Swing Trading Undisciplined | Podcast Episode #231

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 I have a good episode for you guys here today. This email comes from a person over in Portugal, which is cool because to think that this podcast has a presence over in Portugal is pretty cool.

0:47
So for Portugal, we’re gonna give this guy not a Florida redneck name as I typically do, but I’m gonna give him a Portugal name in the form of Ronaldo after their famous soccer player, Cristiano Ronaldo. So Ronaldo writes, Hi Ryan, here goes my email for the podcast swing trading the stock market.

1:05
He put swing trade in the stock market in bold letters. Actually, this letter is so well constructed, it’s amazing. He has bullet points, he has subheaders to the email. It’s impressive. The first header says a little bit of context.

1:22
He goes on to say, I started investing in 2019, buying excellent companies at a discount price. I made a course with a great teacher, and he provides the company’s research, intrinsic value, and points of entry based on technical analysis. I was able to buy Adobe, Amazon, Google, Meta, i.e.

1:41
Facebook, Microsoft, and Alibaba, Tencent, JD and PingA in Hong Kong at good discounts based on the intrinsic value. I know, poor diversification. And when he says poor diversification, he’s talking about the fact they’re pretty much all tech stocks.

1:58
Until the beginning of 2021, I was winning a lot of money. For example, I was making 112% on Google, 60% on Microsoft, and so on. Now we come up on the next section of this email entitled The Problem. Although I still think investing is the best strategy for me, trading, or more specifically swing trading, is always in my mind.

2:22
Especially now that I am being hurt a lot in the stock market and also because I feel that I miss the fluctuations of the markets. I don’t always have stop losses, so as you may guess, I’m being smashed by Alibaba, Tencent, JD and Pingan.

2:37
And yes, he is. All of those are killing him. I don’t know anything about Pingan, but the 1st 3, Alibaba, BABA. Tencent, which is T H E H Y, and JD. are all getting destroyed. I mean, JD, for example, early 2021 was trading at $108. was trading as low as $42 today.

3:01
So, yes, they’re getting destroyed. Alibaba, everybody knows the story on that one, trading as high as $320 back in October of 2020, trading at just $76 a share today. Chinese companies in general have been getting destroyed, and I haven’t traded a Chinese stock in quite some time for the simple reason because not that I don’t think that maybe Alibaba’s way oversold or at a pretty decent value.

3:27
I just don’t trust the headline risk. I don’t know what China’s going to do to that company. I mean, their CEO had disappeared for a while there, nobody even knew where he was at. I mean, it’s just there’s so much risk right now with the Chinese stocks. I want nothing to do with them. He gives me his next section entitled Solution.

3:43
I think the best plan for the future is for me to have a hybrid solution, investing and swing trading, so I can capitalize some profits and reinvest those profits in the next swing trade. I have some basic knowledge and technical analysis, moving averages and support and resistance, and I have a good knowledge of risk management.

4:02
Well, at least I know the theory of risk management. The biggest issue for me is stop losses, not that I don’t know where to put them. It’s just that for me to assume a loss is a horrible thing, knowing that they are good companies that always go up in the long term. I know that is a mental process, and it is all about me and not about the market.

4:23
I am sure that you have already met people like me, so what is the best advice for me? Sincerely, Ronaldo. Now Ronaldo has a good email. There is a lot, I mean a lot to unpack here. But first, what am I drinking?

4:39
I am drinking wild turkey, old fashioned. Now, if you remember from the last podcast episode, I did a review on just Wild Turkey 101. It was 101 proof, so that made it about 50.5% alcohol. I gave it a 5.8%.

4:54
I just said it was hot and hot. The taste was hot. The finish was hot. It just was too much. But I bought it more for the purpose of using it for my old fashioned dude that Total Wine said, hey, since we’re out at Evan Williams, try this wild turkey 101 as a replacement for your old fashion.

5:10
So I tried it. And let me tell you, it’s pretty good. I would say it’s along the same lines as the Evan Williams bottled and bond old fashioned that I was using before until everybody started buying that. I have the worst streak right now of being able to maintain a good bourbon for my old fashions, and now I’m not gonna go put old Scout or Blanton’s or Eagle Rare in my old fashion.

