How To Spot And Trade A Stock Market Bottom | Podcast Episode #32

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Learn to trade, stocks successfully, learn to profit consistently. I’m Ryan Mallory and on my weekly podcast, I’m going to teach you the in and out of a complex ever-changing stock market. You will learn to trade better trait smarter and profit bigger.

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Now, let’s go trade. Hey, Hi, this is Ryan Mallory doing another episode with you guys here. Let’s go ahead and talk about because this is what we’re in right now with the market. We’re in a very uncertain circumstance.

0:41
We do not know what the market intends to do from here. The S&P 500 sold off over 100 points or almost 100 points. Yesterday, the Dow also it off over 800 points. Yes. And or the NASDAQ went down, like 311 points. One of the biggest sell-offs that we see in a long time.

1:00
So, There’s a lot of uncertainty, a lot of fear in the market right now. We haven’t seen anything like that really since February, when the market just really took a nasty push lower. So, what I want to talk about today is stock market bottoms, how to detect them, how to play them, what we should do while we’re waiting for one?

1:17
So the first thing that I’m going to talk about now is how to how to play the how to play the bottom, how to play the big sell-off. That’s that’s currently underway and how to spot? What what looks like a bottom? So the yes S&P 500 and nothing’s.

1:32
Nothing’s exact science with these bottoms. There’s, there’s none of that that I’m going to explain to you a magic formula or anything like that. Really? A lot of. It just comes down to experience and being able to understand human behavior as it pertains to the financial markets and apply trades as a result.

1:49
Now, one of the big things that you have to do with the cells is you have to manage your exposure. You have to manage long exposure. If you’re getting too long too fast that can really hurt you. If you are not managing In with stop losses. That’s going to get you in some big trouble but you also have to be willing to fail.

2:06
So you have to realize that you may not time it perfectly in the very beginning but what makes fill your okay when you’re trying to find the market bottom is one not just doing it based off of feelings but to not trying to go all along at once or trying to go into margin or even go completely 100% long.

2:22
Just try like a little bit, like dipping your toes in the water to see if it’s warm enough for you to jump in. So you might want to try with one position and then if that works, maybe add a second position or, you know, maybe start off at two positions and maybe go for a third one. But what I’m trying to say here is that you don’t want to go all along all at once, you want to be very conservative about it because there will be opportunities to continue to get long if it’s truly a market Bottom.

2:47
Now, the best point in reference is the S&P 500’s bottom or pretty much the whole bottom markets, entire bottom that was formed on February. This year and you can see, even when this Bond was formed yet we finished into green, but we actually went way down before we actually pushed higher.

3:09
And so yesterday, we had this huge sell-off in the SP and then we have follow through today. We almost thought we were going to get really ugly once again but we’ve kind of come off of those lows. And right now, the S&P 500 is trying to hold the 200-day moving average.

3:25
And if you go back to February that happened there as well, and And we bounce really hard off of it, and then April, there was actually a close below the 200-day moving average, but the next day, it got higher above the 200-day and it kept running thereafter. So the 200-day moving average is very important right now.

3:43
It doesn’t mean that everybody mm-mean. The future will correspond with the 200-day moving average but right now until we see differently that has to be really respected and if you take today I’ve already been wrong on one tray. I jumped in Long on knife, Netflix, put a stop.

3:59
Little The day I could tell that the market was going to go ahead and test those lows and probably push lower. So I jumped out of Netflix pretty much. As soon as I got in, I took a small loss on it but what I did is I was willing to fail. I kept my exposure small and when I wasn’t right, I went ahead and got out and so that’s one of the biggest things that you have to be able to do.

4:20
And I talked about the exposure, your success. And these kinds of markets will be defined by how well, How you manage your long exposure? If you’re just trying to say oh man this is the bottom. I have got to get I’ve got to get long right here.

4:37
Well then you’re putting yourself in a situation to really fail. Now, you could also be right on it. Okay. I’m not trying to take that away from you or your ability to determine what the market bottom is. But what I’m just trying to say is that if you’re not right, it’s going to be really bad and you’re going to have hell to pay for it because the market has no forgiveness to people who just Don’t manage the exposure, don’t you?

5:00
Stop losses. It’ll eventually come to bite, you. So don’t don’t get too long too fast. Be willing to sit on the sidelines for a while. The markets just going to complete freefall, let it do its thing and let it finally try to find that bottom and then start testing the waters.

5:16
When you think that there’s a plausible chance that that the bottom is being formed. Listen, we’re not. Here to trade stocks to be perfect and you’re not going to be when you’re trying to find a bottom in the market. But what you want to do is you want to trade with the understanding that you may be wrong.

5:33
And if you do that, then eventually you’ll be able to hit that hit that market bottom. But in the meantime, you’re going to make it to where it’s not too painful of an experience because the one thing that’s for sure, when you have huge sell-off, like what we saw yesterday and the four days prior to it, And then the market does bottom, it doesn’t just like move up a little bit, it moves up dramatically.

