What I Have Learned | Podcast Episode #300

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 in.

0:33
This is my 300 episode. When I started this off, I think it was like 2017. I never imagined, I would have done 300 of these things. I don’t see any end in sight. I’m hoping to go up to 1000 one day, if not more than 1,000. So what have I learned? That’s what I try to do with each one of these Milestone podcast, every 100.

0:51
What have I learned over the last 100 episodes. Not about podcasting so much though. I’ve learned a lot about that. But what I’ve learned about the stock market, what kind of lessons have I taken to Heart? What has made me a better Trader? What have I noticed about myself that there Might be flaws and or things that I need to improve in and there’s been a lot, but I’m going to focus on one particular and that’s the world of inverse Ultra ETFs.

1:14
Now, typically, on this podcast, I take your emails and I drink bourbon. Well, I’m gonna drink bourbon but I’m not going to take your emails on this podcast. I’m going to essentially tell you my improvements as a Trader. So before I get started on that and we start talking about the ultra inverse ETFs, what am I drinking?

1:32
Well, I am drinking Noble, double oaked Even bourbon whiskey here, it’s 45% alcohol and gives it a 90 proof. And now, when I give this thing a big whiff, I definitely pick up on some of that ethanol. I’m not a huge fan of that. That usually automatically knocks down the score.

1:47
When I start getting widths of that ethanol, I hate that smell, but there’s also a little bit of a sweetness underneath it. So there’s some caramel, but it’s overwhelmed by the stench of ethanol. Now, I like Double Oak. Bourbons right. I like the Woodford, Reserve. I think it’s one of the best double oaked Bourbons that I’ve ever had.

2:05
This one here, all I taste it and it’s like really dry flavors. All combined into one. You got the corn, you got the Woody flavor and then you got the leather flavor and it’s just too dry. Almost for my liking, it has a decent finish to it. It’s not a bad finish at all but the taste is just not there.

2:21
So scale of 0 to 10, I give it a six point for what I consider it every day Drinker, maybe for a specific type of Drinker, that likes it really dry like that for me personally. I don’t necessarily want to drink this stuff every day. Can I go to a place and order it and be happy? Sure, but it’s not great. So Noble Oaks Double Oak, bourbon 6.4.

2:40
Now back to the inverse ETFs, I first off want to thank everybody that has helped me get to this place on the podcast. The guy who edits these podcasts Mason, I appreciate him spinning. So many countless hours putting these things together and making sure that I sound, okay, when they get released.

2:59
And for all of you folks have been sending me emails, really appreciate that, man, I tell you what, that’s what’s kept the podcast going. For all these years is, yall’s feedback, y’all’s questions, and concerns and thoughts. I really do appreciate them and keep sending me your questions ryan@shareplanner.com.

3:15
Now, let’s get into this podcast here. I preach risk-reward all the time. It’s probably the Hallmark of this podcast. And so over the course of 20 22, the markets been predominantly down and a lot of people have lost money. I have it. I’ve actually made money this year and I’ve made a good chunk of change.

3:32
And why have I been able to do that? I’ve been using inverse Yes. But is that necessarily the best way to utilize? Reward risk and I’ve been asking myself that more and more as the year goes along. Now, for those who don’t know what inverse ETFs are, it’s like, for instance, you have spies the S&P 500 ETF, that’s an exchange-traded, fund it inverse, ETF allows you to get short on the stock essentially, without getting short.

3:54
So you buy an ETF that replicates a 1 2 1 2 2 1 or 3 2 1 and verse Return of the Spy. Now, you can get it for semiconductors, you can get for the NASDAQ 100. Get for the Russell, you can get it for the doubt. I mean, there’s just tons and tons of different bearish inverse ETFs and most of them are leveraged often times.

4:15
I will use the two to one rarely. Do I use the 31? I used to use it more in the past, but I think it’s the same reason why I don’t use the 32 ones as much anymore. And that I stick more to the to ones is the reason why I’m starting to shift more and more to the one to ones. And then when I go from the one to one, I’m now shorting spy, and the cues kind of like the old days before there was a ETS, I’ll say this, my best and worst results from Trading comes from a CTS.

4:40
Now, the caveat to all of that is that I contain my losses even on my worst streaks. And oftentimes, those are the inverse ETFs. If you take this past month in general, a large portion of my losses came from inverse ETFs, and were they avoidable. And that’s really where I really started dissecting this past month’s trades and previous month’s trades and just realized how the inverse ETFs are sort of a toxic vehicle for trading. That doesn’t mean shorting is toxic, I’m saying the inverse ETF mechanism has a bit of toxicity to it, especially the more leveraged you get. And while I’ve done really good this year using them, I think I could have actually done a lot better and would actually have resulted in smaller gains on my average trade. But the number of losing trades I could have avoided would have made up for it and more.

