Reviewing A Swing-Trading Strategy | Podcast Episode #234

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, 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. In today’s episode, we’re going to talk about Trading strategy that a listener has emailed me about? He wants me to review it. He wants me to tell him whether or not it’s got any credibility to it, whether or not it’s something that could be profitable.

0:44
Long-term what’s the pros? And what’s the cons of this guy’s trading strategy. We’re going to review all of that and more in this podcast. And for this episode we’re going to call this Feller Bucky because I don’t ever use anybody’s real names on this episode unless they’re very adamant about me using the real name, then I will.

1:00
But for all intensive purposes, I just give them a good old. Florida redneck name and in this case, I’m using the name. Bucky, I think that was a name off of Captain America movie too, wasn’t it? Anyways Bucky writes. Hey Ryan. I was wondering if you could help critique and review my new trading strategy.

1:16
Well I sure will because that’s why I have you on the podcast he says I think using tight stop losses is fantastic. However I get stopped out a lot. I don’t mind getting stopped out. It’s only a couple dollar loss but with my small account, transaction fees, just murder me.

1:31
I live in Canada. So now what I’m doing, I’ll pick a stock. With a good dividend and wait until I think it’s as low as I can buy it almost thinking of it like it’s buying a house for an investment and then if it goes up then that’s great. But if it takes I’ll buy more. I never go full in my second by save money so I can buy even more if it goes lower to bring down my average cost.

1:52
Hmm okay. And being that it pays a six percent dividend, I’ll make some money. Even if I can’t sell for a few months or a year being that I get a dividend, I don’t really care how long I have to hold this year’s.

2:09
All righty. I also find it easier with having a full-time job. I don’t have to keep an Eagle Eye on the charts all the time. There is one or two trading apps and Canada with free trading commission’s, but they come with their problems. To I don’t feel comfortable, using them, just yet. That’s why I use a trading account. With one of the big Banks. This strategy has worked well for me a couple of times so far and I’m sure I’m not the first one to think of it.

2:29
Nope. Nope, you’re not. Well, kind of well yeah, you’re not the first person. But I’d love to get an opinion from someone who actually knows something about it. Thanks for all the great works and stay safe out there.

2:48
All right. Bucky we’re going to answer all of your questions here and go over your strategy as well.

3:05
I am drinking Appalachian, sipping cream, whiskey, it’s 20% alcohol, 40 proof. It says the core, I don’t know if this is a whiskey or not. I think it’s a whiskey. I think it’s kind of like a moonshine or something. I don’t know. Smells great. Smells like a pecan because it’s basically says butter pecan on there. So it doesn’t take a genius to figure that out. It looks like RumChata. My glass. It’s not brown. It doesn’t look like bourbon. Doesn’t look like whiskey.

3:21
It’s milky. But it tastes good. It tastes great way. Better than those peanut butter, screwball garbage that I’ve tried before the flavored peaches whiskey. I mean, those are awful. This is actually pretty good. You could drink it by itself.

3:37
It’s not bad. I would it be an everyday sipper because there’s no pop to it. It’s just I mean if you’re gonna drink this stuff, he might as well just drink a Mike’s Hard Lemonade. I’ve been drinking one of those in years, but I mean there’s no kick to him. Really it’s fruity. It’s got a flavor to it. Kind of like this old thing.

3:55
I’m going to give it a four point two guys. I can’t go any higher than that. There’s no, there’s no kick to it. There’s it’s 20% alcohol. I need something with a higher proof. At least 100 proof is is what I consider really good. I don’t even know how I can be considered a whiskey. That’s what they’re calling. I don’t know. They may not be calling this a whiskey, if it’s only 40 proof, but it is way better than all the screwball stuff.

4:15
I think this would probably be good for like a desert. If you’re eating a brownie or cookie or something like that, you drink this. It’s like a dessert drink. It’s again. Ian sipping cream? I give it a four point two, not all that great.

