Open to Profits | Podcast Episode #216

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 trade in the stock market, and today’s episode is gonna be a good one. It’s the first episode of 2022, and this gentleman writes his name, by the way, is Caleb.

0:43
And that’s his real name. He told me, hey, don’t give me a redneck name, just give me my real name, so I’m gonna do that. Caleb writes, Hello, Ryan. I am new to the stock market, and I’ve been trading for about 3 months now and have profited about $12,000 thus far.

0:59
But I was up to $21,000 at one point.uick thought I knew a lot about the market and what I was doing, but boy was I wrong. I get into great trades consistently and I have a lot of indicators that I use prior to getting into a trade. I utilize the MacD, the RSI, some market bottoming indicators on trading view.

1:18
VWAP, which stands for volume, weighted average pricing. Major structure levels and patterns to plan and execute my trades. I’ve always averaged down, that is my flaw, and that is why I lose. I get caught up on those trades that I feel so good about, just to get burnt really, really bad, although I profit off of them also sometimes immensely.

1:40
This is something that I have been working on and I try to better myself at, but boy is it a hard one. I seem to struggle with letting go of my losses and letting go of my wins for some reason. I want my winners to just keep going, and I want my losers to turn around and win.

1:57
It is a terrible mindset, and this week I have been focused on placing entry and exit points, which, to be honest, I took 4 trades and won them all. It was a good week, but I didn’t win as much as I would have liked to. So here lies my question for you. When swing trading, how do you time your trades?

2:14
It is simple to say I want to get in here and out there. But how do you determine the time it takes to get to these points? Let’s say I’m using the 1 day, 4 hour and 1 hour charts to trade. I utilize the 1 day and the 4 hour charts to find my major structures, and then I use the 1 hour for entry and exit points.

2:32
How long do you think it takes for a stock to move to my exit point after entry? What indicators can I use to determine that? How can I become more accurate than I already am so I can maximize my profit potential? Hope this makes it to the podcast. I’ve been listening to them all over the week.

2:48
And they are great points of advice that I would love to have had months ago. You can also call me by my name in the podcast if you would like. I am really not too worried about that part. I would just like your advice. Thank you, Caleb. This guy writes a really good email, very well thought out, and there’s a lot to discuss on this particular question.

3:09
But first, what am I drinking? Well, the last two podcasts has been about Costco’s Kirkland brand of bourbon, and today I’ve got the premium small batch bourbon, Tennessee straight bourbon whiskey. It’s aged 7 years. It’s 51.5% alcohol, 103 proof.

3:28
Now, if you remember, the one that I’ve really liked so far out of the two that I’ve tried it. Is the bottled and bond version of Costco’s bourbon, really, really good everyday supper, so excited about this one, they say it’s premium and it’s small batch, so hey, it’s gotta be good, right?

3:44
Not to the nose, it’s got like this like cinnamon flavor to it, on the tongue it’s like, it’s got like this buttery feel. And I’ve had a few of those in the past that taste like that. Not a huge fan of that buttery feel on the palate. Taste wise it’s nutty, pretty smooth though.

4:00
But there’s not enough flavor for this heat that comes in at the end of it, man. It’s got a strong heat. Uh, let’s see here. I’d say give this one a 6.7. Bottled and bond definitely better. I just don’t think that there’s enough flavor for the amount of heat that you have to take on with this one.

4:18
That’s just basically the synopsis of this particular bourbon. It’s not the worst thing I’ve ever had. And actually I’ve used it for the old fashions. I wouldn’t even say that makes a great old fashion. When compared to like the Knob Creek 9 year that I typically use for my old fashioned, but it’s not bad.

4:35
I mean, if you don’t want to run up a bill with guests, you can use the premium small batch version. I think I only paid like 26, 27 bucks for the bottle, so it’s, it is pretty cheap and you get a liter of it instead of 750 mL. Now, back to Caleb’s questions, and there is a lot to tackle.

4:54
So the first takeaway here. He’s up $12,000 but once was up $21,000. Now I don’t know what the actual capital that he’s starting off with, but that does seem like, let’s say he’s trading with $50,000 that would be a pretty big drawdown for $50,000 100,000 dollars account, that would still be a pretty big drawdown because if you go from 100 to 121 back to 112, you’re still talking about like a 7-8% drawdown.

