A Checklist For Traders | Podcast Episode #259

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 in today’s episode should be a good one. The guy that sent me today’s email, he didn’t send me just one email.

0:42
He didn’t send me just 2 emails, not 3, he sent me 4 emails here, 4, sent them in a pretty quick time period too. I’m talking about like 5 days he sent 4 emails to me and they all were loaded with questions. So, hey, he got my attention that way.

0:58
I’m not saying that that’s the best way to do it, but Nonetheless, he’s got a lot of good questions. I’m excited about answering them. He starts off the first email. This one was sent on June 24th at 2:54 p.m. He writes, Hello, Ryan. First off, I like the podcast a whole lot. Second, I’m actually a Florida redneck in real life, so if you could, I would like a West Coast tennis coach’s name, you know, the dude with the orange tan and the sweater tied around his shoulders, the guy that is having an affair with the nerdy Silicon Valley.

1:27
Guys, hot wife, heck, just call me Fabio. Well, I’ve already used Fabio in the past episode, so I’m gonna go with Bryce Harper. No affiliation with anybody in particular, just we’re gonna call him Bryce Harper. That sounds like a name that would be like a West Coast tennis coach name, Bryce Harper.

1:47
Anyways, Bryce continues with, I am just getting into swing trading and haven’t risked a single dollar yet. The market is just awful. I wish these paper trading platforms could simulate a market that is suitable to swing trading and so I could just test out what I have been learning.

2:05
I know I should be sitting on my hands right now, and that is what I am doing. It is just that I would like to have better conditions in this market, so that I can see if I can apply what I am learning and see some success. Oh well. How about something to read? Got a list of essential reading for people new to trading.

2:21
I already read a book. I got off of Amazon. It was basically an introduction to swing trading. I kind of like a book that focuses mainly on technical analysis. I think my time right now would be better spent learning about that. Anyhow, keep up the podcast. I like your style. Bryce.

2:37
Now, that was just the first email. So we’re gonna address each of these. Hopefully I can make this all in one episode. If not, I guess I’ll just carry it into two. But before I answer this question along with the other emails, what am I drinking? Well, back when I took a trip to Blue Ridge Mountains earlier this month, I picked up a bottle of smoke wagon, small batch, straight bourbon whiskey.

2:59
It’s out of Las Vegas, Nevada agency Distilling Company. This one has a 50% alcohol 100 proof. Awesome. looking bottle. I mean, if you were judging this thing by the bottle alone, this thing deserves like a 10 out of 10. It’s a really cool bottle. It’s like something that you would see in an old timey bar back in the days of when Marty McFly went back to the future and was in the wild, wild west.

3:20
He goes into a bar, this is the kind of bottle they’d probably be pulling out. Nonetheless, nice rich brown color, very beautiful. To the nose. Oh yes, this has vanilla. This has caramel. I mean, it is a very, very sweet and succulent smell.

3:35
Now to the taste, you still pick up on that caramel flavors, maybe even a little bit of a honey flavor to it. I mean, it’s really, really nice. There’s a little bit of a ride to it, but boy, that one hits just right on the finish too. The finish doesn’t blow you away like you would think something with a 100 proof wood. Most of your 100 proof bourbons, they just come in way too hot with the spice.

3:54
But the ones that can balance it out with the incredible flavor, those are the ones that you want to have, and this one does an immaculate job of balancing both of those things out. On a scale of 1 to 10, I’m gonna give this one at 8.7 and maybe I’m not even going high enough on this one, but it’s really in good company with Weller.

4:11
With old scout, I mean, this is good, good bourbon, especially with the how it finishes. The finish is just it lets you enjoy the flavors that came on without having to be overwhelmed by the spice, but it’s enough to know that it’s there. So, Smoke wagon, 100 proof, 8.7.

