Positioning for Volatility | Podcast Episode #280

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 how, hey, everybody, this is Ryan, Mallory with swing trading, the stock market, we’re going to talk about Positioning for volatility.

0:37
Now, this isn’t coming from one of y’all. This is an email that I received everyone smile when we have these dramatic Market moments and for those wondering, this is September 13th. 2022 when I’m recording it. Now, it’ll come out a few days later for you guys, but when we have these dramatic Market events, they’re very emotional experiences are very crazy.

0:57
And so, instead of acting like it didn’t happen and recording another podcast episode. Like I normally do, I want to focus on this big event because Not only is it good for you to hear about it right now and what might take is on it? But it’s also good. When we run into patches of volatility down the road, it’s going to be helpful to hear.

1:16
Okay, let’s go back in time to September 13th 2022. When the market just really went haywire and the S&P 500 dropped like 175 points in one single trading session. What was it like then? What did Ryan have to say? What was some of this takes, you know? And for me, I’ll even go back and listen because it’s good for me to hear in the moment.

1:35
Aunt, what was unfolding? I so badly. Wish I could go back and a times like the European financial crisis in 2008, and just get some of my thoughts and what was going on and maybe even see the growth from that period on word because we’re constantly learning, we’re constantly adapting.

1:51
We’re constantly adjusting to this stock market. So I think it’s really important to try to capture the moments with this podcast. Imagine if we could go back in time. Imagine with podcasting was a thing back in 1929, when the stock market crashed, We had the fat finger crashed back in May of 2010 or the 2008, Great Recession or the.com bubble.

2:12
I mean, it would be a treasure Trove of information. So when we get these big big declines, I like to use it as an opportunity to capture the moment. So this is going to be podcast episode number 280 and we’re going to title it positioning for volatility now before I get into it, what am I drinking tonight?

2:30
Guys, I got a really good bourbon. Some of you guys have heard about if you haven’t heard about it, it’s a special batch. Ouch, that comes out every year from old Forester, it’s called their birthday bourbon this year. They gave it out to like 500 people were something like, I don’t know what the exact number was but it was a raffle and if you entered it you more than likely lost.

2:49
I lost I didn’t get it but this one comes from 2019. Now these Bourbons, if you can get your hands on it they go for some crazy prices. You know, they’re up there like Pappy Van Winkle prices. I think right now you can spend upwards of like twelve or thirteen hundred dollars for a birthday bourbon. Now what I ever pay for that know I had a friend that had some We take some back with me so that I could try it.

3:08
So I’m excited to do this. This is the old Forester birthday bourbon from 2019. It’s been aged 11 years and it comes from a batch of 120 barrels. It’s 52 and a half percent alcohol. That makes it 105 proof and I tell you it looks really good to the eye.

3:25
It almost looks like you’re looking at it. Jar of honey is I mean really it’s a fabulous looking bourbon. Now to the nose definitely jars your senses a little bit because it does come in pretty spicy. But there’s some sense of cherry that you definitely pick up on. Now to the taste, it comes across very sweet again, lots of cherry flavors, even to the taste as well.

3:47
And while it’s sweet gives you this like hard kick out of nowhere of heat and spice. It’s like you’re standing behind a horse and it just kicks you right in the mouth. Like I said, sweet, nice cherry flavor, scale of 0 to 10. I’m giving this an eight point six.

4:03
Now what I call this an everyday sipper or Going to weekday sipper absolutely not. How about a weekend zipper? No stuffs too expensive. This is like special occasion zipper like hey my daughter just got married or hey my kid just graduated from college or hey I’m a grandfather a parent that kind of a bourbon now granted I say that and what I actually ever save a good bourbon for a special occasion.

4:25
No I’m opening up that bottle as soon as I get my hands on it. So old Forester, scale of 1, to 10 given an eight point six, really, really good. This is one. That I would drive 50 to 100 miles to pick up a bottle for now, that raffle, you had to go all the way up to Kentucky and get it.

4:42
I entered the raffle. Not really sure if I would actually go up to Kentucky to get it though because that would be a really long trip and I’m not sure I want to drive that far for a, just a bottle of bourbon. But old Forester, birthday Edition 2019, given it an eight point six.

4:58
Now back to position yourself for volatility in the market. So we’re dealing with one of the most volatile markets and History. This is surpassed what we saw in 2018 which was a three-month. Sell off this surpasses. What we saw from the covid, sell-off back in March of 2020, when the whole economy was shutting down, I mean those sell-offs happened and they happen for like, brief periods of time. 2008, like I said, two out of three months where the market finished, lower the covid crisis.

