Some Technical Strategies | Podcast Episode #237

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 show for you guys here today. We’re gonna talk about some technical strategies. I have an email from a Canadian. Listener And he asked me to provide him with a Canadian redneck name.

0:45
Now I did some research on this kind of stuff and I can’t really find what a good Canadian redneck name is, so I decided to give the person just a solid Canadian name and we’re gonna go by Graham. Now you’re wondering why am I giving this guy a fake name because I don’t use people’s real names.

1:02
But we’re gonna talk about some technical strategies. We’re gonna talk about different trading setups. We’re gonna talk about some penny stocks. We’re going to talk about incorporating fundamentals into your technicals and much more. So Graham writes, Hi, Ryan.

1:20
I wasn’t sure what your email was, so I was hoping to reach you on here regarding a question or statement, rather, regarding a new possible podcast episode. I recently stumbled upon your podcast. I have begun my swing trading career within the last few months. I used to value invest in junior exploration gold penny stocks with solid fundamentals and projects.

1:41
This, however, has become such a tedious process, waiting for news releases, hoping the market reacts positively, etc. etc. And frankly, I am not interested in reading financial statements, nor do I really care what they have to say. I have switched my focus to finding charts that appeal to me, throwing out all the fundamentals except for price sales ratios and maybe a few others.

2:03
From now on, I’m heading towards a pure technical standpoint once I have a solid basis of watch lists that I know aren’t going to go belly up anytime soon. Now to my question, I was hoping you would be able to do a podcast or even a series of podcasts that would focus on specific setups, that is, breakouts, pullbacks, reversions to the mean, etc.

2:20
For instance, when I am after a breakout play, I like to make sure it is in consolidation range within the last six-ish weeks. I then put a trend line over the top of the OBV, that’s your unbalanced volume. Once I have a green candle that tests, breaks through the upper range of consolidation and breaks through the trend line over the tops of the OBV, I pull the trigger the next trading day if it is a green candle.

2:44
Wow, that’s a lot going on right there. OK, he continues with, I know this is getting long-winded, so I will wrap it up. This is just one of my setup plays that I haven’t even tested it long enough to be sure that it works. Although it has been successful so far. I was hoping maybe to get your insight into any And all setups that you’d be willing to discuss.

3:03
Thank you, Graham. All right, there’s a lot to unpack there, but what am I drinking for this podcast episode? I am drinking Earl Settler. It’s a Kentucky straight bourbon. It’s a little sample bottle that I got at Total Wine.

3:19
It’s got 40% alcohol, 80% proof. Again, when I start seeing 40%, I’m not gonna be very high on it, but to give you a wide range of different kinds of bourbons, which ones are good or which ones are bad, because you’re probably gonna come across some of these, it’s good to know what I think of them.

3:35
So Earl Seller, I mean, it’s got a nice color to it, nice amber brown to the nose. I don’t pick up anything on it. And to the taste, I don’t know, it’s not that great. Now, I had a listener tell me probably like 1 or 2 years ago, he’s like, Ryan. If you really want to maximize the flavor and the taste and your bourbons, take a small sip at first and let it like swish over your tongue for about a solid minute.

4:00
And after it’s done, your tongue will start to, you know, burn up a little. But then once you’re done, lay off for like 30 seconds to a minute or so without taking another sip, and then you take the next sip and you’ll taste a lot more of the flavors and the true profile of the bourbon.

4:16
So I did that with this one. And it completely changed the whole dynamics of this bourbon, for the worst, mind you. It’s crazy, but it almost tastes like water. It’s like they added too much water to it, or what, I don’t know. I don’t know how they made this, but It’s very watery.

4:32
In fact, when I like smell it, like I was mentioning just a second ago, I couldn’t really smell anything. If you put this up to my nose and you put a glass of water up to my nose, I couldn’t tell the difference. That’s how crazy it is. So, I don’t like this Earl settler. I, I really don’t think it’s a good bourbon from my standpoint.

4:49
I’m giving it a 4.1, definitely not an everyday sipper. I would drink just a regular old Jack Daniel straight. Before I would drink this stuff. It’s just there’s no profile to it. I feel like I’m just drinking something that’s been watered down, not saying that it’s been, cause I don’t know how they do it, but It just isn’t that good.

5:09
So, there’s a little bit of heat, but when you’re dealing with a 40% or 80% proof, you’re not gonna be getting a lot. Earl Settler, 4.1 out of 10. That’s about as high as I can go. Now, back to the email here from Graham. It’s funny with a lot of these emails, I get a lot of their backstories and I think that’s great. It gives me some perspective into what they’re telling me and I get to understand the person a little bit more, but it’s oftentimes the back stories that I will focus on a lot with some of the things that they do and some of the things that I can critique more than the actual question itself.

