a really good chart. And so I take the trade myself and I I benefit from it. So lots, lots to cover here in this podcast.

8:35
We’re going to get to the better trades versus the best trades to take. His first question is how do you determine the best risk reward ratio from a list of healthy looking charts? Knowing your risk tolerance is one of the first things that I would say. There’s a lot of good charts out there that I like and I’ve noticed it a lot.

8:52
Just even today, I was looking at different setups there and I was getting a little bit frustrated from the standpoint that I couldn’t find something that fit within my risk tolerance. And I think that is something that’s very well overlooked in our own trading that will make exceptions to that. And I’ve done a lot of podcasts on Know your risk tolerance.

9:10
It’s important to know how much you can handle losing on a trade before you start to lose your marbles. In the end, we want to make trading as boring as possible. And in doing so, we want to make sure that the risk tolerance is at a level that doesn’t cause us to overreact or get upset and our trading.

9:26
And so when our risk tolerance isn’t tuned in just right, we’ll start taking trades that we probably shouldn’t be taking. So one way to eliminate, you know, some of the trades out there is by eliminate the ones that don’t fit your risk profile. For me, I’m not really excited about taking trades where I have a chance at losing 10% on the trade because it doesn’t fit into my risk tolerance profile.

9:49
So when I come across trades and I came a lot of, across a lot of those today when the market was rallying, I saw, OK, this is a 10% stop loss or this is an 8% stop loss. I’m going to pass on those. And and you have to do that because you’re, you’re trying to trade within your risk tolerance because if you start trading outside of that, you’re going to know fairly quickly you’re trading outside your risk tolerance because your trading decisions going to become very sporadic and it’s not going to be well contained in terms of managing the overall risk.

10:19
You’re going to get out when you should stay in and stay in when you should get out. Also, I think knowing the market conditions is a huge part of that. So when you’re talking about finding the best risk to reward ratio and you see a market that’s struggling at all time highs and it’s starting to pull back some.

10:40
If if you’re looking to try and get long on a stock and the best reward risk ratio requires that you take like a 7% stop loss. Well, you’re if you’re going to get 2 to one return on that on that trade setup, you’re going to have to see a 14% return in order to justify that 7% stop loss.

10:58
But if you’re at a market that’s really struggling, you’re seeing semiconductors pulling back, which they’re not doing right now. But let’s just say for example, sake, semiconductors are pulling back, but you want to get into NVIDIA. That doesn’t make a lot of sense. There’s there’s times too where you can let’s, let’s take NVIDIA for instance, if I saw a perfect trade setup and it required a 25% stop loss on it, OK, well, that trade’s justified in theory.

11:27
That trade is justified if you think that you can get 50% out of it. But just because you think something doesn’t necessarily mean that’s what’s going to happen. So we have to be realistic with what our expectations are of a trade. If we’re getting into a stop stock with a 25% stop loss on a stock like NVIDIA, are we really thinking that during the duration of your trade that it’s going to add an additional 1 trillion plus to its market cap?

11:51
I wouldn’t expect actually more than that would be like 2 trillion because if it’s going up 50% and you’re taking a 25% stop loss, it’s really not that realistic Something would you would have to have something that was a game changer in addition to already what’s going on right now in the AI space take place and has to take place within that three months that you’re holding it no more than three months.

12:12
But in that, that’s assuming that you get in the day after the previous earnings because remember, the the longest, if you’re managing risk on swing trading, the longest you can hold a trade is for three months because you run into earnings and you got to get out because you’re not holding a stock through earnings unless at least I’m not.

12:29
So knowing the market conditions, knowing what you’re up against, you know that what are the tailwinds? What are the headwinds that you’re facing in the stock market, knowing your risk tolerance as well. And then how do you compare the potential to where you’re only taking the best of the best?

12:49
Well, for one reward in the reward ratio, it’s not a concrete thing. For instance, I’m in a trade right now at WDC and I’m on the last leg of that trade. And that last leg of the trade is up over 40%. Great, great trade. I’m excited about that.