4:28
Now back to Bryce Harper here, again, no affiliation with anybody in particular, just calling him Bryce Harper. He hasn’t started trading yet, still sitting on the sidelines, a little bit nervous to get into the market considering the current situation that we’re in. I’m never gonna say that somebody should get into something that they’re not comfortable with.

4:44
That’s just not what I do. I always preach about trading within your ability to handle risk. What is the risk parameters that are going to leave you the most emotionless when it comes to your trading with your money? If this is a market that you don’t feel comfortable with, then definitely don’t trade it. I also think though too, and this is just me speaking from personal experience.

5:04
Every kind of bear market that you go through, you’re going to learn a lot from. I know that going through the 2000 bear market, the 2008, 2018, 2020, and even like the European financial crisis, whatever year that was, I think that was like 2012, I wanna say, 2012.

5:21
Very, very good learning opportunities for me and even 2022 has been a great learning opportunity. I feel like I’ve probably handled this bear market better than any of them, and I’m positive on the year and that’s. One of the reasons, but in the other bear markets too, I’ve been positive in the past. But the amount of learning that you get from a bear market that teaches you about the importance of risk management because it is truly during these times why you see why I preach the risk management, why I preach reward risk ratio, and why I am so adamant about using stop losses, because they pay off in these times.

5:52
A lot of people are giving up years and years worth of gains because they’re not managing the risk. And then when this is all said and done and the market bounces, yeah, they might be able to get back in the market in relatively quick order, but they’re gonna probably be spending years trying to make back that money.

6:09
For me, when it comes to a bear market, I want to come out of the bear market better than when I went into it so that when the bull market does come back around, I’m adding to my portfolio at all-time highs rather than digging myself out of a hole that was so. Inflicted. So I do think experiencing bear markets is good because I think one of the big things that a lot of people weren’t prepared for are the new traders that started right after the whole COVID crisis when the market sold off big time, it crashed and then everybody started jumping in with the free stimmy money that was coming their way.

6:38
And then you had all these people with false impressions about what the market’s like cause it just went skyrocketing higher. That is not a typical year like what we saw during 2020 and what we saw in 2021 where it just kept going up day after day after day. That’s not typical of the stock market.

6:54
There’s usually tracements, there’s rallies followed by more retracements, followed by more rallies. There’s a give and take. And so, traders go from 2020 and 2021 just being like you can’t lose, you can’t do anything wrong to just getting slapped across the face in 2022 and losing everything they have.

7:12
Now, had some of those people dealt with a bad market before a bear market or just any kind of market where there was even just like a 5 to 10% retracement, they would have experienced what it was like to deal with. A very problematic market at times, even if it was just for a short period of time.

7:27
He also asks about a good book to read, and I always tell people my favorite stock trading book of all time is reminiscence of a Stock operator by Edwin the Ferve. I never know how to say the guy’s name, but it’s about Jesse Livermore, and it’s just an incredible, incredible book worth reading.

7:45
I’ve underlined that book to death. The other one is. Technical analysis of the financial markets, a comprehensive guide to trading methods and applications. This one is by John Jay Murphy, and this is very, very boring book, but it’s a very, very. Good book.

8:00
And I think every time I look at it, it, it drops more and more in price. I think back in the day when I bought it was $110 or so. I paid less price for it and now it’s at $24 on Amazon. So that’s really, really incredible. In fact, I think I was telling somebody earlier today what the name of the book was, and I had to make sure I was saying it right.

8:18
And I think it was $30. So like within just 24 hours, it dropped another $6. So that’s gonna be email number 1. Email number 2 by Bryce. was sent later that day, June 24th at 6:50 p.m. and Bryce continues to add to his first email by saying, OK, my first email was short on questions, so here are a few.

8:38
Well, we got a couple. I think I have heard you say high volatility stocks are very risky, but I’ve also heard you say that. High volatility stocks have good swing trading opportunities. I may have misheard you, but I am confused. Nonetheless, clearly there is a happy medium or a sweet spot. Where is that at?

