Do You Need a Catalyst | Podcast Episode #486

0:00
Hey everybody, this is Ryan Mallory with shareplanner.com’s Swing Trading the Stock Market and today we are going to talk about catalysts and your trading. We’re going to talk about it first from a day trading perspective and then we’re going to meander over to swing trading as well.

0:17
I spent the last couple weeks talking about retail trading and the, and the revolution that it has brought about. I didn’t use a letter from anybody This time I’m going back to the emails and I have one from somebody we’re going to call Beverly, because Beverly is a good Florida redneck name. I like to use those so I don’t have to conceal or so I don’t have to reveal people’s real identity.

0:40
So I I conceal them by giving them a good Florida Reddick name. Why? I’m from Florida, I consider myself half redneck so hey we’ll go with that. So Beverly writes. Hey Ryan, I have been interested in shorter term trading for about 5 months now.

0:56
I have been trying to absorb as much content as possible, but it seems like most of the content out there focuses primarily on day trading. Just about every creator that I have watched via YouTube or on Instagram always harps on what is the catalyst, Find the catalyst.

1:13
You need the catalyst. What is making this stock move? But it seems whenever I find the stock that has the catalyst, I am trading behind the wave and end up riding the price back down. What is your take on the catalyst with regards to swing trading? Thanks Beverly.

1:28
Or we’ll just call her Bev for short. So it’s a good question because I know exactly what Bev is talking about here. Most of your people and I and I would say it’s, it’s a lot of your younger swing trade or not swing traders are mostly day traders. They’re they’re, they’re really young.

1:44
They’ve probably been training for a one or two months and then they become an expert on trading. So then they go ahead and start a YouTube channel and they start telling you about countless why? Because that’s what they learned. And they had a couple of lucky trades and they, they get excited and they create YouTube videos And let me tell you, their YouTube videos from a presentation standpoint much better than mine.

2:04
You know, I mean, I, granted, I guess I am a YouTube, I don’t really consider it like my primary thing that I do in life, but I do have one. However, I, I, I, I can’t make the kinds of videos that, that they’re able to do because they’re, they’re a lot better with the technology than I am.

2:22
They’re much more creative and they probably have a better appeal to a younger generation of people. So usually I always say that I’m like #2 on people’s lists when it, when it comes to trading, they usually find me after they’ve blown out their account and they need to learn about risk management. So they, they go after somebody that’s a little bit more seasoned and what they’re doing.

2:40
So as it pertains to Catalyst, you got to remember day trading and why it appeals to most people. And it’s, and I’m not saying this because I think day trading is bad. I’ve day traded. I don’t think day trading is a bad thing, but day trading is much more difficult than swing trading.

2:56
But I also think that day trading is what attracts a lot of people to quick profits. They see themselves as like, I need to make profits each and every single day. I need to make profits on now. And so they they go in that direction, it appeals.

3:13
I know some people are going to get offended when I say this, but it appeals sometimes to a lot of people’s laziness, Not because necessarily all day traders are lazy. I’m definitely not saying that. But there’s a lot of people that go into trading because they want the quick fix. They and, and when you want the quick fix and you’re not willing to put in the grind in your, the study and the, the hours that it takes to become proficient at trading, you will not become a great trader overnight.

3:37
You have to take the time to learn the UPS and the downs. You have to lose, you have to win and everything in between. You have to go through good times. You have to go through bad times, market recessions, market rallies, bull markets, bear markets and everything else.

3:53
But when people get into trading, they’re not looking at it like that. They’re like, oh, this is fun. I can make some money. I can make some money on the side, pay, pay for the rent. Then they get a couple winning trades. Well, maybe I can pay off the house. Oh, wait a second, maybe I can retire in a year. And I did that too when when I was trading in my early years, I remember creating spreadsheets and I’m like, holy cow, I’m going to retire by the time I’m 30.

4:16
Well, I’m 44 years old and I am not retired. I’m still working. So not, not in a corporate setting, but I am working for myself. But it’s still, you know what I’m not, I’m not sitting sipping margaritas by the pool. And unlike a lot of YouTube videos where they act like they’re trading and, and on their on their private jet.