5:21
It’s not the worst in the world, but. I prefer to keep my drawdowns to like 1 to 2%. He also talked about how he thought he knew a lot about the market and what he was doing, but one of the things I would like for people to rethink and how they approach the stock market, that they don’t equate a few successful trades or even a string of successful trades as knowing what you’re doing.

5:44
I’ve been doing it for a long time. I’ve been doing it, I guess for about 30 years now and. It’s still a very much a learning experience for me, not because I haven’t learned anything along the way or I haven’t been a good trader along the way. It’s just that the market is a very evolving environment.

6:00
There’s new things, there’s new scenarios, there’s new challenges that you’re going to face. What you have to be able to do and do it on a regular basis, be able to meet those challenges, respond to those challenges accordingly and not blow up your account because. You didn’t manage the risk.

6:17
When I see somebody drop from 21,000 down to 12,000, and he admits it even in his email, he’s not managing the risk. He’s definitely not managing the downside tightly enough. I mean, if he’s trading a million dollars, he’s not bragging about making $21,000.

6:33
I mean, it’s a small amount, so I’m assuming that he’s trading under six figures and he’s made an amount of $21,000. That’s pretty significant against that number. And now it’s down to $12,000 because he let risk get away from him. And more to the point of thinking that you know something about the stock market.

6:50
Think about a brain surgeon, right? Does he read a couple of books on brain surgery and think, OK, I know what I’m doing on this whole brain surgery stuff. I think I’m ready to operate on somebody’s head. Or does a heart surgeon think that he can go to some kind of like heart replacement procedure just because, you know, he watched somebody else do it or he was able to draw blood from somebody?

7:08
No, so I know I’m using extremes there, but a lot of people will get into the stock market, have a few good trades or even like a few months of good trading and think that they really know what they’re doing when in the reality of it is is there’s a lot of experience that you need to experience.

7:24
There’s a lot of things that you need to learn how to respond to. Most people trading in the stock market today have never dealt with a true bear market. They haven’t experienced the 2008 yet. They haven’t experienced the dot-com bubble. I’ve experienced both of them, and I could tell you, we’ve not seen anything like it since 2009 when the March 9th, 2009, I think is when the market finally bottomed the S&P 500 bottomed at 666 ironically, that’s a little, you know, did you know?

7:55
Very weird, but you want to remember that the market conditions have been very favorable for a very, very long time. So just when you think you know something about the market. Expect to be surprised. Just when the market seems a little bit too easy, that’s probably when you should start tidying up those stops.

8:13
I get very nervous when I feel like the market’s too easy. He said in his email too in the first paragraph, I utilize the MacD, the RSI, and some bottoming indicators on trading view, VWAP, major structure levels, and patterns to plan and execute my traits. I mean, he’s got a lot going on here, you know, from MacD and RSA, I think you can probably just use one of them and probably be just fine.

8:32
VWAP, that’s kind of like a moving average kind of indicator that a lot of people swear by. I have it on my charts for the hourly, but I really don’t make any trading decisions off of it. I’m not saying that you can’t have a good trading strategy with it. I’m just saying that it’s not a holy grail indicator, nor is any indicator of holy grail.

8:51
And while indicators are good and everything, I always encourage people to get very familiar and very comfortable with price and then with volume because most of your indicators, if not all of them, are subsets of price and volume. He says, I’ve always averaged down, that’s my flaw, and that’s why I lose.

9:08
Yeah, a lot of people, and I was asked this the other day, like, why don’t you just get into like a half a position and then add it as the stock drops and that’s fine. One of the problems that comes with that is that if the stock doesn’t go down and it goes up and it was a really good stock trade that you have, well, you’re only benefiting with half the money or capital that you put towards the trade because you didn’t have the full confidence in the trade to take it on originally, so.

9:32
The best executed trade, you may only be benefiting a half position on, or if you were more conservative, maybe it was only a quarter of a position. So that’s the one thing I don’t like about that. It’s almost like you don’t think you should be in the trade set up to begin with and that’s how you’re trading it until you get to a price that’s a little bit better.

9:50
I’ve always been full position right out of the gate and then. Start scaling out as the stock becomes more profitable, but this person here, he averages down. The other problem too is, is, OK, let’s say you buy a stock ABC at $100 you do a half position, it drops to, and I’m just using numbers, you know, in a simplified way just to make it easier for you guys to understand since I’m not showing you guys charts or anything.

