Trend Lines and Fibonacci Retracements | Podcast Episode #136

0:07
Hey, I’m Ryan Mallory and this is my Swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex ever-changing, world of Finance, learn what it means to, trace profitably, and consistently managing risk of avoiding the pitfalls of trading. And most importantly, to let those winners run wild, you can succeed at the stock market and I’m ready to show you.

0:28
How, hey, everybody, this is Ryan Mallory with Swing Trading the Stock Market, and I’ve got a good Episode for you guys here today? What are we going to be talking about? We’re going to talk about trend lines and Fibonacci the civically.

0:44
We’re going to be discussing. How do I draw the trend line? And I know I get a lot of questions about this about. You know, what data points do you want to collect off of those trend lines? And so that’s what we’re going to get into on this particular podcast episode and then I’m going to follow that up with another Fibonacci question, as well.

1:02
This person wants to go by the name. Han Solo which We’re getting a little bit Intergalactic here. When we’re going away from the floor, to read, nicknames and people wanting to go by Star Wars characters, right? I’m gonna be honest, I’m not going to go down the road of Star Trek. I don’t mind doing like a Star Wars here and there but, you know, let’s not get to Intergalactic there.

1:21
Okay? But anyways, this is going to be an interesting podcast because feel like the trend lines question in particular is probably best suited for like a video, but I’m going to attempt to do it on here as well. So bear with me, if it’s a little bit. Difficult to follow it time, don’t hold it against me, trying to answer listener emails here and trying to make sure that I address all else concerns and questions and whatnot and ask for the urban than I am drinking today.

1:48
I’ve got myself some 1910 old Forester. I’m sure there’s a bunch of you guys out there that like old Forester. It’s one of my preferred Bourbons especially when it comes to Old. Fashions works great in Old Fashions. This particular taste it’s like a it’s like a nice like caramel finish.

2:05
Almost It’s just very, very smooth. It’s considered an old fine, whiskey. That’s what they have to stamped on the bottle. And I got the whole bottle, I love this stuff. So I didn’t have to go to the sample route. It’s just a good solid bourbon guys, and it’s forty six and a half percent alcohol, 93 proof.

2:21
I do usually runs about anywhere between like 55 to 60 dollars a bottle. So check that one out. I don’t think you’ll go wrong with old Forester 1910. So the key to drawing trend lines. As I have always seen fit and you got to remember to as you become more seasoned as a traitor and as you gain more experience, you’re not going to do everything by the textbook.

2:43
I definitely don’t do trend lines by the Texas. Textbooks will tell you that a trend line needs to touch perfectly the bottom price point of a trend. And for those who don’t even know what a trend line is, let me back up a little bit. Further trend, line is just essentially a straight line, that connects a lot of data points on a chart.

3:02
So, for Me and that’s about all. I can get into it in terms of a podcast and providing a definition. But I kind of deviate away from like, okay making sure that the lower Shadow point in a rising trend line is what touches the trial I know. I’m okay, actually intraday breaches of a trend line.

3:19
I don’t think that’s a big deal. I prefer to have as few of those as possible, but if it happens, it happens. Ultimately what I want out of my trendlines is for there to be as many data points touching that trend line as possible. And I want them to be clean. I’m not so crazy about there being like five or six days of testing or trend line.

3:38
And then bouncing and then come right back down and testing it for six or seven more days off of that trend line before. Finally getting a bounce. Instead, what I like to see is I like to see the Rises and falls off of the trend line, I’d like to see it go up. I like to see it come down and immediately bounce back up.

3:55
I always think that’s the sign of a good healthy trend line then when it like stays there and it’s just right in that trend line higher instead of like bouncing off of that trend line that’s always like more of your unhealthy. Trendlines doesn’t mean it can’t be traded but you may not get the immediate results that you’re looking for in your trading.

4:13
If it’s just constantly coming back down on riding that trend line so quick bounces off of the trend lines preferable also don’t like it either if a stock has a rising trend Red line. And this thing just makes bounces but it doesn’t make new higher highs. It doesn’t break the previous high on the trend line and instead of making a higher high it makes a higher low and it pulls right back down to that trend line test.

4:33
I feel like that is another sign of a weakening trend line. So like I said, I like there to be a lot of data points but I don’t like them to all be clustered together. I like them to be quick bounces off the trend line but the more the merrier because that provides you with more data points. Now, you can get a data point of where the trend line begins.

4:50
And then it comes back down and I’m the new low and then you can draw a trend line off of that. You have two data points. Is that really a trend line yet? It is a trend line. But is it a powerful trend line? No, not a powerful trend line at all. In fact, what it really is is a developing trend line, its Trend dish, it’s trendy but it’s not solid.

