Determining Trade Entries | Podcast Episode #186

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 trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

0:25
You can succeed at the stock market, and I’m ready to show you how. Hey everybody, this is Ryan Mallory with Swing Trading the Stock Market. In today’s episode, we’re gonna talk about determining trade entries. Should be a pretty good one here. I got an email from, who is a member of the Swing Trading the Stock Market podcast patron account, which by the way, you can also become a member of it by signing up for it today at swingtradingthestockmarket.com.

0:52
It’s the patron account that goes into supporting this podcast, and you’re going to get all the market research that I do each and every day that’s going to include watch lists, trade setups, updates on all the fang stocks plus Tesla, S&P 500, Nasdaq 100, Russell 2000, and the most intriguing chart setups that I come across each and every day.

1:11
So check that out again so you can trade in the stock market. Dot com. So for today’s episode, I’m going to call this guy Woodruff. It’s a good old town, small town in South Carolina. If you’ve been there, you know Woodruff. But uh it’s, we’re gonna use the name Woodruff for this person’s email today because I don’t use people’s regular names because you never know how it could come back and affect them or anything else.

1:34
So I always keep them anonymous. He writes, Hey, Ryan, I have a request for a podcast episode that I think would be so helpful, which becomes more relevant as I watch and review the daily trade setups that you provide. How do you determine your entry points or whether you will enter once you’ve selected your trade setups?

1:52
I often watch and wait, sometimes feeling like I missed the move already or I jump in and no breakout occurs. Are you waiting for any clear resistance to be broken and then jumping in, even if the stock is already. He moved quite a bit already. I have a lot of difficulty on this one. I would love to hear your thoughts.

2:08
Well, here’s the thing, man, with this podcast, that is what I’m trying to do the most. I’m trying to give you guys the best and most helpful information to become good traders. And this is one of those questions that I really feel like can benefit a lot of people. So we’re gonna go over that today. But first, I’m drinking some bird Dog Kentucky straight bourbon whiskey.

2:26
Now I remember last episode, I did the bird dog, but it was like a Blueberry whiskey, and I didn’t like it all. I gave it a 4.3, but this doesn’t have any of the fruitiness then to it. It’s just going to be a plain old bourbon, plain it is. It is not all that flavorful, but it’s not bad either.

2:45
It’s got a nice light color to it. To the nose, I’m picking up a little bit of a honey, like a sweetness, but there’s nothing that’s real clear about it. On the taste side, I don’t know, it’s a little flat. I’ve taken a few sips of it already and I feel like it gets a little bit better with each sip. But is it a sipper?

3:01
Yeah, I think it could be an everyday sipper. I don’t think it’s a great sipper. And when I call it a sipper, it’s something that you can come home from work and you just grab a bottle, pour yourself a glass of it and you’re able to enjoy it. Yeah, you can do that. I don’t think it’s like Buffalo trace good. I would definitely would not put it in the old scout league.

3:17
It’s got a solid burn with average taste, basically. So if I’m rating it, I’m gonna give it like a 6.4. My wife, I had her try it, she loves bourbon. She’s a lot more critical than I am, you see. And she gave it a 55, so it’s not even really a sipper to her. It’s not that great.

3:33
So, for me, 6’4, I think it’s a little bit better than what she gave it credit for, but I’m gonna go run with 64 now. Onto this email here, we’ve, we’ve talked about it already. We’ve talked about the fact that this person’s struggling when he sees the charts about where do you get long at? And there’s a lot of different approaches.

3:49
No one approach is going to be correct. It’s a lot of it deals with your personal appetite for risk. Trade entries and whether I take them as a trade itself comes down to risk and reward. I like to go for the setups that are 2 to 1, preferably 3 to 1, and I like to get in as close to the breakout level as possible without confusing it really with resistance.

4:12
Now, you think about it, if we’re talking about breakouts, and that’s what we’re primarily gonna be talking about here in this episode. You draw a line across, you’re noticing, OK, if it breaks out of this basing pattern here and clears this resistance, it’s in a breakout. But What you don’t want to do is get so close to that resistance level to where you can’t tell if you’re just above it or right on it, because sometimes the price itself won’t react well to getting in at that level.

4:38
It’ll still be in like a resistance area. Technical analysis, you try to be really precise with, but it’s not super precise in every single chart to where you can nail it right down to the penny. So sometimes you want to put a little bit of wiggle room between where the clear resistance level is and where you get in at.