4:32
Now as for Bucky here we got a lot to talk about. He says that he doesn’t mind using stop losses, tight stop losses. They’re fantastic, but he gets stopped out a lot, but that’s not just because you’re using tight, stop losses. There’s a lot of things that can go into getting stopped out a lot. Sometimes it’s just a string of bad trades. Sometimes it’s the conditions that you’re trading and maybe there’s a lot of volatility in the market.

4:53
Like, right now, I think I’ve A few trades in a row that that have been stopped out. Can’t do anything about it. I mean, I just didn’t didn’t pick the right direction for the market, and, and I took small losses and I’m fine with taking those lost because one average winning trade. I make it all back and more, but stop losses are going to get triggered.

5:12
They happen. It seems like everybody gets upset when they get stopped out of a trade, but that’s why we have stop losses. I mean, I look at qid, I got into qid at like 20, I get stopped out 2% later things trading at like 16 now I’m thankful.

5:29
I had a tight stop lost because it saved me from a lot of heartache and the end, the stop loss was tight enough to keep me from having a big loss. If I would have had a stop loss, that was twice there as big or three times as big out of still been stopped out, but I would have been stopped out for a much bigger loss.

5:46
So, my point being is that just because you get stopped out of a tight, stop doesn’t mean that it was because it was a tight stop. If you’re seeing where you’re constantly and consistently getting stopped out and seeing the stock go right back up.

6:01
You have to ask yourself where am I putting these stop losses at it. My putting them at a strategic location because if you’re putting it below a key support level on the trade to wear, if it breaks below that key support level, you know, there’s something that’s gone wrong on that trade and that you need to get out. But if you’re just saying, okay, I’m going into this trade, I have to get into it, I don’t care where the stop loss is as long as it’s within like five percent of the entry price.

6:23
I don’t If it’s just above the support level instead of right below support level, then you got to expect that you might get stopped out of a trade because it there’s a little bit of a bandwidth to every kind of a stock to wear a stock. May move one or two percent before it finally starts to make its move in a certain direction.

6:42
Also, considered the stock that you’re trading, that has a high beta meaning that it moves much more than the S&P 500 moves. That’s a has a beta of five and you’re using three percent, stop losses. In the stock market moves 1% or the S&P 500 moves, one percent you’re going to be stopped out of that trade because it has a beta 5.

7:00
So the stock tends to move five times as much as the SMP 500 does, when it makes a move. So you got to remember that too. So when we’re in a high volatility market and the S&P 500 can move one or two percent on a regular basis. 3%, stop loss, may not really have a good outcome for a stock that has a beta of four or five.

7:22
Now, 45 is kind of extreme. Let’s just say it’s like two or three, it’s very possible that you’re going to get stopped out on those kinds of trades in those kinds of markets. So you got to go back to the environment. Where are you placing the stop losses? Are you putting them below key support levels? The more support levels, the stop loss is below the better so it’s not just about One support level if you can get it below couple support levels that’s even better.

7:45
Like if there’s a rising trend line and there’s a price level support and there’s a couple moving averages that it consistently bounces off of that’s like three support levels that you can put At stop-loss below how awesome is that means it has to break through three key levels to nullify the trade setup.

8:02
And that’s ultimately what stop losses are about telling you. Hey, this traits that the reason why you got into this trade is no longer. Valid, doesn’t mean it can’t go right back up. In fact, there will be times where it does. It doesn’t mean that it was a bad Trader that you Managed IT poorly. It just means that the trade and the reason that you got into that trade is no longer worth remaining.

8:22
In for that very reason he talks Getting into these Diddy stocks has tried as a traitor and then equating it to buying a house. Some of this, I don’t really get too much and I’m not picking on this guy. Sometimes people will send an email and they’ll listen to what I have to say about their email and they think man you were kind of rough on me.

8:37
I’m not trying to be rough on you but I do feel like since you know, we’re using a fake Damon everything. I’m not calling you out really, you know, publicly there nobody else knows who I’d it is that I’m talking about so I can be a little bit more Frank without embarrassing that person without them like looking them up on Facebook or Instagram.