13:05
I got in at 76. It’s trading, I don’t remember what it was even trading at last. I think it hit like 105 S, really good, good overall returns on that trade. Did I get into the trade thinking that was going to go to one O 5? No, my target was probably around 86 or $87.00 on that particular trade.

13:25
But if I would have made my target price concrete and it goes right up to the 86, I would have already been out and I missed out on it easy additional $19.00 because literally it’s just been like straight up it’s been running with the AI stuff and it’s just been pretty much parabolic. I think there’s been one day or two days that it’s had been to the downside.

13:42
But if I, if I limited myself by what I thought the stock could do, then I would have missed out on a whole chunk of profits on that particular trade. So we can’t let what our, our target expectations are just as like much as we have to understand our conditions, we can’t be limited by them either.

14:04
So we can’t be limited by our profit expectations because sometimes the stocks, a stock will run much, much further than you ever expect. And WDC is a perfect example that you’re seeing it in a lot of other ones. If I was an MU, that would probably be one that went way beyond my expectations for the stock. One thing though, that doesn’t go beyond your or it does go beyond your expectations.

14:22
Actually, I shouldn’t say it doesn’t go, it does go beyond your expectations. Is the self-made trader trying to segue into that? That was kind of a a bust right there. But anyways, the the Self-made Trader is my all in one all-encompassing training course on how to trade in the stock market, specifically from a swing trading standpoint.

14:43
It’s taken me over 4 years to put it together. It’s been ruined my life’s work over 25 hours of video shooting. I did it all on my own. I did the editing. I did all that because I wanted to make sure that it encompassed everything that I wanted a swing trader to know and to be able to benefit from.

15:00
So check that out by going to shareplanner.com, you can click on Trading Academy and it’ll show you the self-made trader. Check that out buying it. You’re definitely supporting the show and doing so and I think you’ll really like it as well.

15:15
It’s going to teach you everything that I know that I’ve learned over the last 30 plus years of trading. Now another point that we want to make. He talked about poker, right? He says, I’m sure you get familiar with the odds of certain setups and what patterns are more reliable. Very true.

15:30
And a perfect example of that is the head and shoulders pattern. Head and shoulders pattern is notoriously A bearish pattern, but more often times than not, I see these bearish head and shoulders patterns turn into an amazing launch point for longs you hit that, you form this beautiful head and shoulders pattern.

15:48
I would say this has been something that’s been consistently taking place well over 10 years now, but you get this nice head and shoulders pattern and you think that it’s about the confirming. And a lot of times it does confirm. It confirms by just a smidge. It’ll, it’ll get a lot of people to buy into the initial breakdown and then either it’ll come right back up and, and recapture the neckline or it’ll just bounce right off of it won’t even won’t even break below it and create this huge launchpad off of the neckline, which is acting as support to the upside, nullifying the pattern and just taking off to new all the time highs or whatever, negating the pattern.

16:24
At least I’ve seen that happen a lot. And that’s part of like learning the odds with experience and, and, and time you start to pick up on some of those things. Another one would be the declining triangle, descending triangle. That one a lot of people get bearish on when they see it, but more times than not, I’ll see that one break to the upside as well, especially in a bull market.

16:45
And knowing your market conditions also goes hand in hand and understanding the probabilities of of certain patterns and setups working out. I see a lot of bearish setups right now. If I took every bearish setup that I was seeing, I’d be just getting destroyed by those bearish setups.

17:02
There’s plenty of bearish setups out there, but you can’t just take them because there’s a setup. You have to know your market conditions and right now the market conditions is new, all time highs on on multiple times each week. And so why short that? Why go against that? Because you’re just going to be fighting a trend that you’re not able to slow down.

17:21
Market doesn’t care if you’re short. It doesn’t care if you’re bearish on something. All’s it cares is that it really just does what it wants. It doesn’t care about the individual trader. It’s going to do what it wants. So following the market, following its lead and not trying to put your own opinions or try to put your own desires on the market or attributing variables that the market doesn’t care about is something that we have to avoid as traders.