10:14
It goes from 100% down to 90, you add another 50%. So you have a full position. But what happens a lot of times is they get very comfortable with adding more capital. So if it goes from 100% down to 90. And then it goes down to 80, then they’re adding another half position and then all of a sudden instead of having a full position, they got a position in a half dedicated to that one stock and if it goes from 80 down to 70, then they add another half position and then all of a sudden it’s like two positions wrapped up in one, double the volatility and you’re in a real mess there.

10:46
So averaging down can have a lot of problems to it. I found it interesting too that he said that I get caught up in these trades that I feel so good about and get burnt really bad. But you can have good trade sets. In fact, I would say some sometimes the ones that I’m most optimistic on are the ones that royally disappoint me.

11:04
You can’t become married to a trade just because you’re so optimistic about it. In fact, when you become too optimistic about it, maybe be a little bit more guarded about that trade. Make sure you don’t make a stupid decision because you’re insistent on it working for you. And you got to remember too, no matter how good the Trade set up is you still need the stock market as a whole to cooperate.

11:24
I think we’ve gotten so used to the stock market going up that we kind of ignore the stock market as a whole and we just assume that the market’s always gonna go up so it could just boils down to the individual trades that we’re getting into and that if we like them that they should go up. The fact of the matter is if the market’s not going up or if the market’s trading sideways, it may have a difficult time fulfilling your expectations for the trade, so.

11:44
It doesn’t hurt to have dampened expectations for your stock. That way you don’t get caught up in some kind of unrealistic euphoria that causes you to stay in a stock far longer than you should. And even though that he might profit off of sometimes averaging down and staying into these trades for way longer than he should, that doesn’t justify him doing that with the bad ones.

12:07
It really doesn’t justify him doing it at all. Because yes, if you average down on every one of your trades when they’re losing, some of them will turn around and the worst thing that can happen is that you actually become profitable because what you’re going to do the next time that happens is you’re going to do it again.

12:24
You’re gonna say, well, it worked for me last time, so I’m just gonna keep adding to the position. I know so many people who do that, they can’t let go of it. It’s like they’re doubling down like they’re at a Las Vegas casino. It’s like, you got to walk away from the table and the table is more of a metaphor for the trade. And letting your winners run, that’s great.

12:41
I mean, he talks about how he tries to let his winners run. That’s good. Let them run as long as they’re willing to run. Once they start to turn on you, you got to get out of it. But letting your losers run against you, that’s bad too, because you’re losing trades will determine how profitable you are as a trader.

12:56
It’s not your winning trades. Everybody’s going to have winning trades. I mean, you give a person 50 different stocks to buy. He’s gonna be profitable on some of it’s just the law of averages. He’s going. Be profitable on some of them, but those profits won’t mean anything if he doesn’t manage the losers. The losers are going to determine how much of a profit you walk away with.

13:14
If you’re disciplined, you’ll walk away with a profit. If you’re not, you’re not gonna walk away with anything, you’re gonna walk away with less. So now I’m actually getting to his question and his trading question is, when you’re swing trading, how do you time your trades? And how do you determine the time it will take to get to those points?

13:30
Most of the time I’m basing my entries off of the daily. If I need to zoom in on like an hourly, I will, and I don’t mind doing that, especially if the stock is already running. I might wait for like an intraday bull flag or a little bit of a pullback, but usually I can determine the right place to get into just using the daily chart because I’m usually wanting to get in on that initial breakout.

13:52
But he comes up with an interesting question about. If you want to get in at point A and you want to exit at point B, how do you determine the time that it’ll take to get to these points? Well, I think for one, you gotta have realistic expectations and one of the best things about trading is when I think, OK, I’m gonna set out to make about 10% on this trade.

14:08
I think there’s some resistance about 10% higher from where I’m getting in at and makes it for a logical place to get out at and then it just blows right through that resistance and my targets, they’re not necessarily like cold sell points. I’m not saying, OK, I hit my target.

14:24
I’m completely out. No, I want to let my winners run as long as possible. There are references for determining reward versus risk. I don’t put a lot of emphasis on the target except for when it comes to the preparation of trade. Once I get into the trade, I’ll let it blow past the target and keep holding it. I’m fine with that.

14:39
I’ll also scale out a little bit on the way before I even get to the target most of the time. I’m usually looking. To start scaling out of a tray when I’m around 2 to 1 for the amount of reward the risk that I took on the tray because then when I start taking that at like initial third or half position off the table, I’m greatly reducing my risk almost to nothing.