8:54
And trolling them, or whatever. But if your swing trading and buying dividend stocks for their dividends remember, most dividends only pay out like every quarter. There’s there’s some like some Ritz and stuff that will pay out every month. But for the most part it’s like every quarter, then you’re starting to blur the lines.

9:11
And remember, if it says, it’s a six percent dividend, that means every quarter is paying you one and a half percent, you can have a plus or minus one and a half percent in a single day, or even in a half hour of trading that stock, but it’s also kind of blurring the lines between investing in dividend stocks. And Swing trading.

9:28
Now for me I do have a dividend portfolio but I keep that separate from my swing trading. I don’t want to have a good day and swing trading. Realized all my dividend stocks went down that day and then all of a sudden I feel like I had a bad trading day. No, I keep them in separate account. I don’t, I don’t look at them every day. Dividend investing is completely different than sweet trading and I’m not a huge fan or really can get behind the idea of blurring the lines between the two He also does a scaling in on his body.

9:53
Now I have a lot of issues with scaling in on the bias. For me, personally, when I get into a trade, I put an entire position down. Not the entire account, just the entire position. So if I trade with, like, 10% on the trade, I put the entire 10% down right out of the gates. Now I scale out of a position and I’ll get into why that’s different, but I don’t scale into a trade and the reason why is because when I’m getting in In order for me to maximize my profitability, I have to first be wrong and then ultimately be right.

10:24
Meaning I have to start losing on the trade first to ultimately be, right? But some of the best trades that we will make and I would say the cleanest trade setups that I get into and some of the best traits that I experienced are the ones that do exactly what they’re supposed to do, right out of the gate. Usually within 24 hours at the stocks, going against me when that first 24 hours of trading or after the first couple of days of trading odds are, I’m probably not going to come away with a profit on that trade.

10:50
Now, that’s not the case for every trade. I’m just saying that the odds rapidly increased. So This person, he’s needing the stock entry that he got into originally to be wrong so that he can actually get a full position and then have it go back up so he can ultimately be right but didn’t he’s using tight?

11:07
Stop losses to which doesn’t make much sense which makes me believe without him. Actually saying this in the email that he’s not using tight. Stop losses using this manner because he says, I don’t mind holding on to the stock down for like a year or two because he’s collecting like a six percent dividend in a specific stock.

11:23
But again, Six percent over the course of the year. You could easily lose that much and way more. So the dividends not necessarily going to offset all of your losses on a trade. If you’re stuck into it, long term plus you got to ask yourself. If you’re wrong on the tray. Do you want to stay wrong for a long time?

11:39
Even if you might be eventually, right? That’s where you start getting into the, I need to be, right? I can’t afford to be wrong instead of what’s the path of most profitability for me, personally, I don’t want to be stuck in a trade, that’s down 1% for the entire year. And then have it go back up at the very end of the year and I make a half a percent.

11:58
Yes, it’s a winning trade but it’s not a good winning trade. I could have taken that money, put it somewhere else, instead of letting it, get caught up and the sideways trading action that goes nowhere. That’s why I haven’t traded Amazon and a very long time. Why? Because it’s just been stuck in a sideways trading pattern for for ages now, for almost like two years.

12:19
I don’t want to be stuck in that. You’re starting to see the same thing out of Google. It’s been trading sideways now at or near its all-time highs for months. With scaling into a position is assuming that your entry was not a very good entry to begin with in that you’re probably be able to get it at a lower price in order to maximize your profitability.

12:38
But to me that doesn’t seem like a very good strategy because if it is a good trade and let’s say you’re scaling in at with a third of a position each time. Let’s say that you get really good at your trading and all of a sudden instead of going in with your full positions, you’re going in with a third each and every time and that initial position that you put on is the only position that Ever.

12:58
Get in that stock, you’re never able to add a second position or a third position to get to that full position. Because again, most of the time, your best trades are going to be the ones that work right out of the gate. He also talks about how he has a full-time job and that this works really good for him and I can I can understand that.