8:53
Second, I would like to know what a perfect swing trade looks like, what a good swing trade looks like, what a me swing trade looks like. Did I say that right? Me, a really bad trade setup looks like and that you would be an utter fool for entering into. I am creating a checklist for swing trade entries, and these are just a few of the things that I am considering.

9:10
Maybe you are beyond the need for a checklist, but as a new swing trader. I think I need a checklist to keep handy to ensure I am not entering into losing situations. What are some of the things that you have put on a new swing traders checklist? All right, this could end up being the rest of the entire episode and we’ll have to continue with these other two emails in the next one.

9:29
But to answer his first question, I have heard you say that high volatility stocks are very risky, but I’ve also heard you say that high volatility stocks have good swing trading opportunities. Did I say that? I don’t know if I said it just like that, but I do swing trade stocks that have a higher beta than one on most occasions.

9:47
And a bear market, I’ve been focusing a lot more on ETFs, so like SPY would have a beta of 1 to the S&P 500. And if I was to use SSO, which would be 2X, the S&P obviously would have a beta of 2. Now, beta defines the risk in a stock, and I’ve done some talking about that in recent episodes, so I won’t go over what a beta means again in this particular episode, but There’s volatile stocks and then there’s volatile stocks, and the very high volatile stocks are the ones that especially that you see intraday where they’re moving like 50, 60%, sometimes 2 or 300%.

10:18
OK, that’s a very high volatile stock that’s extremely risky because it can pull back 20%. On a one minute chart and not even think twice about it before it rips 40% from there on the next 1 minute bar. It’s just there’s that much volatility.

10:34
So you’re trying to manage risk when a stock is having swings of 20 or 30% on a 1 or 5 minute chart. Very, very, very difficult. It can be difficult if it’s doing that within just a week or a day, much less doing it on intraday candles. So those are kinds of stocks where they’re so volatile that you can’t even manage the risk.

10:52
We saw that back in January of 2021 with GameStop. The stock was moving up 100+% a day at times. How are you going to manage the risk on something like that? And that’s why so many people wipe themselves out trading stocks like GME and trading AMC or trading options which are extremely volatile.

11:10
But I do like a certain level of volatility that’s more than what the indices are gonna provide, otherwise I would just trade the indices. So if I can get a beta of 1.5 or even 2, that’s fine with me. It’s probably also why you don’t really see me trade a stock like Walmart or some of your staples or your utilities as much as I do say a tech stock or a discretionary stock or an energy stock because they tend to have a little bit bigger price moves, but the price moves aren’t such that they’re like.

11:38
Some kind of crappy penny stock or GME where they’re just moving just crazy amounts each and every day and you’re just fighting with the crowd to try to get in and get out. So that’s the happy medium slash sweet spot. Second, he wants to know about what a perfect swing trade looks like, what a meth swing trade looks like, and what a bad swing trade looks like.

11:56
Well, I think a bad swing trade is anytime you’re not using a stop loss, that’s automatically bad. I actually think that you can have a stop loss in place and you can have a plan for the trade to know when you’re going to get out before you ever get in, but have a crappy charting pattern that you’re trying to trade off of, and it’s still be better, actually far better. Than an incredible trade set up or pattern that you’re trading off of, but you lack any kind of risk management on that trade like a stop loss or just knowing where you’re going to get out before you get in. That’s how important the risk management is. So if I’m talking about a bad trade setup, that would be it.

12:13
I would also probably say what I was just mentioning earlier on his second email about chasing after these high flyer stocks that are moving 2 or 300% or trading penny stocks. Every one of those are going to be bad trades. Because it’s very difficult to manage the risk. So so much of what defines a good trade setup versus a bad trade setup is gonna come down to how are you managing the risk.

