Conflicting Trade Signals | Podcast Episode #317

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.

0:31
Mallory with swing trading the stock market, and today, we’re going to be talking talking about conflicting trade signals for this podcast episode. I’m going to call the emailer Bristol because he’s from the UK, actually Bristol itself. So why not just call them Bristol?

0:47
And I do that just to hide the identities of the people said, they can be open and honest about their emails without divulging their identity. He writes. Hey Ryan, I’ve been learning swing trading for about a year or so. So, unfortunately, I have never really been able to look at many charts when the market is rallying for longer than a few days.

1:04
Can you please do it? Cast episode on entry points and a rallying Market recently. There has been quite a decent rally for a lot of stocks and I looked at your Twitter post on epd today in the potential break out. And for those wondering when I posted that chart on epd was back on January 23rd, so less than a month ago, but not too much more than that.

1:24
When I looked at it on my charts to see if it fit my current strategy for a trade, I saw that the RSI and macd. Give strong overbought price signals, but also saw that the chart was showing a potential Break out and trade against trend lines. It also seems that in an uptrending bullish market.

1:40
After a sharper long-term pullback stocks will very often show overbought signal. So how do you weigh these against the chart signals and confidently? Pick the ones that will truly break out and the ones where the RSI and macd will be correct and indicating an imminent pullback and which levels of resistance should I pick as my breakout level?

1:59
When so many stocks have so many different levels of resistance due to the volatility of the last 12 months, love that podcast. And thanks for your help in advance sincerely Bristol. Now, Bristol, that’s a good email, man. I’ve got a lot to unpack on this one because I’ve jotted down a lot of notes and I think it’s really worth digging into a lot of what he said here.

2:20
Really good points. Really good questions. But first, what am I drinking? I don’t even know how you say this stuff. It’s called brooch ladach, it’s a classic laddie. Scottish barley, single malt scotch whiskey. I don’t do too much of scotches, but hey, Feeling adventurous today.

2:35
So this stuff is actually 100 proof that makes it 50% alcohol. And throughout the show, I’ll be drinking it. And at the very end, give you my thoughts on the whiskey itself. Hopefully not forgetting to actually give you my thoughts before I hit the stop record button. So, for new Traders, if you started trading over the past year, you’ve really stumbled upon some tumultuous times and I think you’re better off having experienced it, because so many of the traders that didn’t start in 2022 and instead started in 2012, T or 2021.

3:05
When the meme stocks phenomenon was very big and very exciting. For a lot of people, they weren’t taught risk. They weren’t taught a lot about the downside that comes with stocks and they had to learn the hard way and even if they were able to make money in 2020 and 2021, they paid their taxes or they actually had a tax bill.

3:22
And then in 2022, they spent all their tax money on trying to buy the dip in a market that just kept dipping. So there was a lot of lessons because there is a lot of blown out. From that era where 2022 brought everybody back to reality.

3:38
So if you started in 2022 you probably saved yourself. A lot of future headaches and frustrations by really getting a good understanding of the fact that yes, the markets do go up over time. But there’s also some very nasty pullbacks in the short term and we got that in 2022.

3:54
And for those who started trading before that, they ran smack-dab into it like they’re in a high-speed car accident and ejected from their back, pocket was all of their Capital that they lost along the way during their journey through 2020 and 2021.

4:09
So for Bissell sake, I’m glad that he didn’t start trading during the meme stonke era and actually started trading during 2022. I feel like a lot of my trading experience has come from these moments in the stock market, whether it’s 22 or whether his 08, whether it’s 2020, when you had the initial covid, sell off, or whether it was the.com below up, whether it was the government shutdowns, and 2011.

4:33
I mean, you just There’s been a lot of different market pullbacks and I’ve learned a lot from those over the years in some ways it I think it tends to make you a little bit more skeptical bull market rallies and we’ll talk about that a little bit here in the podcast episode. But overall, if you were to start, it’s probably better to start in a bear Market because you give you better realization understanding and expectations for the market going forward.

4:55
But as a result of Bristol here, only trading within the past year, in his mind, there’s there’s a shorter timeframe to stocks. I mean, he tries to play a take out. It may only last three or four days and even at the market rally lasts for a month, it may have taken most of that month just to form a good base to be able to trade off of.

5:12
And so, for Bristol’s, sake, and his situation, he’s been operating from a standpoint of these bull market breakouts. They don’t last very long. I got to be quick and fast with pulling the trigger on the prophets, and that’s also even with to the short side.

5:27
I mean, I think, you know, shorting the stock market often times, you got to be pretty quick with the prophets as they come. I mean, you can’t sit on them for like, In three months, you know, it’s not a long-term trade. So oftentimes, your short trades will last a couple weeks to a month and having been a traitor, just over the past year, there’s going to be a lot of distrust for Bristol and is trading.