5:27
It was like a five-week sell-off in the market. V-shaped bottom bounce like to infinity and beyond, but this one, it started at the very beginning of the the year of 2022. And now we’re sitting here in September almost nine months into this calendar year and it has yet to find its true bottom.

5:43
And from what we can tell, maybe the June loves is the bottom. We won’t ever know that until hindsight. But for now we’re still very much in the mix of this bear market. Like I said, as if this day of this recording, S&P 500, finished down a hundred and seventy-seven point the NASDAQ finished down 632 points.

6:04
The Dow which I care too much about finished almost 1300 points down almost 1300. So very significant, we’re talking five point, two percent of the NASDAQ and 4.3% out of the S&P 500. So very significant, we don’t know where the bottoms that yet, and this was the worst day for the market since June of twenty twenty.

6:23
And so, while it surpassed the sell-offs in 2018 and 2020, it’s becoming more and more synonymous with two thousand and eight and two thousand, which were some of the biggest Corrections or / Reset. Sessions in stock market history. Now one of the things that makes this particular recession or correction, whatever you.

6:42
I know a lot of people don’t want to call it a recession. A lot of that has to do with political purposes but hey we got two back-to-back quarters of negative GDP growth so I’m going to call it a recession. But one of the things that makes this recession stock market correction unique is the fact that you have such a heavy involvement out of retail now, and the past much of retails participation has been as Result of their 401ks, their IRAs 403 bees, the retirement accounts.

7:11
Now, you have a lot of active retail Traders. A lot of them, and that’s primarily due to the fact that nearly every brokerage went Commission list, and it sucked in a lot of new. Participants it essentially made the stock market like DraftKings and FanDuel were instead of putting Aaron Rodgers and Tom, Brady and Julio Jones, or DK Metcalf or Derrick Henry on your fancy football team, you’re putting apple and Amazon on your dream finantial team.

7:43
I guess that is kind of what the market has become for a lot of people and some ways. It’s become a gambling addiction. And a lot of these people that have come into the market, since we’ve gone commission lists by and large, don’t really know what kind of forces that they’re dealing with. They’ve been trained to buy the dip out on every occasion affect the day.

8:01
Before this massive sell-off, there was over four billion. Dollars of retail money, flooding the cues. It was one of the largest and flows and months. And how do you think all those people are doing today? They’re doing pretty crappy. They’ve lost all of those gains from the day before and much much more.

8:18
They haven’t learned that you don’t chase after every move. You see a lot of retail, they see the stock market moving, they think they have to participate in it every day. I used to be like that, in fact, but I’ve learned the more that I do, the worst off that I usually am less is more, especially in a bear market and you got to realize you don’t have to chase after.

8:35
Every move the last four days preceding this big market sell-off today. The market ran like 270 points up into the pre-market this morning off of the lows that were established last week 270 points. Massive move for the S&P 500 and if the CPI report would have come in very favorable who knows how higher it would have run it would’ve just gone an absolute Bonkers, borderline clown show but the rumor mill was is that inflation is going to be coming down a lot.

9:03
It’s going to be very soft. It’s going to be under a Everybody was buying into it. I actually felt very lonely for not getting into it and say, hey, this Market can’t last this rally cannot sustain itself and sure enough the CPI report came out and it was an instant hundred Point reversal on the S&P 500.

9:19
I’m talking about almost within seconds, it was that big of a correction and who are the bag holders retail. Now they’re licking their wounds after today’s training session, hoping that we’re going to get a big bounce tomorrow and what’s their basis for hoping for a bounce. Maybe it happened.

9:35
Ins. But their whole basis for is because they need it to happen. Market doesn’t care about their needs markets. Going to show off two more if it wants to, and they’ll still be holding that four billion dollars that they threw into the market. Except it’s going to be at a much bigger discount, but by and large a lot of the new traders that are in the market.

9:52
And if you’re listening and you’re a new Trader, I’m not attacking you. Personally, maybe you are a very good Trader, okay? And I won’t take that away from you but by and large most of your retail Traders out there especially the ones that came in after covid. And when we went Mission, three are Reckless and undisciplined and I don’t know if they even knew this, but Wall Street was leveraged heavily to the short side coming into today.

10:15
So while retail was piling in Wall Street, couldn’t find the exits fast enough. So how do we trade a market like this? How do we position ourselves to be able to handle the volatility last four days for me? We’re not fun, but wasn’t for the way that I position myself coming into this Market. Bounced, I would have never survived.

10:31
I would have gone and out probably at the highs yesterday, and I’m going to tell you a story. Worried about one particular person that did that. So this guy he goes 100% long on sqq for those who don’t know what that is. That’s a 3 2 1 inverse ETF of the nasdaq-100.