14:58
But if I have a stock that I think has a 10% target on it and it goes up to 20%, that’s great. I mean, that’s just more uh profit for me. I love that. So I’m not going to necessarily just go ahead and straight up sell right when we get to a target price.

15:13
If it’s more challenging market conditions, I might actually do that or if I see a sharp rejection at that price level, we’ll go ahead and sell it, but I don’t have to sell right at that price level. And when it comes to how long it’s going to take to get there, I think you got to keep an open mind. Trades are not all going to work at the same pace.

15:29
Different stocks have different betas. You’re trying to get 10% out of Walmart, it’s gonna take a lot longer than 10% out of Unity Software or Twitter or some of the higher beta stocks. There was a stock last year that I was in. It was MPLX. And I think it was like a good solid couple of weeks before it ever actually started moving, and then once it started moving, it was a really good runner.

15:51
Now sometimes I’ll get into a stock and it blows my mind how fast it runs in my favor. And then there’s other times where it just stalls for a while before it actually starts to move. So you really got to take into consideration that it’s not just about the stock itself. There’s a lot of external factors.

16:07
I mean, if there’s a big headline that takes the entire market, you’re probably gonna get stopped out of your trade and you don’t even have a chance at reaching your target. So keep an open mind when it comes to the time frame that you think your stock should reach its target.

16:24
Sometimes I’ve had it take 2 months to get there and that’s a long time for a swing trader. Sometimes it hits it right out of the gate and it keeps going higher, and I’m totally fine with that as well. The big thing is is that you’re raising your stock loss, that you’re taking some profits along the way to make sure that you’re reducing that risk factor on your trades.

16:43
And it doesn’t come down to indicators like stochastics, for instance. A lot of people will try to use stochastics when it gets over 90, they want to go ahead and get out of the trade. Well, a stock can stay over 90 for forever on the stochastics. Same thing with RSI or MacD or any of the indicators.

16:58
In fact, the best stocks are the ones that don’t even give a rip about those indicators. They just keep going higher and higher and higher. Look what Nvidia did last year or Tesla. Well let’s get really crazy. Look at what GameStop and AMC did last year. I mean, they defied all the indicators. So really keep an open mind about where you think the profits might go.

17:16
It’s good to have those ideas for where the profit targets might be, but ultimately where a stock goes, nobody knows. The market’s going to take it where it wants to go, and you have to respond accordingly, raise the stop losses, use the stop loss if it comes back down and never actually takes off like you expect it to.

17:33
But definitely don’t keep averaging down and staying into these losing trades longer than you should because you’ll have more times where you make $21,000 and then you give up $9000 to be back at $12,000. So the time frames are going to be fluid based on the stock, based on the trade set up to if you’re playing a bounce play.

17:49
You’re gonna want to look at what were some of the previous legs higher, you know, if they were playing off of a rising trend line. Look at the previous bounces. How long did it take for those bounces to peak before pulling back? Even then that’s not a perfect barometer, but it’s gonna give you a little bit of a framework to work with.

18:06
And then when the trade starts to actually play itself out, you need to adjust according to what you’re seeing price do. But I wouldn’t put hard time frames for when the trade has to actually. Meet your expectations because then you’re putting the expectations on the market instead of following what the market’s willing to give you.

18:23
And I hope you guys do check out swingtradingthestockmarket.com. That’s going to give you access to all of my market research that I provide each and every day from watch lists to FA updates to market updates to the most intriguing charts of the day. Check it out, swingtradingthestockmarket.com.

18:38
It’s filled with some really, really awesome stuff. And it supports this podcast as well. So if you enjoy what you’re hearing, make sure to do that. Make sure to leave a five-star review because that helps get the word out about this podcast and allows me to provide you with these podcasts multiple times each week.

18:54
Excited about 2022. I apologize for a little bit of that raspy voice that I’m doing this podcast episode with since I, at the time of this recording, I’m just getting over a nasty cold, but I hope you guys all have a wonderful 2022. And I guess for those of you who are listening maybe 15 or 20 years into the future, I hope 2022 is good for you guys as well.

19:15
Thank you guys, and 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. With your membership, you will get a seven-day trial and access to my trading room, including alerts via text, email.

19:35
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19:51
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.