5:20
Here’s one of the things that really trips me up when it comes to inverse ETFs and that is the reward to risk ratio and the window of opportunity you have to seize on that moment. You have to add aggressively. Sometimes you have to add maybe a little bit sooner than you’d like and that’s because if the market drops three or four percent from the highs and you want to put a stop loss from the highs of the day, that three or four percent stop loss is now like a six to eight percent stop loss. So you’re talking about much more risk to the downside.

5:52
So what do you have to do? You have to tighten that window, you have to find another area, you have to find a much closer area or placement for your stop loss. Which doesn’t oftentimes result in as good of a stop loss placement versus if you had just done the Respired, the shorted Q, of the actual asset itself that you’re wanting to see go down, you see. And I’m not giving you the exact prices here because I want to keep the math simple because we’re not actually looking at charts, you’re just hearing my voice.

6:15
Now we’re going to assume for this example SPY and SDS, which is the 2 to 1 inverse ETF of SPY, means when SPY goes up 1%, SDS goes down 2%, and vice versa. We’re going to assume both of them are trading at $100 just to keep the math simple. Let’s say SPY’s at 100. I want to get short on it and I want to put my stop loss above 105. That’s a 5% stop loss. On SDS that would actually be a 10% stop loss. I’d have to put my stop loss at 110 to be able to reflect the technical analysis found on SPY.

6:48
So now I’m needing 20% of a return on that trade in order to justify that 10% stop loss, whereas with SPY, I need 10% of a return to justify that 5% stop loss. Now if I’m wrong on SPY, I only lose 5%. If I’m wrong on SDS, I end up losing 10%.

7:04
So what do I have to do with SDS? I actually have to pull in that stop much tighter. I have to find a different area to put my stop loss. So let’s say that I find a place on SDS that is 103. Well that’s only one and a half percent stop loss on SPY. Very easy to get stopped out on that kind of a trade, especially this particular year where the market has a lot of volatility to it and massive price swings. One and a half percent, that can happen in 30 minutes but it would result in a 3% stop loss.

7:29
On the other hand, let’s say I still try to bring it in tight but I can only bring it down to 106 and I’m taking a 6% stop loss on SDS with an entry at 100. I’m using a closer point on the SPY chart. It would be equivalent to like 103 on a SPY chart, right? Because ultimately that’s what SDS is trading off of SPY. But SPY actually has the bigger stop loss, the more room for fluctuation because it’s a one-to-one and I’m actually risking less. I would be still only risking 5%. But a 3% move on SPY would effectively stop me out of SDS. You follow me.

8:01
I know I’m throwing a lot of numbers at you. Essentially what I’m trying to say here is that with SPY and with SDS, you give yourself a better chance to succeed and avoid a losing trade with SPY. Yes, you won’t get as big of profits, but the number of times that you may get stopped out before you can actually realize a profit will be more than made up for with SPY by simply trading SPY.

8:19
And so these are the kinds of things that I’m always thinking about as a trader. How can I improve myself as a trader? Because I’m always looking to do something better than before. I want to get better all the time.

8:35
And so I’m always looking for little caveat here where can I get better at? And I really think trading inverse ETFs needs to be far more limited in my portfolio than what I’ve done so far this year. Doesn’t mean I’ve been wrong trading inverse ETFs. I’ve actually done quite well trading inverse ETFs, but could I do better? And I know that I can because I look at about five trades in the month of November that I took and looking back, they would have been avoided had I done less leveraged ETFs, done like PSQ for the Qs or just outright shorted the NASDAQ in general.

9:08
Now ETFs have this resetting function. I’m not going to get into the details of it but every night, it resets. So the charts don’t align themselves like with the Qs. If you’re trying to get into QID or you’re trying to get into PSQ or SQQ or TQQ, or QLD, they don’t align themselves. They reset every night, thereby making the charts all skewed. So you can’t place stop losses for these inverse ETFs based off the charting.

9:35
If you’re trying to get the true action out of the Qs, you got to estimate essentially where to put those stop losses at, figuring out the percentage from where you’re getting in at and where you want to get out of it. Then when they start resetting every day, that makes it even harder to have the right stop loss in place. Every day that goes by, that reset makes for less favorable stop losses on the inverse ETFs.

9:55
You also have to be less patient. You have to be aggressive to get in. Just like I was saying earlier, the window of opportunity is far smaller. I got into SPY today. I have a 4% loss on it. I would not have been able to have gone into SDS because it would have been an 8% stop loss.

10:10
What would I have had to have done? I would have had to have gone in much earlier before I have any kind of confirmation. Would have worked out in this particular situation, yes. But oftentimes that kind of approach would result in me getting erroneously stopped out unnecessarily. Now I’m a big believer in avoiding unnecessary losses. But because I was trading and shorting SPY instead of getting into SDS long, I was giving myself more of a window of opportunity to get short in the market and to get more of a confirmation. And my stop loss right now is far better than if it was in SDS, because SDS I would have to have a much tighter stop loss, which could result in me getting stopped out much more quicker and much more unnecessarily.

