Domino Trading Effect | Podcast Episode #99

0:00
Hey everybody, this is Ryan Mallory with Swing Trading the Stock Market. Episode number 99 for those keeping track. I’m kind of excited about next week. It’s the 100th podcast episode. Again, I don’t think a lot of people get to 100. I think a lot of people start off doing podcasts and then they kind of get sidetracked and they, you know, the demands of life or whatever it is overwhelms them.

0:21
They don’t do it anymore. It takes a lot of like persistence to keep doing it. When I started off, I mean, 50 people, if I was lucky, were, were listening to these episodes and now, you know, around 30,000 people a month are listening in on the podcast. It’s available on Spotify, iHeartRadio, Apple iTunes, the Android thing.

0:38
Um, the SoundCloud, that’s, that’s who hosts it, and just a number, number of other platforms too. But last week’s episode that I did on Data Dog had a, had a pretty good reaction to it, you know, I think a lot of people could relate to what I was talking about when I was talking about bad trades or trades that just really disappoint.

0:55
And I think DDOG more so than being just a bad trade was more of a disappointing trade because of where it went, and it’s still like, I don’t even want to look at the chart, but I think it’s like approaching $100 a share now. Any case, we will pretend that didn’t happen, right? Nonetheless, I had a friend reach out to me and not gonna give his name away.

1:14
I told him I said, hey. You sent me this message. There’s a lot to unpack here. I’m gonna make a podcast episode out of it because I think that what he or she is talking about is something that a lot of traders will struggle with through their training career, the frustrations, the The pain, the agony, and by the way, too, if you have questions like this that I’m about to unpack, I’m always looking for podcast material.

1:37
So I would love to unpack some of these really, really difficult situations you find. So if you do, send me an email, um, about it. I now that I’m thinking back, there’s a lot of material that I could use and I’m not, I’m not ever gonna give out. I promise that, you know, so, uh, I don’t want to embarrass anybody, but some of this material is really good.

1:54
So the, so the message goes like this. It says, Hey, Ryan, how are you doing, buddy? I really enjoy your podcast, but I fell behind and just caught up the other day. I enjoyed you talking about DDOG, that was the last podcast. I recently listened to your Bad Trade podcast and your experience with LinkedIn.

2:12
That was, uh, I think, 2 before that. I think that was like 3 weeks ago that I did the LinkedIn. That was the one where I got stomped out 30 minutes before the close on Friday, and on Monday they were bought out by Microsoft. That kind of sucked. In any case, to continue, he goes on to say, or she, it was a very sore subject for me.

2:27
A few weeks ago I was introduced to a company called Genius Brand International. GNUS. I did not listen to your advice and did not manage the risk. My research shows they had a lot of things going on in the future, so I bought into them right after I bought in.

2:43
I’m talking about minutes after it started to drop from $9 to $4. When I sold it to $2 and changed today, I lost almost $10,000. Just thinking about it still makes me feel sick. And then a few days ago, I decided to get rid of all my Netflix stock that I bought way back when it was just $32 which, by the way, that’s a great trait because it was losing value as well.

3:06
As soon as I got rid of it though, it started shooting back up, and I haven’t had good luck in the markets in a while. And then I, he, he goes on to, uh, continue to talk, saying, also, my brother told me about the airline stocks, how one day it would go up and the next day. It would go down and the next day it’ll go back up again.

3:22
It was very consistent and predictable, so we bought into JetBlue and had success for the last two weeks. Late last week, this pattern stopped, and today all the airlines are at record low. I’m thinking of buying in again and seeing how they do. Your thoughts. So I told them I was like, hey, look, there’s a lot to unpack here.

3:38
And for you guys who are listening, I’m gonna break this this message down. One by one here. So what are we dealing with? Well, we’re dealing with a bad series of trades. Some of it’s just bad luck, but we’ll start off with the Genius Brand International. I know a lot of people, especially on the Robin Hood app, have been buying into this one.

3:57
Look, this thing back in April, it was like trading at 28 cents a share, and it goes up to a high of $11.73. I mean, this is, this is the Robin Hood trading environment here, like everything is becoming these like pump and dumps. So the first thing is is obviously, you know, the mistake was made about GNU US not managing the risk, not going into the trade saying, OK, look, this thing goes against me, where am I getting out?

4:21
I’m not familiar with GNU US and I don’t have to be to be able to know what’s going on here. Look, on the hourly chart of GN US, it’s got like 14 or 15 straight green bars that sent it from $3 a share to $11.73 a share. The next day it capitulated, not just capitulated, it turned into a dumpster fire.

4:41
So he didn’t tell me which day he got in, but I can look at the hourly chart and tell you to the hour what time he got in at because on June 4th, it goes from a high of 1097, drops down to the nines, which is probably about where he got in at, and it just kept on going lower and lower and lower.

