Hodgepodge of Trading Questions (Part 1) | Podcast Episode #245

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, and I’ve got a good episode for you guys today. We have an email here and there’s no way to really say what the email was about.

0:41
It’s essentially a whole bunch of questions about swing trading, a lot of different questions about swing trading, and a lot of them that’ll be very good for you to hear answered. And so that’s what I’m using this podcast for today. And the emails from a guy we’re gonna call Aggie.

0:58
Aggie’s been Featured here before and he’s provided a follow up with a lot of different questions. So. With that being said, Aggie writes, Ryan, thank you for your insights in the podcast. It’s awesome to be able to finally talk to someone about this stuff.

1:15
After listening, I felt like my last email that I sent you was a little broad and could be boiled down a little bit better. Here are some more specific questions that I’d like to get your take on. Number one, can you shed some light on trading ETFs versus single stocks? Number 2, trading mid-price stocks $40 to $60 versus expensive stocks $100 to $250.

1:37
When is it time to start putting in some shorts here and there? What percentage is too much to let a trade come back on you once it is in the green? And what do you think the max loss or percentage of an account should be on a normal trade? Another question, do you let a trade bounce in and out of the green and red, or once it’s in the green, would you cut it if it slid back down to the entry price?

2:02
Likewise, say it’s in the red and pushes back above your entry. Would you close it right away? Would you ever make decisions like this based on intraday price action moves or wait until the close or open? Also curious if you’re only a bourbon drinker or if you’ve ever dibble dabbled.

2:19
I haven’t heard that expression in a long time. Dibble dabbled in the Scotch department. Personally, I’ve been a very heavy proponent of scotch. I must say my journey of indulgence and exploration has led to many fine experiences. Outside of some celebrations of my school years.

2:34
Never have I delved into the realm of bourbon too deeply. Though your reviews have sparked in me a bit of a new appreciation and curiosity for it. Best Aggie. All right, Aggie, I appreciate the email. Lots of good questions there. I don’t know how long this podcast is going to take.

2:52
I can’t tell you right now because I’m in the very beginning of recording it. You’re in the very beginning of listening to it. So if it gets too crazy, I’ll split it up into two podcast episodes. But hopefully, we can knock these all out in one. Now, what am I drinking here? I am drinking Buckhorn.

3:10
Kentucky straight bourbon whiskey. Now I’ll go to these stores and I’ll get these sample bottles. I don’t ever have a lot of faith in them for the most part, but I did come across one just recently. And that was the homegrown Boons bourbon, actually scored pretty good.

3:25
Most of these don’t score that great, but I’m doing some good work here. I’m helping you guys weed out some of the ones that you’re going to see at like the Total Wines and Sam’s Clubs and Costco’s and some of that, that’s not worth getting a bigger bottle of. So, Buckhorns, Kentucky straight bourbon whiskey, it definitely has like a little bit of vanilla smell to it, but when you taste it, it’s very mellow.

3:49
Very mellow. It’s a 40% alcohol 80 proof. If you know me, you know that I like it around 50% or higher. So 40%, it’s like the bare minimum for a bourbon, it’s just not gonna cut it. And that’s probably a reason for why it tastes a little bit of that mellow flavor to it.

4:05
And the other thing too is, is that it just, it lacks personality, it lacks a profile. There’s no kick to it, man. I need a kick. You gotta give me a little bit of a kick to make it worth my while. It just has nothing to really reel me in. It comes and it goes, and you don’t even realize it was ever even there.

4:23
So, I gotta say I probably give this. I mean, the bro brothers from the last episode was much better than this. I’m going 4-1. Now, uh, maybe, I hate to go into the threes on it because it’s not repulsive.

4:39
I’m gonna say 4-1. I’m just sticking with 401. This is a hard one to grade. It’s like the slug in class that just doesn’t ever do his homework and he wants a good grade. Now, this bourbon just doesn’t cut it for me. All right, now, back to Aggie, Aggie’s got a ton of questions here.

4:56
First, we’re gonna talk about trading ETFs versus trading single stocks. Now, for those who don’t know what an ETF is, it’s an exchange traded fund. There’s tons of them out there. I mean, you got Spy, the S&P 500 ETF, you have QQQ, that’s the NASDAQ ETF.