5:27
Now, with Graham, he talked about how he used to invest in junior exploration gold penny stocks with solid fundamentals and projects. So, I’ve seen a lot of people go down this route before. They’ll try to go after the ones that have like different mining projects ongoing and hoping that OK, if they can strike gold, no pun, well, OK, pun intended, that all of a sudden these penny stocks will be worth, you know, in the dollars.

6:08
I’ve traded penny stocks before and very early in my career, there were two of them that really stuck out to me and it was when I was working in corporate America. It was XKEM and NBAH and these things were trading at, maybe I bought into them originally at like a penny or a half a penny per share, and I felt good about myself. I was like, oh man, I got all these thousands of shares or I don’t know, maybe 100,000 shares, whatever it was. But I remember always looking at these things every day it’s like, when is it gonna move? It’s got so much going for it.

6:28
And of course, when you’re trading a penny stock, you’re gonna have a huge bias. It’s like, man, any day now we’re gonna get a press release and it’s gonna change everything. And then you get into these stocks that are like supposedly like gonna cure cancer or something. It’s like any day now they’re gonna cure cancer, any day, and you wait and you wait and you wait and then you double down and you keep doubling down. It’s like, oh, I could throw another $500 in it. It’ll change the whole entry price for this to where when I get that news release that they’ve cured cancer, I’m going to be rich, I’m gonna be done working for the man, and it never comes.

7:12
It just keeps going down and down and down. And I just remember, it’s like death by a 1,000 cuts. You don’t think it can go any lower and then all of a sudden one day you’re looking at this penny stock that’s trading at like 1/1000 of a penny per share. But you say to yourself, man, when they cure cancer, guys, when they cure cancer. It’s gonna be worth 5 cents. And of course, if it actually went up to 5 cents, I probably would have been able to retire because it would have been such a massive move. But of course, it never happened. NBAH was another one, and I can’t remember what the heck they did, but I lost on that one too. And there was probably a couple of others that I did a horrible job on, and you would double down, you double down and get your buddies into it.

7:50
You tell them this is the greatest thing ever. And you really believe it too. And you just royally lose. And I remember it was back in the day where I couldn’t just log on to the internet and see what it was. I’d be on like the road or whatever and I’d be calling on my flip phone, on my cell phone and I would call TD Ameritrade, and I would have to say the symbol to this automated service. And they would be like, what symbol do you want an update on? And I would be saying XKEM and it would come out with AAPL, please confirm. I’m like, no, no. I said XKEM and then it would respond with G00GL.

8:30
I’m like, no, no, I just need the price quote. XKEM eventually, for some reason, it could process an X. But eventually I would get it and then it would tell me the price. So that’s how I would trade. I would call up this 800 number 100 times a day, trying to get the latest update on the price, and it was just really nuts, guys. I mean, you talk about a different time for trading, that was it. I think I was paying $20 for commissions at the time. So going back to Graham’s comment about waiting for the news releases, that’s what I would do too. I’d always be waiting for a news release. Oh this thing’s gonna cure cancer, right? But it never happens.

9:07
And then when you do get a news piece, this was a killer. You’d get that news piece that you’re thinking, OK, this is what I was waiting for. And all of a sudden it actually sells off on the news, right? Wait, what? That’s not what was supposed to happen. And then you just realize you waited 4 months for this news to come out, only to find out it was already baked into the price. Everybody already knew it was gonna happen and when the news came out, it just sold off. I’m telling you, penny stocks will take you down a dark road, and most of the time, you will not be profitable. I’ve yet to this day to actually meet a person who is successful at trading penny stocks, and if you’re one of those, I would love to hear from you. But don’t just say, hey, I’m a successful penny stock trader. Give me the story, give me the background, and we can talk about it.

9:44
But don’t be like the people on YouTube that if they disagree with what I say, they just respond in the comment section with wrong. That irritates me more than anything else is when they just say you’re wrong, like, oh, OK, well, if you say I’m wrong, then I must be wrong. They don’t give you any explanation of how you’re wrong. The other thing about penny stocks too is it’s, and I’ve kind of alluded to this already, but it’s a huge time consumption. Maybe not from a management standpoint, you get stuck in the stock and, you know, you don’t have to do anything thereafter. But from a time standpoint where your capital, whatever capital you have left, it’s just stuck and this stock that’s not going anywhere.