17:53
We have a whole bunch of points here guys that the fifth one here he was asking about how are you able to judge the risk reward against all the good looking charts. So let’s say you have a lot of good setups in in the financial sector and I actually came across this one today. RFI got stopped out of a couple weeks or a couple days ago for for a decent profit, not nothing big, nothing bad, but I was I was taken out of it, but a new pattern developed.

18:19
It developed against the Ryzen trend line and it developed a nice bull flag and it started breaking out. But I also saw where SYF was breaking out in credit services and I saw a whole bunch of other regional banks like CFG that was setting up and the the idea there could have been.

18:36
Well, should I avoid RF just because I have been taken out of it a couple of days prior? No, not at all. In fact it it sometimes will feel like a revenge trade. But I always like it ’cause I do try to not just trade the the the same stock I just got knocked out of unless it’s a really good trade setup.

18:55
And in this case, the chart had evolved over the following the two days and it’s created a really nice setup there. So I took it now there was other setups, but why did I not take those Well, for one, you may have had some that weren’t ready to break out just yet, but I had RF right here and I was wanting to add more long exposure where it was breaking out.

19:15
Or you may have one that it was a good setup, but the reward risk ratio might have had too wide of a stop loss. Or in some cases it may have had the same stop loss as the one that I wanted to get into, but there was resistance overhead. Oftentimes I can get out of, get out of a particular trade setup by, you know, and completely ignore it all together if there’s resistance right after I, I get into a breakout on that stock.

19:40
And so for instance, a good example is, is if you get into like a bull flag, it breaks out, you get long on it, and then you start noticing where previous price history keeps banging off of the 50 day moving average that might be hovering just above it. Well if you see where it’s like 3 or 4 times in a row where every time it tests it it it gets rejected.

20:00
That’s a good sign to probably move on from that trait. You want as much clearance for it to run overhead without any kind of a pushback as possible. So really, yes, choosing between different trade setups that are really similar in the same sector and showing a lot of potential is not easy.

20:20
But you want to think about your risk tolerance. How much are you risking? How much is the chart demanding that you risk is the support, is the stop loss placements, Which one has the better stop loss placement? If I can find a much more longer trend or longer standing support level that’s there that I can put my stop loss over, I would rather do that than like putting my stop loss below the day’s, the day’s lows from the day prior.

20:47
All of that has to go into consideration the market conditions, knowing your risk tolerance, realistic reward, expectations for what you can expect from the trade. You don’t want to just assume that the stock’s going to go higher just because you want it to go higher, just like that NVIDIA example that I gave earlier.

21:07
So that about wraps it up here. If you enjoyed this podcast, and I hope that you did, make sure to leave me a five star review. And if you want to support the show, check out the training courses that I have available on my website. Also my monthly service with the trading block where you can trade with me on a daily basis as well. You can go there. It’s all at shareplanner.com.

21:24
Really cool stuff there that can help you enhance your trading abilities for the long run. Also, make sure to send me your questions ryan@shareplanner.com. I do read your emails and I’m, I still am looking at making this a 2A day week podcast once again.

21:40
I’ve I’ve moved locations and I still trying to get set up. That’s why you haven’t seen as many videos on YouTube and, and on the podcast as well. But we’re getting there. We’re getting all set up and it should be getting things back to normal here very soon. Remember guys, Jesus Christ is the way, the truth and the life.

21:57
No one comes to the Father except through him. Thank you and God bless. Thanks for listening to my podcast, Swing Trading the Stock Market. I’d like to encourage you to join me in the SharePlanner Trading Block where I navigate the stock market each day with traders from around the world.

22:13
With your membership, you will get a seven day trial and access to my trading room, including alerts via text, e-mail and WhatsApp. So go ahead, sign up by going to shareplanner.com/trading Block. That’s www.shareplanner.com/trading-block and follow me on SharePlanner’s, Twitter, Instagram and Facebook where I provide unique market and trading information every day.

22:34
You have any questions, please feel free to e-mail me at ryan@shareplanner.com. All the best to you and I look forward to trading with you soon.