5:14
You have IWM, that’s a Russell 2000 ETF. And then you got semiconductors like SMH, which is an industry within the technology sector. And if you want to trade the technology sector, you trade XLK. And then if you want to trade staples, it’s XLP or discretionary XLY or utilities XLU.

5:32
There’s pretty much an ETF for all of them. And then within the ETF you have all these different major companies that represent what that sector or what that industry is. In the case of Spy, it represents the 500 companies on the S&P 500.

5:48
But then you also have inverse ETFs which have actually been really handy for me over the course of this year so far, and those are the ones that give you the opposite return of whatever an index or a sector does depending on what you’re trading. For instance, QID we give you a 2 to 1 inverse return, meaning if QQQ goes up 2%, you’re gonna be down 4% on QID or if QQQ, which is again, the NASDAQ 100 ETF goes down like.

6:17
Let’s say it limits down at -5%, you’re gonna be up 10%. Or if you have SQQQ, that would be the 3 to 1, and they usually only go up to 3 to 1. You also have PSQ which would be a 1 to 1, and you also have those for the S&P 500, the Russell 2000, and all sorts of other ones, right?

6:36
But then versus single stocks, you’re just trading a single company. Now, the benefits to the ETFs and this would probably be one of the biggest things is that you could spread your risk out so that if you’re trading the queues, yes, it’s gonna probably have like a 20% influence on it from Apple, but if it’s coming up on earnings.

6:54
The influence of Apple on QQQ is going to be far less than if you were just trading Apple through earnings, which is never a good thing to do. Same thing with like IBB, which is what I trade instead of trading biotech stocks because biotech stocks have incredible amounts of risk. If you get a bad FDA decision or if something just goes really haywire with a particular drug line, you could be down like 70, 80% in a biotech stock, whereas we trade IBB it’s invested in a whole bunch of them.

7:23
So if one goes down, IBB isn’t going down as much, if at all, sometimes I’ve seen really big biotech companies really have a bad, bad announcement that comes out, but it’s specific to that biotech stock and IBB keeps going higher. So the biggest thing that I like for ETFs versus single stocks is one is that lets you spread your risk out among a bunch of other stocks.

7:46
It doesn’t make you have to pick a particular stock, like for instance, in a downturn, and I’m using them a lot right now, like QID or SDS or TWM I’m able to short an entire index. And not have to actually short a particular stock because when you’re shorting a particular stock, you have infinite amount of risks.

8:08
Maybe they get bought out the next day and the stock’s trading at a 70% premium. Like for instance, Netflix right now, I would be nervous about shorting Netflix because they are so low relative to its historical price levels over the last 6–7 years, that I could see a company like Apple or Microsoft or somebody that’s wanting a big player in the streaming services.

8:31
To buy them out. And so I’m not gonna go shorting Netflix because if they did, I might wake up one day to like a 50% pop in the stock and then all of a sudden I’m up a creek. So there’s a lot of differences between the ETFs and single stocks. One of the things that works the best for me is being able to spread out the risk and eliminate certain specific risks like headline risks and the potential of being short a stock and it getting bought out.

8:54
I can take that out of the equation. His next question, trading mid-price stocks between $40–60 versus expensive stocks, $100 to $250. Now, I’ll say this, I don’t like saying a stock trading at $250 is more expensive than a stock trading at $60 because in the end, it’s not the number of shares that you want that makes the difference.

9:13
It’s the amount of capital that you’re putting on a position. So a $250 stock can actually be cheaper than a $60 stock. Well, you’re saying, well, how is that? Take Tesla, for instance, right? It’s trading somewhere between $800 to $1000 depending on which day of the week that you look at it, and it’s got a price earnings ratio sometimes of over $200.

9:32
But then you take something like Amazon that’s trading at over $2000 a share. And they have a PE ratio, and I don’t know it offhand, but it’s like in the double digits. So you got one that’s in triple digits, one in double digits, which one’s more expensive from a fundamental standpoint? It’s Tesla, yet they trade at half the share price of Amazon.

9:49
So when you’re talking about stocks, don’t consider them expensive or cheap based on what the share price is because there’s a lot of penny stocks out there that are way more expensive. And I’m talking about like even fractional penny stocks that are way more expensive than Amazon. Because penny stocks are some of the most crappiest companies that are out there.