4:58
It closed the day at $4.74 1 as low as $4.25. So I got an idea of where, where he’s at on this trade here. And then it bounced back up the next day, back up to 726, to a point where he was down about 17, 18%. Still a huge loss, still not a loss that I want to take.

5:17
Oh my gosh, you know, if you’re down 50% and you can recoup some of those losses back up to 17, 18%, you’re probably, it’s probably worth getting out at that point. It’s a busted trait, and you’re, you’re kind of getting a little bit of a get out of jail free card by not having to take the massive loss because you in at $9 and it’s down to like $450 you’re down 50%.

5:37
If it bounces back up to, which it did the following day, as high as $8.30. Man, it gets back up to $8. You just got to go ahead and get out. Then you’re talking only about like a little over 10% loss. And then it just continues to sell off thereafter and it’s, it’s down to $2.76 which is where you got out at.

5:54
Here’s the thing, one, I think there’s a couple of things at play here. I’ve already mentioned the first one didn’t manage the risk. You gotta manage the risk. You got to know if this trade does not work out for me, where am I gonna get out at? Second one. You can’t let FOMO guide you on your trade.

6:09
You can’t let the, the, the, the fear of missing out be what causes you to get into a trade, because that’s what usually gets traders so messed up is because they start seeing and they’re thinking, man, this company’s got some great ideas. They got a good product.

6:25
I don’t even know what they do, guys. Honestly, I don’t. I’m just following up. I know this guy, I, I feel like that he makes a lot of sense over the that I’ve known them and everything else, and I’m sure they are probably a good company and they probably got some good products and stuff, but that doesn’t always translate to the chart, especially in these volatile times.

6:50
If you’ve got a stock that’s going from 28 cents all the way up to $11 a share in a very short time over a couple of months, all that good stuff that people were buying in, it’s probably already well priced in. In fact, it’s trading at $2.75. It’s basically still up 1000%. 1000% from where it was at a couple of months ago.

7:07
So it’s still way up there. But this is, whatever it does going forward, you, you can’t hold it against yourself for going ahead and getting out. The best thing to have done would have been, OK, I’m getting in at $9. I am willing to risk a lot on this trade. If it drops below $7 a share, there’s a little bit of support there. Actually, there’s not, there’s no support anywhere on this stock.

7:27
I, uh, I’m just basically speaking hypothetically, but when you like look at the chart, let’s say, gosh, this is such a bad chart. Uh, looking at it just right now in real time, let’s say I’m just gonna go with an arbitrary dollar stop loss. If it drops below, I mean, something’s better than nothing, right guys? If it drops below $8 a mile, then you’d be out. OK. The trade did not work out for me.

7:43
I knew going into the trade that I was going to be OK with the 1. per share loss happened next trade. But then it starts to just keep creeping down, right? And all of a sudden, maybe get a couple of days where it bounces higher and you’re thinking, OK, it’s coming back, it’s coming back, boom, $2 you’re out.

7:58
It really punches you in the gut, and that’s, that’s why I say capital preservation is extraordinarily important in the stock market, but also just as important that comes with it is emotional preservation because the stock market will get you emotional. And those stock losses, they’re not only preserving capital, but they’re they’re preserving your emotional reserves.

8:19
If you can’t hold on to those, it’s gonna be very difficult to trade with any confidence and with any certainty. So then now let’s take a look at Netflix, right? Because I had this thing on my bearish watch list for a couple of weeks because it was forming this head and shoulders pattern. I was concerned about it, wasn’t sure if this thing was gonna be able to hold it together or not because it was in this sideways channel pattern and I was forming a bear’s pattern.

8:38
And here’s the thing, in these Raging Bull markets, the head and shoulders pattern becomes a little bit less dependable because there’s this by the dip mentality, everybody’s bullish. So a lot of times these head and shoulders patterns will get nullified. But then there’s times too where they do work, but more times than not, especially in these stocks that have a very strong secular following.

8:55
They will blow right through those patterns if the market continues to go higher. So with Netflix, you had that. You had a Head and Shoulders pattern. It never confirmed though, never confirmed. And so it was never really completed. Therefore, you can’t really say it was a Head and Shoulders pattern because it never broke through the neckline, which would have been a little bit below $400 a share.

9:13
However, there was some weakness there for a time. He gets out of it. Why did he get out of it? It was probably had some kind of a linkage to GNUS. And what I would probably say there is because, you know, the risk wasn’t managed properly by his own admission that it carried over into the NFLX and all of a sudden he’s thinking, oh my gosh, even though he bought it at $32 a share, and if he had sold it at $350 a share, it’s an amazing trade.

9:37
But he sold it somewhere in the 400s. He was worried about, OK, I don’t want to lose my money here. I don’t want to lose a big chunk of it, because by now if And if he’s been holding it since $32 a share, he’s been holding it a long time. So those, those profits kind of almost be are like institutionalized in your portfolio where if you were to lose like half of your profits on the trade, it would still be a big hit to your portfolio, even though you were coming out on top.