13:17
But just because it’s conducive to your job, doesn’t mean it’s going to be a profitable trade setup. And I really worry about the whole blurring of the lines between the dividend Investment, Portfolio and trading, and also the willingness to stay in a trade for a long time because it pays a six percent dividend, but that doesn’t mean that it’s going to be.

13:35
Trouble free for the 6%. And I really don’t want to type my capital in a stock trade. That’s going nowhere for an extended period of time. So what he wants to make sure is that he’s going to do this and he talks about, he’s only done it. For a couple of times. A couple of times, you’re not going to be able to get a firm understanding of whether or not.

13:54
This is a profitable trading strategy or not personally to me. Your worst trades are going to be of with full positions and your best trades are likely to be with small positions. And so that doesn’t really work out for me. From a reward to risk standpoint, think about it, if he gets in the stock ABC at $100 a share, And immediately that stock breaks out and it continues to go higher will and never pulled back enough for him to get into the second and third purchase of that stock to create a full position instead.

14:22
It just takes off right out of the gate and let’s say it goes up to 110, dollars a share and he makes 10% on the trade, but it’s only with a third of a position, versus a losing trade. He gets in, at 100, and it dips, he has another one at 95 and another one at 90, and then he, let’s say he gets topped out at 85.

14:41
We had a full position getting stopped out at 85 he lost so much more money on those two traits because of that. How much he lost with a full position on the losing side that he did with a partial position to the to the upside? So that’s the risk you really run. You almost need your entries to be bad so that you can add more.

14:58
Because the worst thing you can do is for all your winners to be partial positions and you’re losing trades to be full positions. Finally mentions that he gets killed on the commission’s. Well, one thing to think about if you’re making multiple purchases to get a full position, you’re definitely adding to your commissions right there.

15:14
Also, I would challenge you to call your bank and say, hey, I’m paying x amount of dollars. I think, you know, based off of how often I trade, can you lower it? Some I used to do that with TD, Ameritrade all the time. I’d call them up or thinkorswim, depending on, who is owning them at the time.

15:30
But I would call them up and say, hey, I heard you’re giving this guy 499 trades and I’m paying 699. I trade with more than that guy. Can you give me a better rate? And most of the time, they’ll say yes, they have flexibility to change the race. Now in the United States, almost everybody is trading free, so it’s not really relevant for you, but for those in Canada, and other countries where there’s a lot of companies still charge new portrayed, I would definitely call them and ask them to lower their commission costs.

15:57
So the takeaway here one, you gotta have a trading strategy where you’ve done more than just a few Kids, you’re not going to really know for at least a year whether or not, it’s a really good trade. So you got to do your research ahead of time, you got to do some back testing, you got to see how this trade strategy, would applied to the previous trees, also scaling in has a lot of problems to it, especially if you’re scaling downward.

16:19
Because ultimately, your best trades, are going to be the ones that work right out of the gate. So if you’re using that scaling in to the downside, your best trades are going to only be partial positions and staying in a position long term because it plays a different Evidently you feel like that’s a safety thing, it still consumes your capital and there’s an opportunity cost of where you could be putting that money at somewhere else and finally having a full-time job and trying to trade.

16:42
Yes. You want a strategy that’s conducive to your lifestyle but you also need to make sure it’s a profitable trading strategy as well, and this one so far, really needs some serious tweaking. And if you enjoyed this podcast, make sure to check out swingtradingthestockmarket.com, where you can get all of my stock market research each and every day, that’s going to conclude my watch list daily stock that I’m looking at Trading.

17:03
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17:20
So many great reviews and, and thoughtful comments, and make sure to send me emails. ryan@shareplanner.com, I read all your emails. I’m putting almost every one of them on air, so send them to me and I’ll make a podcast episode out of it.

17:35
Thank you guys. And God bless. Thanks for listening to my podcast. Swing trading the stock market. I 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 7-Day trial and access to my trading room including alerts via text email and WhatsApp.

17:55
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