10:08
By and large, they’re crap. They’re not likely to be in business for much longer, most of them. And so you’re putting all your capital, I would say that’s the more expensive company, especially if they don’t have any earnings. You’re paying a lot for those non-existent earnings and hoping that they somehow turn things around and become a profitable company one day.

10:25
And honestly, in my experience, there’s not much to get me excited about. In terms of a $40 stock versus a $250 stock. If the setup’s there, regardless of what the share price is, it’s there, you take it. Tesla trading at $1000 a share can have a 10% move in a single day, just like Facebook can trading at $200 a share.

10:48
Or you take United Airlines, it’s trading at $51 a share. They can have the same kind of moves as Tesla. Yes, there’s some stocks that are more volatile, and if you’re wanting to see what kind of volatility is in the stock, then you want to look at their beta because that’s going to tell you how much it moves relative to the S&P 500. So as beta to it, typically on average moves about twice as much as the S&P 500 moves.

11:10
So if the S&P 500 is up 1% and Tesla or United Airlines has a beta of 2, then it’s going to move 2% on a given day when the S&P 500 is up 1%. But just because the stock price is higher doesn’t make it more expensive or.

11:27
Because it’s lower makes it somehow more cheaper. People get really caught up in that stuff, and it’s been one of the things that’s driven me nuts over the years, how people start saying that things are too expensive or how a stock is too expensive because it’s trading at a high price, and then they get all excited about these stupid stock splits and you see it in the stock price, people go nuts because they’re saying, oh, I can get Tesla at a much cheaper price.

11:47
It’s the same company at the same value. You’re just buying more shares at a lesser price. It’s like a 6-pack of beer. If the 6-pack of beer costs $6 but then all of a sudden the company says, oh, we’re gonna have a sale here. We’re gonna have a beer split.

12:04
We’re gonna take it out of the six pack and sell them for $1 each. And then all of a sudden you’re thinking, oh man, I can get more beer for $6. No, you’re still getting 6 cans of beer, still a 6 pack. It’s the same thing with Tesla, you know, or Amazon or Google when they’re doing these stock splits.

12:20
You’re getting the same thing, more shares at a lower price. What you want to know is a really good value, swingtradingthestockmarket.com. Guys, this stuff is amazing. You’re gonna get my stock market research each and every day. That’s gonna include the list of daily stocks that I’m looking to trade, plus you’re gonna get the most intriguing charts of the day that I look at.

12:39
I’m gonna mark them up for you, send them your way, and you’re going to get weekly updates on all the Fang stocks plus the indices. It’s great. You get my watch lists each week. It’s amazing stuff. Check it out. You’re supporting the podcast in the process, swingtradingthestockmarket.com. Now, we’re getting on to the third question and I’m really having a lot of doubts that I’m gonna be able to finish this within.

12:58
The normal time frame that I try to do these podcasts. So it’s probably gonna be a half and half. He asks, when is it time to start putting in some shorts here and there. Now, I don’t know what he means by here and there. I guess it means, you know, when is a good time to add short positions in general? Well, right now it’s been a good market to add short.

13:16
Positions. So going back to January of this year, pretty much the entire year minus the dead cat bounces like what we saw off of the March 14th lows, yes, those are pretty difficult. And you don’t really want to be shoring up market when it’s already like made a 5 to 10% move in like 3 or 4 days.

13:33
You don’t want to do that with a stock either. You want to let the markets go through their dead cat balances through their counter rallies because a bear market has plenty of counter rallies and they’re brutal, they’re nasty, they will eat away at your short profits. In the blink of an eye.

13:53
That’s what I do at least. And it’s been really helpful for me for much of this year. And then I start taking profits along the way as the market starts to fall again, if I’m using like QID which I’ve used a lot of this. that’s 2 to 1 inverse of the NASDAQ 100 or if it’s SH, which is the 1 to 1 of SPY or SDS, the 2 to 1 of Spy, these are all inverse ETFs or maybe it’s RWM which is the 1 to 1 or TWM which is the 2 to 1 of the small caps Russell 2000.

14:22
Whatever it is, I will start taking profits along the way. So if, you know, I’m up 5 or 6%, I’ll start taking some profits. If it’s the very beginning of the down trend, I might let it run for a little bit. So there was one last week that I waited until it was like 10% higher before I took a third of a position off and then I took another 3 at like 16%, and then I took some more along the way at like 16% and 14% and so on.

