Finding Them Trade Setups | Podcast Episode #153

0:09
Hey everybody, this is Ryan Mallory with Swing Trading the Stock Market podcast. This is episode 153 that we’ve got going on here. And I’m gonna call it finding them trade setups.

0:30
I got an email From a guy here and we’re gonna call him Hank. He’s from good old West Virginia. He’s a West Virginia boy. He said, hey, you can pick out any kind of crazy redneck name. I’ve heard it. I’ve heard them all from where I’m from. If you’re wondering the bourbon of choice for this podcast, I am choosing.

0:51
I am drinking me some redemption bourbon, it’s 42%, alcohol, 84% proof. And let me tell you, I was kind of excited because I, I see this one on the shelves all the time, and I’ve never actually tried it. There’s always something else that I wanna try first.

1:08
And so I finally got some here and I’m trying it. And I gotta say, After trying it, It’s all right. It’s not something I’d go rush out and buy another bottle for. It’s about 75% corn, 21% rye.

1:27
And it’s smooth, but it just stays smooth. It doesn’t really transition into anything else. And I feel like it really lacks the depth needed to be a high quality bourbon. And really, when I’m drinking it, all I can taste is the oak and the corn flavors.

1:45
That’s, that’s pretty much it. There’s a slight bit of spice at the end, but nothing more. So, scale of 0 to 10, I’m gonna give this one a 6.1. I just consciously don’t feel like I can go any higher than that. So redemption bourbon, 6.1.

2:09
Now, Hank. Hank’s got some questions. He says, hey, Ryan. Just a short background on myself. I’m 50 years old. Started trading in September of 2020. I’ve been successful as an automobile technician, service manager.

2:26
And writer and also owned my own mom and pop shop for 10 years. I have moved forward in my career with the I have moved forward in my career always with the exception of losing my business due to ex-spousal complications.

2:43
Ex-spousal complications, that sounds pretty intense. I know a little bit about ex-spousal complications in general. We won’t get into that. That’s, that’s like podcast episode 2,334 when I have really run out of things to talk about when it comes to trading.

3:01
That’s when I’ll, I’ll get into that stuff. But he goes on to say, In short, I like to succeed and I detest failing, like, like the rest of us, right? He says, I’ve done quite a bit. He says, I’ve done quite a bit of research on charts and indicators.

3:19
I use Finvis.com to try and search for stocks that have modestly low beta, good volume, above $2 billion market cap. All those are good requirements. So I, I like that. We’ll talk a little bit about that more in just a little bit, but I’m gonna finish off this email.

3:43
He says, I try to He says I try to seek out stocks that have upward trends and look like they should start to climb. I have listened to all of your podcasts and I’m working my way through them again. Following your advice, I stick strictly to the stop losses. I managed to gain about $800 with $2000 to start, but I realized that I was still riding the late wave of recovery from COVID.

4:04
But I realized that I was still right in the late wave of the recovery from the COVID sell-off. Now, that the market is back to what I am guessing is approaching a possible bubble, my gains have stalled out some. My gains have stalled out. It seems that every chart I study and feel that will definitely go up never gets off the ground, and I find small losses beginning to add up.

4:26
I know for certain that my biggest problem is that I can’t seem to develop a system that I can understand and use effectively. I have tried moving averages and Bigger bands. I can’t really get settled on moving average settings. I can’t really get settled on moving averages settings and time frames, and that is the part that’s really kicking my butt.

4:48
I’ve dropped $200 in the last two weeks and I need to get this under control and start going forward again. I really need some guidance on how to pick some good runners and especially how to determine when to enter the trade. Thank you for everything that you are so willing to give to myself and others.

5:05
I know that. With your guidance, I will succeed sincerely, Hank. PS 1000% agree with you and your opinions on a previous episode about Dan Marino, Don Shula, Reggie Roby, and the Miami Dolphins in general. Goins.

5:20
All right. I had to get that last part in even though I had nothing to do with the podcast. I just like talking about the Dolphins every once in a while. So, Hank here. He’s got good scans, and there’s nothing that has to be overly sophisticated about your scans.

5:36
There’s nothing sophisticated about my scans. In his case, he’s got a low beta. That means he’s not trying to get these like crazy. Betas that are like 678, beta versus the market. And when I say beta, essentially what I mean is that if the S&P 500 goes up 1%.

5:54
In a single day, and you have a beta of 2. That means that you went up twice the amount on average. That means The beta suggests that that would go up about 2%, and that’s pulling that from historical data. If you have a beta of 1, that means you’re usually matching the returns of the S&P 500.