12:30
And another bad trade setup example would be one where you’re taking like a 20 or 30% stop loss. Guys, I mean, what are we expecting from a trade here just to get 2 to 1, 60% return on a 30% stop loss? That’s kind of a lofty expectation to have with all of your trades, right?

12:46
I also think that it’s important to be rather consistent with your stop losses. I mean, some people might go like 20% on one trade and 2% on the next trade in terms of their stock losses. Well, that’s going to create a lot of volatility or if you have a winning trade on the stock that you risk 2% on, that’s great. It might have been incredibly well executed, but it’s gonna be overshadowed by the fact that you lost 20% on a losing trade.

13:06
And let’s not kid ourselves. We’re all gonna have losing trades. I talk about that all the time. Expect it, expect to lose in the stock market, but it’s how you lose that’s going to determine your profitability. What also helps as a swing trader is getting my stock market research each and every day. You’re going to get the list of stocks that I’m following each day. You’re going to get my weekly bearish and bullish watch lists. You’re going to get some of the charts that I find the most interesting intriguing throughout the day, as well as update on all your big tech stocks. You’re going to get them on the indices. It’s just a really cool plan and you’re supporting this podcast in the process.

13:42
Now, what does a really good swing trade look like? Well, obviously it’s one that you’re managing the risk on, but I also like from a long perspective, I enjoy your classic bull flag breakouts. I enjoy your cup and handle plays. I love it when a stock’s coming off of oversold conditions and just creating a really nice base to work off of, or my favorite probably would be one where you have multiple layers of support that’s being tested.

14:05
Maybe you have a price level support at $100 and then you have this rising trend line that goes back a couple of years that it’s pulled back to and it’s converging with that price level support at $100 and you got price at $100 and it’s bouncing. Right off of that level, I love trading off of multiple layers of support, but it really isn’t so much about one particular pattern that intrigues me about one trade over the other.

14:25
Oftentimes it’ll come down to what stock am I able to manage the risk best on, and then I usually go with those. So if I have a trade setup that has a reward to risk ratio of 3 to 1 versus one that has a reward to risk ratio of 2 to 1, which one do you think I’m gonna go with? Gonna go with the one that’s 3 to 1.

14:41
He also mentions that he’s keeping a trading checklist for all of his future trades. Is that necessary? Yeah, I think it’s good to have notes about things that you want to have in each one of your trades, like, for instance, did I put a stop loss in place? Did I identify the key support levels to put my stop loss below?

14:57
What is the reward to risk ratio on it? What is the potential trade target before it runs into any real resistance. Those are the kinds of things that you want to be including on your checklist. There’s not a holy grail trade setup that’s going to ensure your success each and every time. So, if you enjoyed this podcast, and you know, speaking of enjoying podcasts, I was thinking back on my last podcast.

15:18
That was probably like the first time that I looked back on a podcast and I said to myself, man, I don’t really know if I really nailed that one. It just left me feeling like, man, I don’t know if I was just really delivering on the content on that last podcast. I think that was. Episode 258.

15:34
But anyways, if you guys felt like it, you know, it was a little crappy, my apologies for that one. But nonetheless, I’m trying to redeem myself on this podcast and all my future podcasts, and hopefully you’ve enjoyed all my previous ones prior to that one. So, Again, if you enjoy this podcast, make sure to leave me a 5 star review.

15:51
I always appreciate those things. I do read your reviews. They provide a lot of encouragement to me because oftentimes I’m doing these podcasts late at night when sometimes I’d rather be in bed sleeping because I’m a trader. I trade every day, so that’s my primary focus. So when I’m doing these podcast recordings, I’m doing them fairly late at night.

16:11
And so I appreciate those heartfelt reviews and make sure to keep sending me your questions, ryan@shareplanner.com. And I will get to them and I will make episodes out of them. So, thank you to Bryce for the excellent email, and I guess we’ll be continuing with him next week.

16:32
And with that, 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.

17:08
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.

17:29
All the best to you and I look forward to trading with you soon.