4:33
So I’m not doing that. So that’s just a fact of reality. But day trading lures in a lot of people hoping for that kind of lifestyle, hoping for those kinds of, of gifts to come their way. And it just doesn’t happen. And, and you can tell that that’s something that’s very prevalent in this market because not only are people just day trading their money in, in like equities, like they’re, they’re not like just day trading Tesla or they’re day trading NVIDIA.

5:01
Yes, those stocks can be day traded, but they’re going after ultra leverage. And when I say ultra leverage, I’m talking about like some of the most volatile, most unpredictable vehicles that you can possibly trade. And that’s zero DTE, even if you know the ultimate direction of how the, the market’s going to close in the day, it’s going to finish higher from where you’re currently looking at buying a zero DTE doesn’t mean that you’re going to be profitable in it because it still has to reach your strike price.

5:26
And if you’re not calling the strike prices right, you can say, well, I’m doing, doing them in the money. Well, that that’s fine too. But if it turns against you, you stand to lose a whole heck of a lot more buying those options in the money. So there’s a lot, a lot, a lot of risk buying 0 DT ES, but a lot of people are doing that.

5:43
A ton of people, millions. I mean, I know one person, he just keeps doubling down on this stuff. He, he, he just continues to buy the dip. And you’re seeing that in the retail crowd and it creates the gamma squeezes that causes the market to continue to push higher.

6:01
And so it feels really appealing right now. But how do people realize that all of a sudden it doesn’t work anymore? Well, they find out that it doesn’t work when they buy the dip and the market goes down. But then, OK, maybe that’s a one off thing. I still got some money to work with.

6:16
I’m going to keep going. And and then it dips on them again and they, oh man, I blew up. The market’s rigged. I don’t like this anymore. They’re done. So then the first day that they’re away from the market, they see the market dip, the buyers jump in and run it back. It’s like, oh, I got to get some money.

6:32
So then they dip into their savings, they get the money, they apply it. And then when they start doing the zero DTE again, it goes against them and then they’re losing money again. And now they’re losing more money than they ever set out to lose. And so it, it can create that kind of a thing when it goes against you, when zero DTE doesn’t work like it’s working right now.

6:50
And some point it won’t work. And when that happens, people are going to get they’re, they’re going to get destroyed. I guess is that’s what I don’t have the best words for it sometimes because I haven’t let something destroy me like that. I guess. So that’s what we’re dealing with in this market now.

7:08
You know, the day trading, it’s not Even so much like they’re just day trading stocks. They’re trading not just options, they’re day trading 0 DTE, 0 days to expiration. Some of the most craziest stuff. I’d never honestly thought that I would live the day to see the day where that would become a thing.

7:26
I could never even cross my mind. You would have asked me 15 years ago. There’s going to be a time where 60 to 70% of all the options trading out there is going to be people buying 0 DT ES and there’s zero DT ES every single day. Remember the options market used to be monthly.

7:43
The options only expired on a monthly basis. Then they went to weekly. Now they go to daily. And it is a money grabbed by the brokerages. You know, they’re, they’re, they’re luring in the retail crowd to go buy these things. So we’ve talked about, you know, what the day trading looks like.

7:59
We’ve talked about, you know, who, who likes to do the day trading and, and, and one of the reasons why most people flock to the day trading and, and, and when you start to talk about trading off a catalyst, yes, that that’s pretty necessary on, on a lot of your day trades, the catalyst, but catalysts are very difficult to trade.

8:19
You got to hope that it’s not priced in immediately And, and often times your news is baked in almost instantaneously. You look at stocks like NVIDIA that runs after hours when they have good earnings news and then they start to fade during regular trading hours. Why is that?

8:41
Because the people got in beforehand before the catalyst and then the stock rockets higher because people are are pumping it up almost instantaneously. The algos, the bots, whatever you want to call them. And then during regular trading hours, people start to take those profits.

9:05
And so you have the retail crowd. There’s like, oh, we got a catalyst, we’re going to buy NVIDIA and then those the stock stop keeps pulling back on them. Now you take so, So what the catalyst theory really does is it relies it’s it’s really reliant on the bigger idiot theory.