10:23
And it plays games with your mind too, because when you’re trading penny stocks, you’re trying to make these big, big home runs, right? You’re aiming for the fences. So you double down on these things and the biggest fear is that you get out and then the next day they come out with a news piece that you were waiting for all this time. So let’s say like, with XKEM, right? XKEM that I traded back, gosh, decades ago. I was waiting for this big news piece to come out and I was afraid to get out of it because what if it came out the next day and it did go up to a nickel. How would I live with myself knowing that, and I just stayed in it a couple of days longer and all my friends, they stayed in it, they all got rich and retired and I didn’t. Now, obviously, none of us actually got rich and retired off of it. But the fear of getting out of the stock, that was what plagued you because you were aiming for the fences on this thing and you couldn’t necessarily just manage the risk because that’s not why you get into penny stocks.

11:22
OK, so enough about the penny stocks, that’s not even really what he emailed me about, but I felt like it was an important thing to talk about. He switched his focus to charts that appeals to him. He tries to go all technical, but he’s going to incorporate some fundamentals. And I think adding fundamentals is OK to your swing trading strategy, even if you are a technical trader, and the reason why is is that you can incorporate it into your scans, right? In his case, and he spells it right out in the email, I don’t want to trade stocks that might go belly up anytime soon. So he wants to make sure that it has a healthy price to sales ratio. Maybe he wants to make sure that it doesn’t have outsized amounts of debt that it can’t pay for, and that’s fine. You can do scans like that and incorporate those stocks, and then you can do technical analysis on those results that have a healthy price to sales ratio.

12:15
I mean you’re seeing it right now, the stocks that have the least amount of profits and earnings, they’re getting crushed by this market. The stocks like Apple, stocks like Walmart and Costco and Chipotle, they’re holding up pretty well. Google and Microsoft, I mean, they have their bad days, trust me, but they’re holding up very well relative to the rest of the market. And it’s because they do have some solid earnings, but they’re not necessarily what you would call growth plays at this point. They’re more like value plays. So growth is gonna have less earnings, but more potential for growth. So there’s the possibility for it to expand in price rapidly versus Apple and Walmart and all those, they’ll move higher. But they’re going to do it at a much slower pace. But on a day like today where the market sold off, you had Walmart breaking out to all-time highs. So there is a place for value stocks, and in a market like right now, value is far more preferred over growth. And there’s gonna be times where value stocks can go parabolic too if there’s just a huge demand.

13:40
So now to his actual question that Graham asks, and I’m not gonna repeat all the technicals to his trading strategy, you can go back and listen to that part if you want to again, but he talks about how he’s trying to play these breakouts that have been consolidating for 6 weeks or so. I’m not sure what the whole reasoning behind the 6 weeks, I mean, that’s a good period of consolidation. I don’t know if there’s necessarily something that says 6 weeks is better than 5 weeks or 6 weeks is better than 7 weeks, but he gets into the trade after it confirms and you have some volume confirmations using OBV. And he pulls the trigger the next trading day if the candle’s green. Well, just because it opens up green doesn’t necessarily mean it’s going to finish green. So it’s not necessarily a reliable indicator if the stock opens up green the next day to assume that it’s gonna finish green. Oftentimes we get hard reversals and the first 30 minutes of trading is the most unreliable time in the stock market throughout the course of the day. That’s where you’re going to get some of the biggest swings of the day, both to the upside and to the downside, and it’s highly unreliable.

14:36
But one thing that I like to do with my patterns, I’d like to look for clues. Now, that’s not necessarily a mechanical approach, and I think in some ways, Graham’s trying to become more of a mechanical trader. But it doesn’t hurt to look for the clues on the charts like there’s this one stock, for instance, that was forming a cup and handle pattern. And I mentioned it on swingtradingthestockmarket.com that, hey, you know what, you got this cup and handle pattern that’s forming, it’s consolidating, but notice on this consolidation pattern, there’s been multiple attempts to break out of the handle portion of the cup and handle pattern, and it’s failed on 3 separate occasions. So does that mean that you can’t trade it? No, it’s a beautiful cup and handle pattern, has really nice consolidation. But it just needs to break out above the fray of where these head fakes had taken place. So I was essentially saying that, OK. You probably don’t want to buy it right at the breakout level because we’ve seen plenty of head fakes in this particular stock, especially with the kind of market that we’re in. But if it can rise above the fray of where the previous head fakes topped out at and you can play a breakout of that area, then you might have a decent trade set up on your hand.