5:35
It’s just uncalled for. You don’t do that because in the end, the old fashion with the simple syrup and the bitters, it’s gonna take away the unique characteristics of what makes some of these really good bourbons so unique. So I don’t want to do that. I actually use the bourbons that I don’t like that provide a lot of proof, like at least 100 proof, and has a lot of heat to them because that simple syrup’s going to tone it down.

6:00
So, it’s slightly more sweet than the Evan Williams, not as hot. For a score, I think I’m gonna give it the same score 9.5. It’s actually works really good. With my old fashion, and for those who don’t know my old fashion, it’s really simple. 6 dashes of angeristic bitters, 2 dashes of orange bitters, 3/8 of an ounce of simple syrup, I make my own, it’s like 1 part water, 1 part sugar, and then I do 2 ounces of my bourbon.

6:28
Throw a good cherry in there, express an orange peel, rub the rim of my glass with it as well, put it in the drink. You get yourself an amazing drink. You’ll, you’ll find yourself unable to order old fashioned out on any other place. I’m telling you it’s a good simple drink. It’s it’s my go to drink almost every time I drink.

6:45
OK, so. Dealing with Ronaldo here, there is a lot of issues here, and I think a lot of it deals more with his perspective towards trading. He starts off with the fact that he started trading in 2019. 2019 was, if he started, let’s say he started out in January.

7:01
Well, he came out in the beginning of a really good bull market following the 2018 quarter4 selloff. The sell off bottom, I think it was like December 26th that year. And then from there, it was an epic run higher for the markets and then.

7:17
You ran into that brief hiccup that lasted for about 3 weeks with the COVID sell-off market had a huge Correction, some people will say crash. That’s probably a good description of that period of time. And then you had a whole influx of traders that came in and started pushing the stocks back up.

7:36
With their stimmy checks, right? So he saw a little bit of a sell-off, but it doesn’t sound like he got rid of any of his long-term positions. He was able to benefit not only from the rally in 2019, but also the bounce off of the lows of March 2020, 2021 hits, and things start to hit the fan.

7:53
Even though 2021, the markets finished higher, it was a very difficult year for most individual stocks because Most stocks trended lower while the overall market trended higher. Why is that, you ask? Well, it’s because Apple, Google, Microsoft, Tesla, Facebook, Netflix, not Amazon because Amazon has been trading sideways for like the past 1819 months now, but it was everything else that did really, really well and their market caps are so big.

8:25
That they can keep an entire stock market elevated while so many other stocks beneath the surface are either crashing or correcting or just simply pulling back. I mean you take a stock like SQ, massive correction, Alibaba, massive correction, but the overall markets kept trending higher all year long.

8:44
Look, if you’re new to trading and you’re just buying the dip and you’re just trying to get along at any time, 2019 was a great year for that. So it was 2020 minus the whole three week COVID experience that the market had. But then 2021 was the year where a lot of people started losing their high and wasn’t sure why, because the market kept trending higher.

9:02
And it takes me back to when I first started trading. It was in the early 90s. I was 11 years old when I first started trading back in ’91, and I thought it was a really easy thing. It’s like, man, you just make money every single day. I mean, yeah, there’s the occasional sell off where you might lose a few bucks, but I took $5000 as an 11 year old, not knowing anything about what I was doing and By the time I graduated, there was like $50,000 in that account.

9:29
So like in 1999 when I graduated, I had about $50,000 in the stock market. That’s how crazy it was. And that was just trading with mutual funds, people. So yes, I’ve lost a good chunk of that money cause I had no idea about risk management and when the crap hit the fan.

9:46
There was no risk management in place to preserve those profits, so the large majority of my profits, they were gone. Thank goodness I actually got to spend it on a transmission on a beater Oldsmobile and get my first computer out of it before the market did completely crash from the tech bubble bursting.

10:03
And that’s why I’m able to relate with these people so much because when you first start trading and you have that crazy success and you have somebody telling you what to buy and what to sell, but they’re not really teaching you risk management. It’s easy to get sucked into the fairy tale. He later on talks about he probably made the most.