9:59
So it’s like institutionalized, uh, profits, right? So he sees that he’s like, oh no, I don’t want to lose these things. And so what does he do? He sells it and then he says, I decided to get rid of all my Netflix stock because I bought way back when I was 32 and because I was, it was losing value as well at the time.

10:14
As soon as I got rid of it, it started shooting back up. So where did it start shooting back up at Back on June 15th. It goes from the previous close of. 418, all the way as high as 474. Now it’s at like 457. So yeah, there was, there was a big move there that that was missed, like what, 15% or so.

10:32
So I, I, I feel the pain. I mean, if the guy bought a bunch of shares at 32, he’s sitting on a huge, huge asset, right? And so yeah, that’s gonna bum out anybody. But I’ve had that happen a lot. And so I would say don’t, don’t let the whole Netflix thing bother you. I would say if anything, OK, you should have had a stop loss even for that trade in place.

10:49
Let’s say if it confirmed that head and shoulders pattern to get out of it, or let’s say since you have been holding it for so long, you could have said, OK, if it breaks through the March lows, I mean, that might be a little bit too much because that would be a huge loss because that would be below $300 and it’s trading at $450. OK, I get maybe you don’t want to use that, but if you want, you know, tighten up the shares or the, the, the stop on that trade quite a bit, then I would probably put it below the neckline of that head and shoulders pattern that you’ve seen form over the last two months, even though it never confirmed, it was forming for a little while there.

11:19
If it would have confirmed, you would have gotten out, walked away with huge profit on the trade. Now, we’re moving on to the airlines here, and I’m gonna try and wrap up this podcast here pretty soon here. But, uh, any case, it says also my brother told me about the airline stocks, how one day would go up and we Next day we go down and back and forth and uh he tried to do it and it worked for a couple of weeks, but now they’re trading at record lows.

11:40
Look, the airlines are, are a huge fan of, of the Robin Hood bros right now and they’re, they’re jumping into it. You got David Portnoy, that’s screaming with excitement over the Spirit Airlines thing. Here’s the thing with the airlines, though, you get, you get a spike in COVID, there’s a likely a good chunk of people won’t ride the airlines anymore.

11:58
What’s that gonna do? The the stocks that are most impacted by COVID, they’re gonna pull back. So, Stocks do trade with patterns. You look at the stock market right now, the previous 7 days, the market has faded the opening move every day. So if it opened lower, it finished higher than where it opened, and it finished if it opened higher, then it finished lower than where it opened.

12:15
It’s faded every move. That’s a pattern, but that doesn’t last forever. So these patterns like what you see in JetBlue, where, yeah, it went back and forth for a while there, patterns are gonna break. What you have to look for is, OK, does this pattern where it’s going back and forth each and every day, is that revolving around some kind of support and resistance level?

12:32
If it is, then you gotta look for, OK, if it breaks a key support level, which just looking at JetBlue, there’s some short term support at $11 then you know that pattern’s not working anymore because I can look at the chart right now and I can see multiple times where it’s touched that $11 mark and it’s bounced.

12:47
But today, that’s not happening. In fact, it’s about 6% below that $11 support level. So clearly that support level’s taken out. Again, you gotta use the stop losses. So there’s a huge draw on the emotional capital right now, right? The debacle in GNU US exiting NFLX probably earlier than what he would have normally exited out at.

13:07
If GNUS didn’t happen, he’d probably still be in NFLX. There’s a good chance of that, I’m gonna assume. And then, of course, JetBlue where, OK, there was a success for a couple of weeks and everything, and then it just kind of fell apart. The other thing I’d probably say that’s going on, trading with too big a position sizes.

13:29
Position sizes can can often get people into trouble because the larger the position relative to the overall portfolio value, the more emotions that are gonna be in that trade. There’s more emotions in the trade, there’s a greater likelihood you’re gonna make a bad decision. So wrapping it up, always know where you’re gonna get out before you get in. 2, try to avoid chasing stocks, especially in a market like this, especially with low dollar stocks if they have a good story, if they have good fundamentals or whatever, doesn’t necessarily translate to the charts.

13:47
It may take years for that to happen. 3, you got to preserve your emotional capital. That’s why you gotta use the stock losses. 4, check the position sizes. You don’t want to be trading too large a positions on one particular trade. Your, your success in the stock market’s not gonna come from one trade. But your demise in the stock market can.

14:03
So remember, in order to prevent your demise coming from one trade in the stock market, you’ve got to manage risk, but you also got to make sure that you’re not trading in too big a sizes too big of a trade, too much emotion there. And that way, you’re conceding to the fact that you’re not gonna make your riches from one trade, but you’re also making sure that you don’t lose, lose your portfolio from one trade either.

14:21
That’s gonna do it for today. If you guys have any questions, feel free to shoot me a message. I’d love to hear from you, ryan@shareplanner.com. Thank you and God bless.