5:11
It doesn’t have a good foundation if trendline cannot be trusted that much. So, usually what I’m looking for and when I’m drawing my trend lines, I want to connect Bottom of the Shadow or the bottom of the candle body or somewhere in between, that means if it goes below the trend line a little bit, that’s okay.

5:30
But if it’s allows me to connect other data points, and the process, that’s what’s most important to me because that’s what the stock is following, that’s the trend line, the stock is following. And also, what’s important to remember is that when you draw a trend line, you’re not creating the trendline you’re identifying.

5:48
So when you’re drawing it you’re just trying to visualize. Where is that trend line at this stock is trading off of, don’t think for a I think that you’re actually creating the trendline, the trend lines already there, you’re just trying to identify it.

6:05
So when you go into it with that approach, I know that maybe sounding a little bit simplistic, but if you go into it with that approach, then you’re just simply trying to figure out. Where’s the trend line at if there is one, then you’re using one of your charting tools to identify where that trend is actually at.

6:21
So, to summarize the trend lines and I know this is kind of a hard one to do for a podcast format, but remember, the more data points that touch that trip. Nice. The better but you don’t want them like multiple days worth where it’s just sitting and writing that trend line higher without actually breaking. That means it’s kind of like a stock yet. It’s kind of going higher but it’s lost that enthusiasm. You want quick bounces off of it right?

6:36
The more tests that trend line the better you want to see it making higher highs and higher lows and it’s okay if it breaches it entered a what you’re really looking for is that you don’t want a lot of closes below to friend line. Now it doesn’t mean that you can’t ever have a close below the trend line, sometimes, you might Have this one-off moment where the market just had, this really bad news event that comes out and it sends everything below some key support levels, but the next day, it recovers.

7:00
So if it’s like a one-off event, okay, that’s fine. I can probably look past that but what I don’t want to see is multiple occasions where it’s constantly breaking the trend line because then it can’t be really trust again it and finally, I used the bottom of the body or the lower Shadow bottom right, the bottom of the lower Shadow, those two things or something in between but just because I stock breaks a trend line An intraday doesn’t mean that the trends over you have to wait to see how it closes.

7:26
That’s always very important. I actually provide a lot of charts in my swingtradingthestockmarket.com website. Hooks up to my patreon account where you can get all these different charts that I’m always providing each and every day showing you’d like the charts in the S&P 500, the Russell, the NASDAQ.

7:42
I’m also providing you like the friends and the setups and various stocks and also updating each and every week Facebook, Amazon, Apple Netflix, Google Microsoft, and The bank stocks basically plus Microsoft, and Tesla, and give you my watch list updated multiple times each week, daily setups each day and the stocks that I’m going to be following.

8:02
So check that out. swingtradingthestockmarket.com. So, in this particular Pockets, I haven’t actually read the email yet. I just jumped right into the trend lines, but it’s actually worth reading especially when it comes to Fibonacci.

8:19
So he keeps it pretty succinct. My using that word, right? He says, first off, I’d like to say thank you for your contribution. To those of us newer to technical trading. You truly embody the old of Dodge. If you give a man, a fish, he’ll eat for a day. If you teach a man to fish, he’ll eat for a lifetime. And yes, that is literally what I’m trying to do with this podcast.

8:35
I want you guys to eat. Want you guys to be able to eat for a lifetime? I just don’t want to Simply catch a fish. I want to help you guys eat for a lifetime. He says, I have several questions but I’ll narrowed to just a couple. So that’s where we got the trendline and Fibonacci.

8:51
You asked me about the trend lines which we addressed. He says, do you use Fibonacci tools? I’ve used retracements on many occasions but that’s it. Thank you for all you do. I’m subscriber not yet contributor well your contribute or not you contributed to the podcast so that’s awesome.

9:07
And And he says, hey we could do 30 to 45 minutes of your podcast. Why do I not do 30 to 45 minutes of a podcast? Well, for one, it’s a lot of editing, right? So I try to break it up into different episodes, each week, makes it a little bit more manageable for me as well, but I also believe too that if I give it to you in like little tidbits, it’s enough to digest to be able to apply to your trading immediately.

9:31
I don’t want to overwhelm you. I don’t want to give you 45 minutes of lecturing and I would probably become a little bit long-winded to but I I want you guys to be able to digest everything I’m telling you and be able to go into the next trading days. Like, hey, you gave me a couple of good points here. Let’s start applying that to my trading.

9:47
That’s what I’m here for. So as it pertains to fibonacci’s. Do I use them? Yes, for those who don’t know what Fibonacci retracements are there, pretty much standard, and all your charting pool packages, Fibonacci on its own is basically a mathematical sequence and as it relates to the stock market, it believes that there’s certain percentages.