10:22
Honest comment of this entire email when he says the biggest issue for me is stop loss. It’s not that I don’t know where to put them. It’s just that for me, assuming losses is horrible because I know that there are good companies that will always go up in the long term. Everything about that statement, even though it was a very honest statement that he said, was actually based on false assumptions.

10:41
Assuming losses are not horrible, if you’re managing those losses and you’re keeping them small, they’re a good thing. I’ve had losses this month. I’ve had losses last month. I have losses on pretty much every month. I think there’s only been a handful of months where I’ve not had a loss, but it’s the manner in which I manage those losses by keeping them small that’s going to define the profits.

11:00
I can make a million dollars off of one trade, but if I lose a million dollars on the next trade, what good does it do me? I’m better off making a dollar on a trade. And losing 50 cents on the next trade, then making a million dollars on a trade and losing a million dollars. There’s nothing to gain from that.

11:17
Again, it goes back to how do you manage the losses. If you manage the losses correctly, if you manage them tight, that’s where you get your profits from because it determines how much of the profits from your winning trades that you’re ultimately going to keep. So for him to say assuming losses is horrible.

11:33
No, assuming losses in the right way is the greatest thing that you can do because you’re gonna keep yourself from getting into the Baba’s long term and being a bag holder and getting into a Tencent and getting into JD when you should have been out ages ago because now you’re looking at 60 and 70% losses that could have been so easily avoided.

11:56
And then he goes on to say, I don’t like to take these losses because I know they are good companies that will always go up in the long term. A lot of companies do go up in the long term. Take for instance Microsoft and Apple. I mean, Microsoft crashed like 80% following the dot-com bubble, and it came back.

12:13
I mean, it’s way above where it was at from the dot-com bubble. But how long did it take for it to come back? What could you have been doing with that money? In the meantime, had you used a stop off, maybe you could have made a couple 100% back in the dot-com bubble, and then when it started falling apart, maybe you walk away with 150% on that trade.

12:35
And then it pulls back a total of like 85, 86%. And then it starts to come back lower and then you can get back in at these lower prices and watch the stock climb back up to where it’s at today. A lot of people justify their long-term losses. By saying that they’re a long term investor, and I would say to you that you can use risk management in your trading from a long term perspective.

12:59
Like take for instance, today, I originally got into Chevron as a long term investment. The stock has pretty much doubled since I’ve gotten into it. I got into it for its dividend, making about 8% profit, right? I know this oil story is crazy right now and that the stocks have just been going up hand over fist day after day.

13:22
But I’ve seen enough of these moves. I’ve seen it with pot stocks and I’ve seen it with Bitcoin, and I’ve seen it with tons of others where they go on these epic runs and then they have these epic crashes. I remember back when Space made SPCE Virgin Galactic, when it made a run and I was up like 90% on the trade, I think I got out for like a 76% profit or something close to that.

13:42
And The stock now is like lower than it’s ever been. So had I forsaken stock losses on a stock that I’m up, you know, 96%, I’d be actually a loser on SBC today. And so the same thing goes with Chevron. I didn’t want to get out of Chevron, but I also realized too that I’m in it to make a dividend over time and that 8% dividend, if that stock comes back to where it was at, just let’s say in July.

14:09
Well, I could have sold it at a double its value, which was not something I was expecting, by the way. But how many years would it take for me to make that much money off a Chevron if I was just collecting dividends and nothing else. Take a long time. So, I went ahead and closed it out.

14:25
Maybe I’ll get an opportunity down the road to get back into it, but right now, I was up 100% on the stock. I felt like, hey, it’s a good time to get out of it. So I bring up all of that to say that you can use risk management. You don’t have to justify losses and you don’t have to justify these massive pullbacks because you’re a long term investor who believes in the company.

14:45
You can still believe in the company and sell the stock. I believe that what Tesla is doing is groundbreaking, but I don’t like the stock at what its current prices. I’ve bought and sold the stock many times. Believing in the company, but thinking, OK, this is a good time to manage the risk and get out with a small loss or with a profit of some kind.

15:06
And I’d also encourage you too to check out swingtradingthestockmarket.com. This is one of the best things that you can sign up for. It’s gonna give you all of my stock market research each and every day. That’s going to include watch lists. It’s gonna include my setups that I’m watching each and every day, as well as the most intriguing charts and FA updates and updates on the indices as well.