9:28
And I’m not calling people who trade off a catalyst idiots far, far from it. Sometimes they just don’t know any better. But what what the bigger idiot theory is is that yes, I know that I’m buying something way too high. I know that I’m buying something after it’s already run 50 or 60% higher, but I’m trusting that there will be another idiot out there that’s willing to buy it even higher than where I bought it at.

9:49
Now, that’s not me coming up with that theory. I did not make up this theory. It’s it’s a theory that’s been out there probably as old as time, but it’s the bigger idiot theory. So you’re always hoping that there’s somebody that’s a bigger idiot than yourself to buy it. That happens in housing markets. Often times that happens in stock markets, you know, when things get very frothy, they’re just saying, well, I’ll buy it now, yes, it’s a stupid purchase.

10:06
It’s not worth this much, but maybe somebody thinks it’s worth even more than what I think it’s worth. And and that with the the big volume that comes in from catalyst, they’re hoping that’s going to propel the stock that there’s going to continue to be interest and that if there is a dip, it’ll get keep getting bought up.

10:06
It’s not worth this much, but maybe somebody thinks it’s worth even more than what I think it’s worth. And and that with the the big volume that comes in from catalyst, they’re hoping that’s going to propel the stock that there’s going to continue to be interest and that if there is a dip, it’ll get keep getting bought up.

10:23
Now with catalysts, there’s more volatility because there’s more volume and there’s going to be bigger price swings. So if a stock’s up 70% and you’re saying, oh, I’m going to go into this with like a stop loss of four, 5%, that’s going to be very difficult. And if you have a large position like let’s say you’re using 20% of your account, well, a stock that’s up 70% can drop 10% and not even think anything of it, doesn’t breach any support levels or anything else and bounce right back up.

10:50
Meanwhile, you just got stopped out for a 10% loss. And it can happen. It’s like a hiccup. But most traders that go into day trading, they don’t think about it from the risk reward standpoint like what Bev says, she’s looking at it or they’re, they’re looking at it. The catalyst, it’s like it’s got to go higher.

11:09
We we need the catalyst. We got the catalyst, let’s buy, let’s buy it. Nobody says, hey, we got the catalyst, let’s manage the risk. Never. And so it gets very difficult to succeed in day trading when you’re not keeping risk at the forefront. And if you’re only focused on the catalyst, like what a lot of Youtubers are going to do, because let’s be honest, you can make videos off of that stuff.

11:30
It’s like, Oh yeah, you should have bought in video when the earnings came out. Let’s talk about CEG. This has been a crowd favorite. It’s a utility company. They had some news that came out just a couple of days ago where or, or just a day ago and it there the news was that they had like a nuclear deal with Meta.

11:49
OK, great. The stock’s up like 16% and pre market it faded the whole amount. It went red and it followed through to the next day. You know how many bag holders that created? Because you did get the catalyst and as soon as the market opened, people took profits on it and people were like, well this is great news.

12:04
Why would it fade? Because people wanted their money, they had profits, they got in beforehand, they wrote it up and they don’t want it anymore. And so that catalyst was an opportunity for them to book profits. And there wasn’t a bigger idiot. Sometimes if there’s not a bigger idiot, what does that mean?

12:20
You, you might be the biggest idiot. So you don’t want to be that person. And, and I can give you countless numbers of people who who buy. I just saw Salesforce, they reported good earnings. They gapped up higher after hours. The next day they were down. People took profits even before the market opened.

12:44
And so earnings, that’s why you see so many companies that will report good earnings and then they’ll trade lower. Why? Because people are using that as an opportunity to liquidate their positions at a much higher price than they first saw. And then when they start doing it and enough people do it and there’s not enough buyers to step in or IE enough idiots to support it, then all of a sudden the price starts to tumble again.

13:01
I know the world’s a sensitive place. Not calling everybody idiots, OK? I’m just using, I’m, I’m working off of the bigger idiot theory here. So how does the catalyst work in swing trading? Well, when it comes to earnings, you’re really not trying to use earnings as a catalyst.