10:49
And it also does something with you emotionally because QLD and I’ve seen this in a lot of traders you get stopped out of QLD, you think that you’re getting in at the bottom, it goes back down. And for the next couple days stops you out and then it starts to rally again back to where you were before. And what do you do? You buy back in. Why? Because you’re afraid of sitting out on that bottom. And so a lot of traders will jump in after that and then they’ll lose again and again and again and again and again as they will keep repeating that because every time you get one little tick on a five-minute chart, you start to think oh crap, this thing is reversing, it’s going back up.

11:24
So not only does it have to make you be less patient with your trade entries, it also forces you to get back in a lot quicker out of fear of missing out. Also this too and I’ve seen tons of people do it. I’m in the Facebook group and I watch these people do it every day and it’s almost borderline humorous with a dash of, you know, sympathy for them too but all they do is trade TQQ and SQQ and they have absolutely no idea what they’re doing. Absolute crazy awful at what they’re doing. I read people trying to read the stars and the type of moon that we’re having and they’re basing their trades off of that. You got other people calling it out to the universe, whatever the heck that means. You get people going off of gut feelings and they’re blowing up their accounts all the time because they’re looking for the action, man.

12:03
If you just want action, go to Vegas. Probably have better odds. Now, I’m not saying that I’m never going to do ETFs ever again, but the stop-loss, the risk management has to be impeccable on it. It has to be a can’t-miss setup for me to get long on those inverse ETFs.

12:19
And I get it man, the rush on inverse ETFs is amazing. You get the NASDAQ to go down 0.33% and you’re already up 1% on your SQQ position, man. You get a day where the NASDAQ limits down, we’re down 7%, you’re up 21%. And the NASDAQ, shorting the NASDAQ, will seem much more boring in comparison because you’ll only be up 7%, right?

12:43
Still pretty darn good but how many of those opportunities were squandered because you got stopped out too early and you didn’t get to seize the opportunity on that 21%, or how many times were you stopped out before you actually got into the trade and made that 21%? That’s the bigger question. With the Qs and with the one-to-one inverse ETFs, I’m able to stay in the trade longer, I’m able to put better stop losses into play. And I can’t do that as well with inverse ETFs.

13:13
You really want to find a challenging chart to find a good stop loss? Do the 3 to 1 inverse ETFs. Rarely have I played them this year and they’re very, very difficult to take advantage of because the stop losses are not going to be as good. Because a 3% move against you on the NASDAQ let’s say you’re in SQQ, you’re short 3 to 1 of the NASDAQ-100 and the NASDAQ goes up 1%, you’re already down 3%. If it goes up 3%, you’re already down 9%. You’re probably getting out of that position well before then, but if you were just short the Qs, you may not even be stopped out yet because you have your stop loss at minus 5% and it’s only gone 3% against you. See the difference there?

13:54
So you take this 7, 8, 9% stop-loss hit on the SQQ and then you see it reverse and the market starts to go down again. The person in the Qs was never stopped out but the person in SQQ was stopped out. And the person in Qs with the one-to-one leverage is actually making money now. SQQ guy he’s either having to get back in, make up for that loss at a much more unfavorable entry price or he’s just watching on the sidelines saying that the market’s rigged, hating the market, saying that it’s the market maker’s fault or the boogeyman or whatever.

14:19
Now look, the emotions are far greater in the leveraged ETFs. Why do we want to introduce that if we can avoid it somehow? And I know the whole comeback to all this is, you can make so much more money. I got a small account and you can make so much more money trading the leveraged ETFs.

14:34
Yes. You can. But you may not stay around in the game long enough to see that. And we have to be managers of risk before we start worrying about the profits. If I make 7% on a trade, that’s great. Especially if I can avoid some unnecessary losses along the way. But what good is it if I take three or four losses on the ultras and then come back with a 21% profit thereafter? I might not even be in the green yet at that point.

14:57
Remember, trading is an accumulation of a lot of good trades. What you don’t want is to have one bad trade that completely takes you out of the picture. Every successful trader did not become successful because of one trade. Successful traders are good because of a bunch of small trades and a ton of winning trades that were executed well while keeping risk in mind.

15:17
Now I’d be remiss if I didn’t say this check out swingtradingthestockmarket.com. 300 episodes and you guys have supported this podcast incredibly well. I would ask you to check out swingtradingthestockmarket.com and get all my stock market research. That includes multiple videos each day. That’s going to include plenty of charts. You’re going to love it. And it supports this podcast.

15:33
Also, make sure to leave a five star review. Those things mean the world to me. I read them all. And keep sending me your questions ryan@shareplanner.com. Thank you guys. And God bless.

15:53
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16:11
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. Do you have any questions? Please feel free to email me at ryan@shareplanner.com. All the best to you and I look forward to chatting with you soon.