14:47
But I use a top-down trading strategy, so it’s not just like a feel that I have to where I’m like, you know what, the market’s overbought. I’m gonna start short in this market. That’s what a lot of people do. It’s like there’s no way it can go any higher and then it goes higher. It’s just like.

15:06
People that were shorting GameStop, and I think the GameStop phenomenon was one of the craziest nonsensical things I ever saw. It was kind of cool to watch, to see some hedge funds get taken to the woodshed. But in terms of just it being a logical thing where GameStop, which is really not a company that I would ever want to invest in for the long term, was just ripping the faces off of hedges and.

15:23
Other institutions, that was pretty fun to watch because God knows they’ve been sticking it to us for years. But people were trying to short it along the way, saying there’s no way it can go beyond 200 and then it goes up to 483 and they’re down over 100% on their short trade. You can’t do that kind of stuff to yourself. So it’s not about a feeling.

15:39
You gotta use a top down trading strategy. So what I do is I follow the market as a whole, the S&P 500, the NASDAQ, the Russell 2000. If the chart starts to tilt bearish when there’s a topping pattern being put in or when it breaks key support levels, yes, I will start to get short. Now, I usually never get short on the initial sell-off.

15:57
The reason being for that is because I want to see whether or not the dip buyers come in and push it right back up to the all-time highs, or is that bounce gonna die out and then all of a sudden start a new leg lower that takes out the previous lows. Then that’s where I really start getting interested in the short positions, because then you have a new trend in place.

16:16
You have a lower high and then you have a new lower low and that’s something to work with there. But as much as you wanna like, hold those short positions as long as you can, and God knows I try to hold it as long as I can. You always have to be on the lookout for those dead cat bounces, cause those dead cat bounces will rip your face off.

16:36
You will think that, OK, hey, I’m up 10% on the day and up 15% on the position overall. This market’s gonna fall apart. And then you go to the bathroom and you come back and the S&P 500s rallied 100 points. I’ve had that happen before. It is absolutely bonkers. The level of short covering combined with dip buyers that feel like the bottom is in and they’re taking a stab at it, even if it’s not the ultimate bottom.

17:01
Will shock you the velocity at which a market can counter rally against a bear market. Some of the most violent rallies happen in a bear market. In fact, I would say most of them happen in a bear market. Look at some of the rallies off of the March 2020 lows, off of the 2018 lows.

17:20
Guys, that bottom was crazy and then look at some of the rallies along the way as it continued to fall lower. In essence, the time to start putting on short positions is when your technical analysis tells you to do so when you have a reward to risk ratio that sets up in your favor to where there’s at least twice as much downside for the risk that you’re taking on.

17:39
So the takeaway in all this, and again, I didn’t get through this whole email we’re gonna have to save the rest of it for the next episode, but trading ETFs versus trading single stocks. There’s a lot of differences when it comes to risk. I’ve outlined that in this podcast quite a bit. Trading mid-price stocks that are 40 to $60 versus expensive stocks that are $100 to $250.

17:59
Look, you can focus on those price ranges or you can even take it all the way up to thousands of dollars a share. It doesn’t matter. People start judging whether a stock is expensive or not based off of how many shares they can buy of that when that really doesn’t matter. It really matters how much capital you’re putting into the trade. And then when you’re looking to put some short positions on, don’t do it on a whim, don’t do it on feelings or emotions.

18:19
Do it based off of what the technical analysis showing you that there is a top end, that there’s a reward to risk ratio on the trade setup that’s going to favor you. So we talked a lot on this email here and I think we’ll be able to tackle some more of the questions in the next episode, so stay tuned for that and make sure to leave me a 5 star review, guys.

18:37
Please, please, please. I know I come across begging like that all the time when I’m doing these wrap-ups, but they do help me quite a bit and keep sending me your questions, ryan@shareplanner.com. I do read them and I try to answer them all and check out swingtradingthestockmarket.com. You’re supporting the podcast in the process.

18:54
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 7-day trial and access to my trading room, including alerts via text, and WhatsApp.

19:14
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.

19:35
All the best to you and I look forward to trading with you soon.