6:16
Now beta can change over time, stock becomes more volatile, the beta is going to increase quite a bit. So when you get into the bear markets, a lot of people are looking for low beta stocks, mainly in your utilities because utilities don’t have a high beta, because that gives them a little bit more safety to where if a stock has a beta of 5.

6:39
To where if a To where if a stock has a beta of 0.5 and the stock market sells off 20%. You’re likely beating the market with only a sell-off of about 10%. That’s how betas works. So he’s got a low beta. Let’s say that he’s trying to keep it under 2.

6:57
For the purposes of this podcast. He wants good volume And above $2 billion market caps. So he’s trying to stay away from your small caps, your micro caps, penny stocks. He wants legitimate companies. That’s what you get with $2 billion dollar market caps. He’s also looking for good volume, meaning that he doesn’t want to get into something that maybe has a trade happening every 5 minutes.

7:18
He wants good volume consistent. Where you can consistently get out of the stock if you need to.

7:35
So everything he’s doing there is good. Because what this is going to do is give him. A collection of stocks that he can trade from. And what it’s also going to do is weed out the stocks that he does not need to be trading in. And then we can learn a lot from that. I do the same thing myself.

7:51
I, I scan to weed out the stocks that I definitely never want to trade.

8:16
And there’s one thing that you can take away from most of these podcasts. On a consistent basis would probably be to use stop losses and to use some discipline. So he’s doing that as well, so perfect. But he starts to talk about here how he started with $2000.

8:31
It’s dropped about $800. He started off with $2000. It’s gone up about $800 from that $2000 and now he’s lost about $200. He’s getting a little bit nervous because he’s seeing some of these trade setups that worked for him in the past start to stall out.

8:48
So one of the big things here is understanding the cycles that a market typically goes through and we’ve seen a lot of that over the past year. You got to remember this time last year, we were selling off really hard and heavy. It wasn’t until like March 23rd that the S&P 500 finally bottomed out.

9:07
So a little less than a year ago at the time of this podcast. And since then, you have seen a wide array of motions at the market from putting a very dramatic and crazy bottom that saw the market rally like 10% off of the lows.

9:27
I think it was even more than that. And then just continue to rally day after day after day after that. And to rally beyond what we even thought was possible. And we were talking about big, big moves.

9:44
Some stocks were doubling in the matter of days, big companies.

10:17
You take a company like Square off the Lowe’s, it doubled in about 6 or 7 days. That is a crazy move, and it kept on going. I mean, SQ at its Lowe’s was trading around $30 a share. It’s now at $250 a share.

10:43
But that was the early phase. That was when we just put in a bottom and you’re going to get dramatic price swings both to the upside and to the downside. A lot of times you almost have to make your stop losses a little bit wider because one, the reward is gonna be huge. I don’t say that you go and get 20, 30% stop losses.

10:58
I’m not saying that. But for me, like maybe if I’m averaging about 4 or 5% in a normal market or 6%, maybe I stretch it a little bit out there to like 8 to 10%. Because But I’m not gonna go any further than that because then I know I start really digging myself into a hole.

11:21
If I am wrong on the market. So I’m really still being very careful and cautious. But in those early phases, the market turbulence is very crazy, but when it starts to finally rally, it’ll remain crazy, but you’ll see some of the biggest moves of your lifetime. And that’s what we got back in March of 2000.

11:45
And you had that for about 2 solid months from March. And to the From late March into the beginning of June, you had just incredible rallies. And it continued thereafter, but you started seeing a little bit of pullback and that’s where things started to normalize a little bit, where it was digesting the recent gains and then it made another big move and then it did a little more sideways consolidation.

12:12
And that was like the middle range of the move. And so that right there is, is really some of the best pro. Profit opportunities because you don’t have to take on as much risk. Instead of taking like 7 to 9% of risk, you’re taking back around that 4 to 5% risk that you would normally take.

12:30
And that’s, that’s a nice sweet spot there cause you can still get some really good moves from July. Till the end of August, the market was. Incredible. And then it went sideways again for a little while. And when it finally broke out of that sideways channel.

12:50
That was when the market really started to hit the later stages of a rally where it’s, it’s really starting to tire out. Now, I’m not saying any of this stuff. And expecting you to go grab a chart. I’m trying to be as, as simple and Clear about it without you having to go look at a chart because the charts not needed.

13:08
Basically, what you need to know is like in the early stages of a market rally, you’re gonna get some crazy swings to the upside. And when you get those and you make some good money, that kind of money is not going to last the whole time in terms of, you can expect that to be the same thing 1213 months down the road, probably just not going to happen.