10:08
A stock will pull back following a major run. And for me, I use three of those percentage. Pullbacks, I use the 38.2%, pullback, use the 50% pullback, and I use the 61.8% go back. Now, I don’t use them all the time, but I do use them from time to time because there is some truth behind them especially when it comes to Major Market rallies and pullbacks that happened thereafter.

10:29
Now, the ones that I rely on the most, the first one is the 50% pull back. The second is the 61.8% pullback. In the third is the The 38.2% pull back, but they don’t always work. Look, when the market had its major sell-off earlier this year. I even did some YouTube videos and I said, look a lot of these markets sell-offs have had major bounces but they’ve only bounced to that 61.8%, Fibonacci retracement.

10:54
So that was something that I was really watching. When we saw the market bouncing very aggressively in the April May and June time period. Well, it blew right through that 61.8% retracement. And so, the reason Bring that up, is it’s the tell you that Fibonacci retracements or not, like a gold standard.

11:13
It doesn’t mean that they’re going to be honored all the time, but what I really find them very helpful at is when you can’t find a support level for a particular bounce play often times when that support level is missing, Fibonacci will kick in and you can find that support level using the 50% retracement, that 38.2% retracement or the 61.8% retracement, they’re really good for dead cat balances.

11:38
Most of the time assuming it’s going to be at a dead cat bounce, right by fire stocks. Like, if you get into some of these high flyer stocks especially from this past year, you’ll notice that there’s a lot of like, major rallies. And then there’s this huge retracement, that follows right afterwards.

11:53
If you put the Fibonacci retracement overlay going from the lows to the highs. You’ll see that often times these things will bounce off of one of those three levels but also Fibonacci to you got to remember it’s associated with very volatile place because it usually means that Doc is rallied in a major major way of late, and now it’s starting to pull back significantly enough so that you want to actually put a Fibonacci retracement overlay on the chart.

12:18
And so, when you start getting these dramatic pullbacks preceded by Major Rises, yeah, they’re going to be volatile plays and you’re using a mathematical sequence really to identify support rather than what you’re seeing on the chart.

12:37
So it’s wrap up this whole Fibonacci talk, I think it’s good to use, Fibonacci retracements. Treatment levels when you can’t really use support levels because the stock just doesn’t have any stock is made too much of a run up, but you’re looking to see if you can play like a dead cat bounce, or that you’re expecting momentum to flow back into the stock for at least a short period of time.

12:53
Then yeah, you can use the Fibonacci retracements again. I think the 50% retracements, the best, the 61.8% retracement, the second-best and then you have the 38.2% retracement level that I think is third best. Now, you also have like a 23 percent retracement. Poland, something else outside of that. I don’t use any of those. I think they’re very crappy basically. I don’t really think that there’s much used to them.

13:10
I guess. That’s probably the better way to say it. They work well with High Flyers because a lawyer high-flying stocks they’ll go up like 40 50 percent and then they’ll have a significant retracement once it Peaks and then you can usually play the bounce off of those those retracement levels now but remember these things aren’t like a gold standard here.

13:35
A lot of people use them. I think it helps me to understand a lot of times. Where are we at in a retracement as it pertains to the broader indices. And if I’m in a stock, that’s rallying pretty well and it starts to see a little bit of retracement. I like to know where those retracement levels are, very rarely, do I buy a stock off of a Fibonacci retracement level, but it doesn’t mean that I won’t.

13:58
It just doesn’t mean that I do it very often. And yes, there’s usually some volatility that’s associated with these Fibonacci plays. So that’s pretty much it for this particular podcast episode. We got Christmas coming up. So I want to wish you guys all a very, very Merry Christmas for those who celebrate the holiday.

14:14
You guys, you guys mean the world to me, I hope that you guys will find it in your heart, during this Christmas season. To leave me a positive review on Apple iTunes or whatever platform you choose to listen to me on that.

14:30
Would warm my heart if I have been able to be a blessing to you guys over this past year, with swing trading or just trading in general, the best thing you guys could do to me to show the Gratitude would be to leave me a review on whatever platform that you listen to me on.

14:49
So appreciate it guys and make sure you submit your questions. ryan@shareplanner.com guys, I’m getting to all of them. I’m going to get to all of them. I love answering your questions. I love tackling them sometimes. I don’t even want to talk about these questions but I know that it’s good for you guys. Sometimes I get a subject matter that I really don’t want to.

15:06
Talk too much about, I would probably even say this particular podcast wasn’t something I was overly excited about but I felt like that it could be a benefit to you guys, so I packed. Okay, so send me your questions. Nope. Act like them to me and we’ll knock them out together.

15:23
All right, guys, 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 this SharePlanner Trading Block, where I navigate the stock market each day with traders from around the world with your membership. You will get a 7-day trial and access to my trading room including alerts via text, email, and WhatsApp.

15:43
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16:00
Please feel free to email me at ryan@shareplanner.com. All the best to you and I look forward to trading with you soon.