13:23
In fact, I tell people never to hold a stock through earnings. When it comes to your swing trading, Swing trading relies more on technicals, relies more on candlesticks and, and risk management. And you’re holding stocks overnight where there is the potential for there to be gaps higher and gaps lower.

13:38
But you’re trying to play those and you don’t want the catalysts to be the the main driver of what causes a stock to go higher or lower. You take meta, for instance, it had a nice break out recently of a wedge pattern, really wasn’t a catalyst behind it, but it went went up day after day after day.

13:57
There was a couple days where it pulled back, but it’s gone, gone, you know, from the six 30s all the way up into the six 80s. That’s really not with with without any catalyst, but it’s done really good. And so in trading to be successful, you don’t need catalysts and, and you, you got to get away from that.

14:15
The Youtubers, they’ll probably disagree with me on it, but it’s true. You don’t need the catalyst like like a lot of the, the day traders, you know, believe that you need. What you need to do is learn to manage the risk, manage it effectively, learn where you’re going to put your stop losses at, how are you going to take profits along the way and where you, what would make you go ahead and close out your position, ultimately letting your winners run as long as possible, letting your losers lose as quick as possible.

14:32
So remember, oftentimes your catalysts are going to be baked in, OK by the time you get around to it. The market is already priced in the large majority of it when it comes to earnings, it’s definitely by the time it opens up the next day or the later that morning.

14:49
It’s been baked in when it comes to big news events. Yes, I’ve had it before. This was a crazy thing. I I can’t remember the exact companies. One was Oracle and one it was another company. I don’t want to think it was. I don’t think it was Intel any no, it wasn’t.

15:04
I don’t remember which one it was exactly, but news came out that both swing trades that I had in My Portfolio, one was looking to acquire the other and both of them shot up and I’m like, this is the most amazing thing. I thought I hit the jackpot.

15:30
I’m like, what’s the odds that my 2 swing trades are both like going to get take one’s going to take out the other with a acquisition? I don’t even think they actually did the acquisition, but it’s just being rumored at the time that was a catalyst for much bigger upside. You know, that was great.

15:30
I, I think there wasn’t too long ago, like I was in Wayfair and they announced that they were going to do some staff cuts and the stock shot up like 12% or something. That’s great that you want that stuff. I, I can’t, can’t complain when I see that stuff, but the way I benefit from it was before it ever happened, I didn’t have knowledge that was going to happen, but the technicals were lining up and then I was just, it’s kind of like where they talk about, you know, preparation and when preparation meets opportunity, you know, you can get some fantastic results there.

15:51
And so the preparation was, is that I did the technical analysis. I thought it was a good trade. It had a good opportunity to manage the risk. And then when the upside came about, it provided me with a great opportunity, especially when that catalyst hit the wire.

16:10
So in swing train, it’s not about catching the catalyst, it’s just that you know you’ll get the benefit from catalyst when they work in your favor. And and at times there will be a time, you know, or two or or three or many more times, if you stick with it long enough where you’ll get into a stock and they get downgraded, you’re like, ah, crap, I just stopped me out. That’s a catalyst to the downside.

16:30
But as long as you’re managing the risk, you know, you’re keeping yourself in the game, you’re letting yourself live to trade another day. And so don’t get too worked up about the catalyst. I again, I don’t have anything against day trading. I don’t think it’s the the greatest thing in the world to do, but I think it’s very difficult for new traders to get even close to being successful at trading.

16:48
I would say best place to start and and probably the best place to end is swing trading. I think it just has the best of both worlds between investing a a great blend of long term investing and and and day trading and they they come together and they create some really powerful dynamics.

17:04
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17:20
Thank you guys, 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. With your membership, you will get a seven day trial and access to my trading room, including alerts via text, e-mail and WhatsApp.

17:41
So go ahead, sign up by going to shareplanner.com/trading Block. That’s www.shareplanner.com/trading-block and follow me on Shareplanners, Twitter, Instagram and Facebook where I provide unique market and trading information every day. You have any questions, please feel free to e-mail me at ryan@shareplanner.com.

18:01
All the best to you and I look forward to trading with you soon.