13:27
This is coming off of a violent correction just like what we saw in 2018. And when you have that like rubber band movement where it just gets stretched beyond its limitations, and you finally let go, I think it’s gonna snap back really hard and really fast, and that’s what you get off of those March lows.

13:44
So you get that rubber band effect, and then it starts to normalize some where you can use, you know, 5, 6% stop losses and find some really good quality trade setups. But then you get into the later stages of these rallies like what we’re in right now, or at least what I believe what we’re in right now. I don’t know how long this late stage r can go for, it can go for a long time.

14:04
So just because I say we’re in a late stage rally doesn’t mean we’re tanking tomorrow or the market topped yesterday. Definitely not saying that. All I’m saying is, is that when you get to these later stages, it can really be a lot of churning and a lot of sideways chop on your portfolio and that’s what Hank’s dealing with right now.

14:24
By the way, check out swingtradingthestockmarket.com. It’s the website that goes along with this podcast. It’s great because Everything I tell you about here, I apply to swing trade in the stock market, and I give you that in the form of watch lists each and every day.

14:40
You’re gonna get my Bulls and my bears watch lists updated multiple times each week, and then you’re gonna get daily trade setups each and every day. The trade setups that I’m looking to trade off of or watching, those are the ones that I’m gonna be telling you about. And on top of that, you’re gonna be getting the most intriguing charts of the day, the ones that I, I find the most necessary to inform you about.

15:00
Some of those come in trade setups, some come in those on. Some of those come in the form of trade setup, some of those come in the form of. Market alerts, you just need. You just never know what you’re going to get when I send one of those out.

15:17
Now, you’re also gonna get updates on all the Fang stocks, including Microsoft and Tesla, as well as multiple updates each week on the S&P 500, the NASDAQ, and the Russell 2000, and to give it to you from different angles and time frames that you might not be used to seeing them from.

15:33
Check that out, swingtradingthestockmarket.com.

15:51
So for Hank, he needs to recognize. That as the market rally starts to mature a little bit. The gains are going to get a little bit more difficult. It doesn’t mean that you can’t still profit from the stock market. You can, and I do.

16:07
But it requires a lot more patience, and it requires a lot more time to find those right trait setups. Now, he talks about trying to figure out the right time frames and what time. What type of moving averages. One thing I always say about moving averages is.

16:24
They’re great if there’s a history with the moving average. Like people talk religiously about the 200 day moving average. The 200 day moving average is important on the charts where the chart makes it important. If the thing going up and down below and above the 200 day moving average on a regular basis. Who cares?

16:40
Who cares what the 200 day moving average says because it doesn’t respect the 200 day moving average. But if you see it, test the moving. But if you see it test a 200 day moving average or any moving average for that matter, and it bounces off of it each time, or let’s say it’s trading below the 200 day moving average and every time it goes back up, it hits it and it has a dramatic sell-off.

16:58
That’s to be respected. Those, those are times when you want to follow that particular moving average. I use moving averages for my stop losses at times too. If it has a history, as the stock is going up in value of bouncing off of a particular moving average, like let’s say the 5 day moving average. Great for following short term trends when you’ve got a really good runner on your hands.

17:17
OK, then I’m gonna know that if it breaks below that 5 day moving average, maybe it’s time to move on. But moving averages are different with every chart because the chart has a different relationship with the moving averages.

17:36
They’re not always going to be the same, so you can’t really apply a broad brush. With the moving averages to every chart.

17:55
And you gotta remember, whether it’s resistance, whether it’s support, whether it’s moving averages. All these things are made to be broken. I know we always talk about, hey, we like to see the balances off the key support levels and that’s true. But guess what? Where do you think breakouts come from? From technical break? From when the technicals break.

18:11
It breaks through a support. It breaks through a resistance level. There you go, you got yourself a breakout and it’s not. Respecting a particular resistance level, it’s breaking through it, therefore you have a trade. So technicals are meant to be broken. Support’s meant to be broken, resistance are meant to be broken.

18:27
When it’s not broken, you respect it. That’s where you create trends from. Because the stock has a trend of not breaking it, actually has a trend. Of holding that trend line and balancing higher.

18:58
And Bollinger bands. He talks about Bollinger bands in this as well. I don’t use them all that much. I like to use Bollinger bands for measuring extremes in the market. And by that, what I mean is that when a stock is running red hot and it’s like day after day after day, it’s putting in like 3, 4% and it does it over the course of a couple of weeks or a few days and it’s just really stretched to the upside.