5:58
So if you keep your exposure small and you take small losses along the way and you’re not getting like 100 percent long or even fifty or sixty percent long, you’re really just saying, okay, I’m going to add one or two positions here and keep keep the exposure tight.

6:15
Well, when the market finally does bounce, it’s going to bounce in a huge, huge way. So I’m going to show you today a couple of them This since I’ve jumped into here in the Trading Block, I got into Amazon at around, 1720 and 41 sets, and so far, it’s about $10 now, the reason why is because look at this, if you look at the support level, it’s trying to hold that support level going all the way back to the February lobes.

6:40
That’s a good sign. I want to try to play that with a stop below though, the the rising trend line also got back into Netflix and I got in around 325 so I’m pretty much break even on that but it’s playing with that. That 200-day, moving average, trying to hold that. And this is a stock to that’s held up pretty well.

6:59
Except for yesterday, of course, but excluding yesterday, it held up fairly, okay, from the recent weakness in the, in the days, prior to it and it provided some good training opportunities. I actually had gone into it on 10 8 and made three point two percent off of it.

7:15
So I, you know, on this little move here, it was about three percent so, not bad. But we got to see, Not this Market wants to bounce for, so, right now. Yeah, there’s there’s other trades that would love to jump into it. You got Apple, you know, there’s some potential there and probably my next favorite is Google right here with with the trendline holding off at here.

7:36
This is a pretty long term trend line going all the way back to fight November of 2016. All right, that’s basically, when Trump was elected, this Rising trend line is being tested on Google. So, that’s a really good.

7:52
Word opportunity, but I’m not going to adhere not because I think I’m I’m wrong on the trade, right? Don’t like to trade. I actually really like the tree. But the reason why I’m not going to get into Google right here is because I don’t want to add more exposure and that’s what I’m talking about.

8:07
You have to manage the exposure because if I am wrong, I don’t want to be wrong. Google, Amazon, and Netflix. I’m okay with being wrong Amazon and Netflix, but not all three, so I have to manage it. So yes, maybe this one gets away from me. I never had the chance to play this bottom, but if I am am right in this thing does get away from me, that probably going to mean to that Amazon, and Netflix did very well and I’m happy with those profits and there will be other trades along the way that provides similar.

8:31
It’s rewards that that Google has and that I can get in Long on those as well. So, again, You’ve got to one always use. Stop losses. If you’re not going to use, stop losses, don’t even trade. But to you have to be willing to fail.

8:47
You know, you can’t nail it perfectly. We’re not this Trader that these trade, we’re not traitors that have a crystal ball that knows exactly when the markets going to bottom but what you want to do, look for is for that like that that huge sell-off.

9:03
That creates a huge amount of fear and Traders and then all of a sudden you rally off those lows and you go Back into positive territory. That’s what we got in February, and that’s what we see in on so many times in the past with historic bottom. So that’s what we’re looking for today in the markets, trying to do that.

9:18
And we’ll probably know more as the afternoon progresses, but if I am wrong, I’m wrong on two traits which represents about 20% of my portfolio, not the entire net worth, you know that I have. So I’m not I’m not putting everything that I own and everything that I am on these two positions and I’m not going to keep a More and more positions hoping that I’m right on all.

9:40
And I need these things to work first before Amazon, and Netflix before I start adding more trades to the portfolio. So, willing to fail using stop losses managing the exposure. You have to manage the exposure and then by doing all that you’re going to be managing the risk collectively.

10:00
So that’s how you play the bottoms. That’s how I do it. Your typical bottom of late has been v-shaped bottoms. We don’t see a lot of Of bottoms where it just turns sideways for four months at a time before it, finally breaks out of a base, going back to 2009.

10:16
When the market came out of the Great Recession, what we saw was a lot of v-shaped Bob’s, and that’s been the case ever. Since even when we sold off an election night, from the fear about Trump being elected, there was a huge sell-off that night, but there was a huge v-shaped bottom after the NASDAQ limited down and the SMP limited down, there was a huge, v-shaped bottom, that’s all the market, just go straight through the roof.

10:38
So, what I’m trying to say is that don’t wait around. When the market does start to balance your going to want to add some exposure to your portfolio, to the long side, not all at once. But you know, as as the bottom becomes a little bit more obvious, that’s been put in place, then you can continue to add more long exposure as a result.

10:59
So that’s how I play the bottoms. I hope this is going to help you guys as always stay, stay calm, be willing to stay on the Sidelines if you’re not quite sure and just just continue to trade away take care and God bless, thanks for listening to this week’s podcast, the swing trading with Ryan Mallory I’d like to encourage you to join me in the SharePlanner Trading Block, where I navigate the financial markets every day with Traders from around the world.

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