4:54
And if it’s gonna be a head fake, there’s a better chance that it’s going to happen right at that resistance level or right above that resistance level than it will be 4 or 5% above that resistance level. Now, don’t get me wrong, you will have breakouts that fail and it can be 34, 5% higher above it.

5:11
That’s why a lot of times you see me take profits along the way in my trades. It’s because I’m guarding myself against those fake breakouts as well. But a lot of times we get into these trades to where you say, man, the stock broke out, but it didn’t really follow through to the upside. Well, there’s a good chance that you might have been getting in too close to that resistance level where price was really not pushing away from that basing pattern as much as it was just still dealing with the battles that resistance.

5:37
So you want to make sure that when you determine your entry price on a stock that you’re not getting in so close. That you’re right at the breakout level. Now, a lot of times too, people don’t have the patience to wait for it to break out. If the stock is trading at $25 and it breaks out at $2550 there’s a lot of traders out there that will tell themselves, I can’t wait for it to cross $2550.

5:56
I can get in at 2% less, make 2%, and assume that it’s going to break out. Well, what ends up happening is it goes up to like 2549, can’t break through that resistance and pulls back and all of a sudden the stocks trading at 2450 and you’re down 2% instead. So you wanna make sure that your entries aren’t out of like a need or a desire to want to get into that stock.

6:16
There’s a lot of stocks that I want to get into and I never seem to have the chance to get into it because it never clears my area of resistance or never meets my threshold for what’s an acceptable reward to risk ratio. So a couple of things right there. Make sure you’re not getting in so close to the resistance level that price is really not detached from it and it creates still a high possibility or probability that there’s a head fake right there or that you’re getting in so close that you’re not even actually above the resistance, you’re just right on it.

6:44
Yeah, remember, breakouts don’t always work. They’re not always going to be sustained. A lot of breakouts do work and they create incredible opportunities, but part of trading is losing. And part of losing means that some of your breakouts are not going to always work.

7:00
And that when they don’t work, that’s what the stop bosses there and in place for. And this particular email, he’s like, man, sometimes I jump in and no breakout occurs. Yeah, that’s gonna happen. But what you’re trying to do is you’re trying to look for patterns that have a probability that they will work. Now, some people trade techniques that only work like 40% of the time, but when they do work, they work in an amazing fashion.

7:20
If you make 20% on every trade that you went on and lose 10% on every trade that you lose on, and you’re only right 40% of the time, you’re still doing OK. So it’s not always about being right 50 or 60% of the time. I like to be right more than 50% of the time. I want to be right as much as possible, but there’s gonna be times where you go through periods where you might only be right 20 or 30% of the time because the market and the patterns that you’re trading are just not working out that great.

7:45
I think a lot of breakout patterns right now are really struggling because this market’s almost priced for perfection. It’s just sitting at these all-time highs when they make new all-time highs, they’re marginal new all-time highs before you have like a 3 or 4% pullback. And then it gets bought right back up again, it goes right back to the all-time highs, struggles to really make significant new all-time highs, and they pull right back down again.

8:05
And that’s what you’re seeing a lot of right now where the breakouts are just not sustaining themselves. If you’re playing breakouts on the spot, you’re not going anywhere with this market because those breakouts to new all-time highs, they’re not producing much reward for the risk that you’re having to take on.

8:27
And a lot of your entries are going to vary from stock to stock, stocks with high betas like a rou or NO or a Robin Hood. They’re going to have a large beta in terms of how much do they move when the market moves 1%, how much is a Roku typically moving? A lot of times they have much bigger moves like 4 or 5%.

8:46
And so when you have a high beta, that means you’re going to have a much bigger price range and so trying to find a good reward to risk is going to be difficult. Now, if it’s Walmart or Cisco or Nexera Energy, symbols for those are WMT, CSCO and NEE. You’re gonna find that, yeah, a stock can run for a couple of days and still, you can get into a good reward to risk entry.

9:03
So, The breakout or the entry price on those, they’re going to be far easier to get into when they develop because the reward to risk is so much more favorable. When you start getting into Roku and it goes on a two day run, you’re looking at a possible 15% stop loss with maybe a 10% reward or a 15% reward.