19:23
OK, I’m gonna pull some Bollinger bands out and I’m gonna see what is the relationship with this stock to those Bollinger bands when it goes outside the Bollinger band with two standard deviations, does that mean it’s going to pull back every time? Or does that mean it’s going to run outside of those Bollinger bands?

19:40
Those are the questions that I like to have answered. If I see every time it goes outside of a upper Bollinger band and the stock has a, you know, a complete hissy fit, well, then that’s probably gonna be a sign for me to take some of the profits off the table. And I think too, taking profits are probably going to be one of the things that Hank is not doing a very good job with in his trading.

19:56
And I get small accounts. It’s not fun to take profits on something that you may only be up 10 or 15 dollars on, but it’s about the discipline. It’s not about the money. When you keep watching the money, that’s when it’s going to be very difficult for you to just trade because you’re not succeeding as a trader, you’re just trying to make money in the stock market.

20:23
And looking at Hank’s email, he’s really trying hard, but he’s coming at me with, OK, this is my account, $2000 went up to $2800. I don’t even need to know what the account value is, really. I mean, he could have told me, you know, the same lessons would apply whether it’s a $2000 account or a $200,000 account.

20:43
What I would have liked from Hank is like, hey, I went up about 40%. I’ve pulled back about 25% of those profits. This is what I’m dealing with here. I’m not sure why. But just the fact that he’s mentioning the dollar amounts kind of makes me worried that he’s focused on the dollars.

20:59
He’s dollar watching and I always talk about don’t dollar watch because you start to personalize those dollars and those dollars start to mean something to you. I don’t look at what, how much money I make each and every day or how much money I lose because I’ll start to personalize that. I don’t want to do that. I start to think, hey, I make this much money, I could buy this with that money.

21:17
I could go there with that money. Or if I lose money, I was like, oh crud, you know, that, that would have paid for this particular bill this month. You know, I mean, it’s just dollar watching can really take you outside of the market’s zone and you want to stay in that market zone. You want to care about the things that the market cares about and dollar watching is not something the market cares about.

21:41
Ah The other thing too is, is that you can have good setups every day. Every day, I bet you I pass up on 10 to 15 good trade setups.

21:56
I just do. And some of them, you know, they take off and I’m like, man, I wish I was in that trade. I wish I wasn’t so careful. But I know that I’m doing the right thing by being careful and by respecting the risk and the reward on each and every trade. But I think Hank might be getting in trouble is that he’s not taking some cues from the overall market conditions like today and yesterday.

22:16
And whenever you’re listening to this podcast, it doesn’t matter what happened today and what happened yesterday in particular, but just know this. You know, one day it rallied, the other day it sold off, the prior two weeks it was very choppy with a slight downward bias to it.

22:32
And so I haven’t traded as much. Not because there haven’t been good quality trade setups, but if the market’s tanking, but there’s a good trade setup and I already have enough exposure in the market, I’m not gonna add more exposure when the market’s on too much uncertain grounds.

22:48
And that’s what gets a lot of people is that they feel like they have to trade every single day. I haven’t made a trade since last week. And that’s OK. There’ll be times where I’m making 15 trades in a week. And there’ll be times where sometimes I almost go a whole week without making a trade. The key there is knowing when to trade and when not to trade.

23:05
The market’s selling off, don’t go buying longs. You can’t go buying the dip just because that’s what you’re hearing everybody else say. That’s such bad advice. I know the stocks go up over time, but you gotta time those entries right. And if you’re trying to swing trade the market, entries are going to mean a lot in terms of how successful you are in the stock market.

23:25
So make sure that if you’re struggling to find those gains and you find, you find that your good trade setups just can’t go higher after you get in, well, there’s a good chance that you’re trading against the market. And that’s never a good place to be because when you start trading against the market.

23:45
You’re fighting bigger trends. You’re fighting bigger trends than just what that stock is offering you. There’s trends in the market, there’s trends in sectors, there’s trends in industries. And you’re gonna be fighting all those things if they’re not all lined up in your favor. So make sure that when you’re trading, market, the sector, the industry, they’re all lined up with you too.

24:06
That’s gonna do it if you guys enjoyed this. Please make sure to leave a review on Apple or any platform that you’re listening to it on. I’m not sure which platforms have all the reviews, but if there’s a review available to you, please do that. That means the world to me. I know Apple has it and you guys have left a lot of them, but I ask you that you continue to leave those reviews, those 5 star reviews, that means the world to me, and it gives me just the amount of courage that I need to keep doing what I’m doing because the feedback that you guys provide me and the questions that you give me, it means the world to hear how impactful it is in your lives.

24:40
So keep sending me those emails to ryan@shareplanner.com. Thank you guys, and God bless.