10:47
So if the NASDAQ goes up 1 percent, this sqq ETF gives you a 3% return, very volatile, very high-risk kind of stuff. I’ve created it before, but in very limited circumstances. Do I trade, it has to be a really, really good trade setup for me to take it.

11:02
But this person went 100%. We’re About a lot of money that he put on the tree. Well, he was right on the initial breakdown on the NASDAQ, which benefited as QQQ the nasdaq-100 went, way down off of the August highs and then sqq subsequently, rallied quite a bit.

11:21
But then there was this four-day rally in the NASDAQ, a significant one and sqq as a result was sold off, but because he was so heavily leveraged on sqq. Now, he wasn’t In the margin but it’d be like if he was three hundred percent long, PS Q which is a one-to-one inverse ETF that be a lot of volatility still but because psq is a one-to-one inverse ETF or if he was like short The Q’s 300%, it be very similar to sqq at 100% again.

11:54
A lot of volatility here. If the NASDAQ rallies, 3%, he’s going to be down in his sqq position by 9%. That’s the kind of volatility that you’re dealing with. So this for day rally, it Is nothing short of spectacular. I mean, the NASDAQ and I think almost like a thousand points if I remember correctly, but that his interests pretty good.

12:12
And so what happened? He gets out the day before the CPI report, the CPI Rose II, can’t take it. I can’t deal with the volatility in the potential of being wrong, so he gets out right at the close, the day before CPR report comes out. The market tanks. He’s ah crap. I can’t believe it did that to me.

12:29
Well, in some ways, he did it to himself because he was so leverage that he increased the emotions so much that he Wasn’t positioned correctly for the volatility now I’m gonna toot my horn a little bit here, but I kind of got have to do it, just to show the difference between how he approached the trade versus how I approach the trade.

12:45
Now, as the market was selling off from the August highs, I was in SDS. And I was in psq along the way. I was taking gains like, for instance, an SDS I was taking profits of 5.4. I took another quarter off at 9%, I took another quarter off at 11 percent left me with a quarter position.

13:02
Same thing with psq, I took profits of 4.36 And 2.2% leaving me with quarter position. I position myself in such a way because I wanted to make sure that as the market was getting much more oversold. I thought there was still more to go, and I wasn’t sure how far would go before it eventually bounds. I knew it was getting oversold, but even after the bounce, I thought it would have been chewy go, much lower still.

13:22
And I wanted to be able to hold through that bounce with afford a rally happened in the SP, the NASDAQ and the Russell 2000, the market as a whole, my SDS position, my PS Q position. I was only sitting on a quarter position in each of those Those. But because I had taken the profits along the way I wasn’t sitting on a full position.

13:38
Nor was I 100% long at any point in those positions. So, we might bounce happened. I was positioned correctly for volatility. Be able to withstand that bounce and trade the plan that the bounce wouldn’t. Last would be a dead cat bounce and eventually push lower again which it did but I can tell you this as a traitor.

13:57
No way. Would I have been able to do that? If I was instead of in SDS, I was in SPX you which is a 3 to 1 and 50. At long my entire portfolio that and then in psq, instead of being in psq. I was in sqq in 50% long.

14:13
My portfolio. There that would be a lot of volatility. I wouldn’t have never been able to do it. I would have gone out the day before just like he did. Does that make me a bad Trader know? It makes me a human being. So what I’m saying, let’s position ourselves correctly for volatility. Let’s guard ourselves against ourselves because ourselves will make the worst possible decisions.

14:33
Because again, what if the Epi report came in really low in the market did rally. Let’s say another two or three percent that day so it would have been a bad day for person whose 100% long on sqq because the market be rally and that thing would be falling apart. It would have been a crappy day for me too, but I was only in a quarter position and that didn’t even make up, much of my portfolio because I had already taken so much of the profits along the way.

14:56
What I was wanting to do is position myself to wear when the market does turn lower. Again, I could not only have some positions already in play, but I could also add to them. And that’s what I did. I added qid and I added sh.

15:14
So, I’ve benefited from that and you want to know what else that you can benefit from by signing up for swingtradingthestockmarket.com, this is my companion website that goes along with this podcast. You’re going to get all of my market research each and every day that’s going to include videos for the big Tech stock updates for the market update.

15:33
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15:50
So the big difference is the person who got out right before the CPI report came out, took a loss on a major position. The person who profited off of the CPI report did so because he had a smaller position, he was better position for the volatility there by being able to handle his own emotions much better.

16:07
So, a lot of times people think that, hey, you can’t make big money. Unless you’re treating big, that’s completely false. And in fact most of the time it results in big losses, not big wins because the bigger your trading, the more of your portfolio, you have allocated to one trade in this make-or-break mentality.