9:21
The heck. If it has a 20% reward, it’s not a good reward to risk ratio because you still want it to be at least 2 to 1. Opportunity for what you think you can pull in on the trade. Now, Rokku, if you’re using a 15% stop loss, you’re going to need at least 30% return on that trade for it to be a valid reward to risk scenario.

9:39
And if you’re wanting to go against what I really think is like the best reward to risk scenarios out there, it’s like 3 to 1 or more. So then it’s like 45%. But then you’re really just starting to get ridiculous with the expectations. Whether or not the entry is going to be good is going to be dependent on whether or not the risk that you’re taking on is good relative to the stock that you’re trading.

10:00
Now, if I’m going to use a stop off on Nexstera Energy of 10%, that’s gonna be a hard pass. Why? Cause I don’t have huge expectations forexstera Energy to go up 20% or for Cisco or for Walmart. But if I can get like a 2%, yeah, I might be able to go for 4% or for 6%.

10:17
That sounds pretty solid there. You’re gonna be much more challenged to find a 2% stop loss on Roku. And if you do, there’s a good chance that it’s going to be so volatile the next day that it could easily stop you out of it. That doesn’t mean you can’t ever trade more volatile stocks, but there needs to be some clear support levels that you can place your stop loss under.

10:37
And whether or not it’s a good entry price is going to be determined based off of where you’re putting your stop loss at. I pass on a lot of good charts. I mean a ton of good charts. I can’t even tell you how many charts I pass up on all the time because the reward to risk for me and my own personal trading is not good enough.

10:55
I don’t want to take on when a market’s struggling to make new all-time highs. I don’t want to take on 10% stock losses right now because there’s a good chance we’re not going to get that out of the a lot of the stocks that we’re trading right now, especially when the majority of them are not even trading above their 40 day moving average. They’re struggling to participate in this market.

11:13
And so, when you’re gauging entries and you’re worried about FOMO and everything else, look at the chart and say to yourself, is this a trend that looks like it’s just getting started? Is it in the middle of the trend or is it towards the end of a trend? A lot of people get themselves in trouble with FOMO and like what we saw last week with Robin Hood, where the stock goes all the way up to 85% and then the next day is trading in the 50s because People start getting in there thinking, oh, it’s going way up.

11:39
Well, they didn’t identify the fact that there’s a good chance that that two day pop that it had could be the end of its rally. Instead, you want to find those charts that are showing you, hey, there’s a good chance this is the beginning of a rally right here, and this is how you manage risk. You don’t want so much to have to try and time the end of the rally.

11:54
You want to try to get in. Near the beginning and you want to get the meat and potatoes, OK? I call it the meat and potatoes, the middle part of that trend, because that’s where a lot of your easy money is going to come from. That’s where it makes its big move, and then it gets to the top and it starts to top. I don’t really care about that topping pattern. I don’t want to tie my money into it.

12:11
I’d rather just get the meat and potatoes, man, that middle section of a rally. So to summarize for you guys, because we talked a lot about these trade entries. We talked about how BirdDog was like uh OK, 64 bourbon, but more importantly, we talked about entry prices.

12:27
Now we want to be looking for setups that are going to give us a 2 to 1 or a 3 to 1 reward for the risk that we’re taking on and whether or not they’re good come down to whether or not the reward to risk ratio is favorable. Now, when we get in, we wanna make sure that we’re not getting in right where there is a resistance level, OK?

12:42
We don’t want price to. Kind of be muddled into all of that. We want there to be some separation between current price and the resistance that it just broke through. Also, you don’t want to front run it. You don’t want to be like, hey, I seeing the stock trading at 25%. I want to get in now so I can buy more shares and not wait until it breaks clear resistance at 2550 because there’s a good chance it never will and you’ll just be stuck in an unnecessary loss.

13:04
And remember, I passed on a lot of good charts. You will too, if you make reward to risk your priority and your trading decisions and where you get in at. That’s gonna do it for today. If you guys have any questions, make sure to keep sending them my way, ryan@shareplanner.com. Keep leaving me those 5 star reviews because they do help me build this podcast.

13:19
They mean the world to me. That is the biggest thank you that you guys can do. Make sure to check out swingtradingthestockmarket.com, and all of you guys have a wonderful day. Thank you. 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.

13:41
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14:03
If you have any questions, please feel free to email me at ryan@shareplanner.com. All the best to you and I look forward to trading with you soon.