15:24
Check that out. It supports the podcast swingtradingthestockmarket.com. And the other thing too, just because you believe in the company and you’re willing to take losses until it actually goes back up, do you ever think about the fact that when you’re bag holding into a stock because you believe in it, you’re tying up your capital, even if you know for a fact that we can confirm that it’s gonna go back up one day in the future.

15:47
In the meantime, you’re still tying up capital and you’re still tying up money. What could you have been putting that money towards to make you a profit in something else until that stock that you so very much believe in provides you with a better opportunity down the road to get long on when it finally decides to start moving higher again.

16:04
One of the worst things we can do as traders is to have our money tied up long term in a stock that’s going nowhere. You take Amazon, for instance, right? You have a $100,000 portfolio and you put 20% of your position in each trade. And Amazon hasn’t gone anywhere in over 18 months. Well, guess what?

16:20
That’s 20% of your capital tied up in a stock that’s not doing anything for you. Whereas that 20% could have been somewhere else earning you a little bit of profit. Ronaldo also talks about having some basic knowledge and technical analysis, understanding moving averages and supporting resistance. Also, while moving averages and supporting resistance is important, it’s also good to be a person who studies.

16:42
Price and volume that is what all the other indicators essentially are derived from so you can be very good at trading understanding price and volume, and then when you start adding support levels and resistance levels and identifying trend lines, remember, technical analysis is about guidance.

16:58
It’s not about confirming what you want it to do. It’s about seeing how it corresponds with support. Does it break it? Does it hold it? Does it test resistance and break through it, or does it test resistance and get rejected? It’s the guidance that it’s providing you with so that you know what to do thereafter.

17:16
My stock losses are always below support levels that are important to the stock, so that if that support level does break, that’s the guidance that I need to get out of the stock. And finally, this hybrid solution that he comes up with by taking the profits from investing and applying the swing trading doesn’t make a ton of sense to me here because I know a lot of people think about doing that.

17:37
It’s like, oh, I could take the profits from one account and reinvest them in day trading or that’s how I’ll learn the day trade or swing trade or whatever. I’ve seen that argument actually a number of times, but it doesn’t make sense. Like if it’s a long term investment account, how long are you waiting to get those profits because long term essentially means at least, according to the government at least one year or longer.

17:56
So you’re gonna wait a year to be able to get your first profits out of a trade, and then how much is that really going to be? The other thing is, is that I think you can build up accounts simultaneously. In general, I’m always applying money to my dividend account, my long-term accounts, my IRAs, my trading accounts.

18:14
I apply capital across the board. I’m not like robbing Peter to pay Paul or transferring capital from one account to be able to play with it in another account. And I also don’t like intermixing different strategies. For instance, I don’t put my long-term investments in the same account that I do swing trading.

18:33
I don’t put my dividends in the same account that I do swing trading in. They’re all separated because that gives me the ability to compartmentalize what is going on with each one of those strategies. If you have long term investing in the same account of swing trading, you have different objectives, but then you start looking at the profits on the day and you could be having a really bad day in the long term account, which doesn’t really matter from a day to day basis in most situations, but of course you still have to manage the risk because you don’t need to start going down to 0.

19:01
But your time frames are much different. Whereas swing trading, things can change day by day and hour by hour. You don’t want to be judging your performance on the day with your long-term investments versus your swing trading investments when those two objectives really don’t work together.

19:18
In any case, there’s a lot for Ronaldo to go back and try to fix up. I think I’ll probably be hearing from him again. It’ll be interesting to see how he progresses over the months and years ahead. Also for you guys, make sure you’re sending me your emails.

19:33
You’d be surprised how I don’t get a ton of emails. I want to get more from you guys, so make sure that you’re sending me your emails letting me know what’s going on with your trading and what your questions are that you would like me to answer, and make sure that you leave a review for this podcast, whether it’s on Spotify, Apple, Google or any other platform.

19:51
Make sure to leave a review where it allows you to and make sure to check out swingtradingthestockmarket.com. 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.

20:11
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20:33
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.