16:23
The more likely you’re going to lose because it’s going to be your emotions that dictate it. The trait absolutely has to be perfect and most cases in order for it to work it has to work right out of the gate. There can’t be any volatility, there can be any fluctuations, the more money you have. The more sensitive you are going to be two smaller. Moves. And you don’t want to put yourself in that position to where you’re highly affected emotionally by a small move.

16:41
If you had a position that was 90% less, let’s say you had a position that was 10% your portfolio, instead of a hundred percent of your portfolio and you have a one percent move against you, you’re not going to react as emotionally to that move as you are when you’re trading with 100% position. And that’s what I’m trying to get at here is that less is often times more in the stock market?

17:01
You’ve heard me say that before with trading frequency but also a position sizes. Does big position sizes will often times lead to as making really bad decisions and our portfolio because it’s going to be emotionally driven not based off the technical analysis or the charts or what you’re reading from the overall Market is one of the first things that I look at when I’m trying to figure out what’s the problem in a person’s trading besides, are they even using stop losses?

17:24
After we can establish this day, our then I want to see what their position sizes are their trading with big positions and you’re never going to follow your trading plan, you’re never going to be disciplined because the emotions will overrule it. And I know, A lot of people think that they can overcome their emotions. You can’t man, we’re emotional creatures.

17:39
We’re going to feel the emotions when all of our money and all of our life savings are on the line or a large portion of it. So you have to find that happy medium that won’t allow it to affect your judgment and that you can rely on technical analysis in your trading strategy, rather than the emotions that are trying to trumpet.

17:55
And remember, to, and volatile times expect some volatile moves. I mean, we get long on a trade thinking that it’s going to go straight up to the Moon. That’s the popular saying, right? And If it doesn’t up going to the Moon, Man, it might come back down to the launch pad a couple times before It ultimately gets there.

18:11
So if you’re short, expect bounces expect dead cat. Bounce is they’re going to happen. It’s important to take partial profits along the way even more. So in a bearish market because those dead cat bounce is can be so intense. You have to set yourself up for counter moves as the market was selling off from the August highs last month and into September.

18:31
It got very obvious that even though we might not have been oversold on a a weekly or a longer term basis on a daily chart and even on like a most intraday charts, we were getting very oversold and so that a two to three-day bounce was likely and we even got a four-day bounce out of it.

18:46
So it was a very intense bounce. It went way more higher than I thought. I think it right before the CPI report, it was 270 points off the lows for the S&P 500. That’s crazy way more than I expect I thought to myself. Okay, if we bounce maybe like 100 points, that would be pretty doable.

19:02
But if I was 100 plus Long on a leveraged ETFs. Oh, I never would have made it through that. So I position myself for the volatility and for everybody that’s going to be different for me, it was getting my positions down to about 25% of my full position size and I was able to withstand the volatility just fine, it’s okay to, to be aggressive on your profit taking maybe, you know, in a bear market and especially true in a bear Market.

19:27
Actually, is to be aggressive with the profit-taking if you want to get all in and then all out taking four to six percent profits and risking In two or three percent against you for a potential stop-loss. That’s a good trading strategy, guys, especially in a bear Market. There was a time where I used to take profits all the time around between four to six percent would even blink an eye.

19:46
But now, of course, my approach to shore in the market, has changed quite a bit where I’ll take aggressive, partial profits. And then I allow myself to be able to weather some of these balances so that I can add more to my overall, bearish exposure on the next leg lower. But everybody can have a different approach to how they do it.

20:02
The big thing is is that you’re setting yourself up now. To let your emotions, dictate your actions, and your trading in a bear Market. It’s very easy to do that. So if you enjoyed this episode, be sure to leave a five star review, guys, we covered a lot here about positioning ourselves for volatility. Remember, if you find yourself in any of these camps that I’ve described, you know, as it pertains to just being undisciplined as it pertains the volatility and to a bear Market, don’t hate yourself or just realize that you know we have some natural tendencies as human beings to do some of the worst things possible to ourselves because fearing Greed can grip a so heavily.

20:36
So when we’re positioning ourselves, yes, we’re positioning ourselves for volatile markets, but in doing so we’re helping ourselves, be able to manage ourselves even better. Now, make sure you guys keep, sending me your emails, I will be getting back to those next week for episode 2, 81 and 282. I plan on taking your email, so keep sending them to me.

20:54
I read them all and I appreciate every last one of them. And before I forget, make sure you check out swingtradingthestockmarket.com, that’s check it out. Thank you guys. Bless.

21:14
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21:32
So go ahead sign up by going to shareplanner.com trading block, that’s www.shareplanner.com/trading-block. And follow me on SharePlanner’s, Twitter and Instagram. And Facebook where I provide unique market and trading information. Every day 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.