15:45
So that’s like looking for the clues. The clues in this situation was that this cup and handle pattern was seeing a little bit of a fake out along the way, but there was plenty of upside room for the stock to run if it actually did get into a full-fledged breakout. So, I was looking for the clues. I was trying to find, OK, in the cipher. Where are some of the pitfalls on this particular trade setup and how can I avoid them? Well, there was some head fakes, and so the way to avoid it was wait for it to actually have price clear those previous head fakes to get long on it. There’s also other clues too. Well, for instance, we’ve had the NASDAQ rally like 15% off of the March lows of last month. And it was an amazing rally, but you’ve also had of late a lot of really nice basing patterns that have formed and they’ve created some fantastic looking trade setups. But in recent days, I’ve become a little bit more skeptical of them because these basing patterns were not confirming, they weren’t breaking out and they were just kind of going sideways and they hadn’t participated nearly as well as you would have expected with the kind of price action that we got out of the NASDAQ during that same time, for instance, like Square and Shop and PayPal, really nice basing patterns, but you weren’t seeing that explosive break higher like you saw in the overall index, like what you saw out of Apple or Tesla or a myriad of other stocks that really went crazy during that particular market run.

17:11
So then when you start seeing the market struggle a little bit, you’re wondering to yourself if it wasn’t able to put together a fantastic rally during that huge market rally up and now we’re starting to struggle a little bit. Is this really a trade setup that I want to stay in at this point? Or even, and I actually didn’t even get into it, but is it a trade setup that you would want to still consider getting long on? And as traders too, we oftentimes want to focus on the trade setups themselves, like having these great trading patterns that we go after or oh, when this crosses that and this bounces off of this, this is when you want to get into a stock. We want to try to find this foolproof systematic approach to trading, but I would also tell people too is that as great as certain trade patterns can be and helpful to ensuring your success in the stock market, the biggest thing that you can do is be solid on your trade management. Focus more on the trade management, managing the risk. You hear me talk about it in every single episode, but managing the overall trade, which includes the risk, how are you gonna book profits?

17:59
I was talking to one of my buddies today and said, I can come up with great trade setups all day long, but I struggle with when to start taking profits. It’s always a problem for me because either I take them too early or I take them too late. And I think that’s something that a lot of traders can attest to that that’s a problem for them. So what you do is you take profits along the way. That’s one of the best ways to do that. And I took profits along the way today, and it’s usually something that I never like doing at that time. I hate doing it, but usually at the end of the day and down the road, I’m thrilled that I took profits along the way, because almost every trade that you’re ever going to be in is going to work out differently than what you had anticipated it as doing. Trades rarely go from start to finish exactly the way you expect it. There’s gonna be tests, there’s gonna be times where you think that you should get out, but you have to ask yourself, is this part of the trading plan? Is this justified or is this just an emotion speaking to me? I find with trading that we always are saying to ourselves, man, I wish I would have done this or I wish I would have done that.

18:54
Now, you can’t eliminate that from your trading. You’re always gonna be able to say in hindsight, man, I wish I would have done this or I would have done that. But the key is to be better at not having to say that as much because you’ve made the right decision up front. So the more you can say that I did the right thing. I’m happy with what I did, and that can even be with losing trades. The less often that you have yourself saying, man, I wish I would have done this is a sign that you’re becoming a much better trader. I always joke around that I’m everybody’s second choice when it comes to people they want to follow on Twitter or start following on my website, SharePlanner.com, or, you know, becoming a member of swingtradingthestockmarket.com, which by the way, you get all of my stock market research each and every day, including watchlists and stocks that I’m following for potential trade setups, some of the most intriguing charts of the day that I come across as well as updates on FA and all the indices.

19:43
But like I said, I’m everybody’s second choice. Because when we get into the stock market, we’re not worried about the trade management, we’re worried about the stock picks. We’re worried about the great trade setups. So we’re gonna flock to the person that’s promising us the world. Where I come in is I show you what the reality is. So trading can be very enticing from a riches and wealth standpoint. We’re gonna find that stock and we’re going to make just tons of money off of it. But the reality is that’s not how it works. It requires that you trade thousands of stocks over many years and even decades. Sometimes you’re going to doubt yourself and you’re gonna wonder and ask yourself, why am I even doing this? This is so frustrating. You’re gonna want to say that the market’s rigged. And that nobody can make money in the stock market. It is something that you’re going to grow at over many, many years and you’re not gonna just get it right out of the gates, but you’re going to learn a lot along the way and you’re gonna get better over time.

20:35
You just gotta stick with it. If you enjoyed this episode, make sure to leave me a 5 star review that really helps me continue to grow this channel and to convince others to listen to it too. Make sure you send me your emails ryan@shareplanner.com because I do read them all and I try to put almost every one of them on air. Plus, check out SwingTradingTheStockMarket.com and support this podcast financially. 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.

21:09
With your membership, you will get a seven-day trial and access to my trading room, including alerts via text and WhatsApp. So go ahead, sign up by going to SharePlanner.com/tradingblock. That’s www.shareplanner.com/trading-block, and follow me on SharePlanner’s Twitter, Instagram, and Facebook where I provide unique market and trading information every day. 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.