5:47
He’s going to be a little bit more, skeptical breakouts because he’s seen so many of them fail over his tenure, as a Trader. But one of the main questions for his email that he sent me was, can you please do a podcast episode on entry points in a rallying Market? Well, entry points need to be as close to the breakout level as possible.

6:04
Table and the SharePlanner trading block. I call these entry points. Trigger Price is Right, This is where I would be triggered to get into the trade where that price is triggered. It and usually that says, right at that breakout level, now we also want to make sure that we’re not chasing a stock that we don’t see.

6:20
It’s rallied 15-20 percent. Like, a lot of people are doing right now with AI or with Bed Bath & Beyond over the past year, or a lot of the other meme stomp crazy stuff going on. We don’t want to chase things way after the fact. But to Certain degree.

6:33
If you don’t get right in at that breakout level, there’s a certain degree of chasing even in my own trading, there’s certain degree of chasing that’s going on there.

6:41
What I don’t do is, I don’t chase after stocks that are Way Beyond the fact, way up there in price like 10, 15 percent or even 5% impressive won’t chase after it. But what I want to make sure is that if I’m going to get in above that trigger price, I want to make sure that the reward to risk ratio still good.

6:57
So, you know, for me, my reward to risk ratio needs to be at least two to one and I don’t like the risk. More than three to five percent on a trade. So if the stock is broken out and it’s just in the early stages, but it’s already moved a little bit beyond the breakout level, well, I still get into it.

7:14
If the reward to risk ratios right in my stop loss placement is still something that I’m comfortable with. Absolutely. Absolutely. But the key is going to be making sure that you’re getting into the trades with a good risk, reward ratio and a good stop loss placement and with swingtradingthestockmarket.com.

7:29
And yes, this is a plug-in right here with swingtradingthestockmarket.com. I actually do that all day long on, providing all sorts of different watch lists, you know, weekly wash with daily watchlist. I’m also providing big Tech updates and updates on the market as a whole, so you can get all that information just by going over to swingtradingthestockmarket.com, which is the website for this podcast and you can support the podcast and sign up for that in the process.

7:52
So check that out. And that’s the end of my plug-in for that. So what if the stock breaks out the entry price in this, you know, strong bull market rally is Way Beyond the Realms of a quality risk reward. Good stop loss placement. What do you do?

8:10
Tease, you just justify it in jump in there afterwards, like, all of the other main stock Traders do. Absolutely not. That’s really the way that you lose tons of money in the stock market, you want to lose a little bit. Don’t go chasing after stocks of crazy risk rewards and horrible.

8:24
Stop boss, placements, but if you feel like you missed the boat on the stock, that’s okay. Oftentimes. They’re secondary setups you that you can take advantage of and by secondary you know you make that I would consider like a primary like a really nice base that is formed it breaks out of the base Maybe.

8:33
It goes up, 10% and then okay, it can’t go on forever. It’s going to consolidate some and then that consolidation might lead to a new trade setup. That offers a good reward, risk ratio, plus a good stop loss placement and that could come in the form of a pullback to the trendline.

8:57
You can play that as a entry price into it because usually, you can play those bounces and then Stop. All right below. That key support level and then there’s also candle patterns to that can develop like bull flag. Patterns, are a notorious one where you have a straight-up parabolic price move and then you have this sideways to slightly lower, pull back.

9:18
That looks like a flag of basically, on a flagpole that would be another secondary trade setup for a stock that is already made a decent run. And then you, of course you have wedges and you have triangles. I mean I could go on and on and on there’s tons on, there’s Candlestick patterns there’s a lot of Current things that you can capitalize on.

9:35
So, if you missed the initial move, it’s not worth just going and chasing after, especially, when there’s a horrible, horrible, stop loss placement and risk reward ratio to it. And let’s be honest, why are we chasing after these stock that are already in the middle of a huge run? Probably already close to peaking and we all of a sudden want to get into it with no regard for risk.

9:55
Why are we doing it? I like to call it the Woulda Shoulda trade. I should have gotten into it. I could have gone into it. Whatever. The reason why you didn’t get into it, who cares? That’s in the past. You can’t do nothing about that. You got to focus on the future, you got to focus on the next trade, but a lot of times we base the missed opportunities in the past on why we’re going to trade the stock in the future or in the present.

10:14
And as a result, we make a horrible trading decision because we’re basing it off of the Woulda Shoulda couldas. In the Woulda Shoulda Coulda trades are always going to end. Well, I shouldn’t say always, but because there’s always exceptions to it, but most of the time, the would have should have, could have trades are going to end very badly for Traders.

10:30
Especially the more inexperienced that you are as a Trader. Now, we’re talking about this epd trade from January, 23rd. You had this nice layer of resistance that have formed, and it broke out, and it broke out and rally for about five days. And then I had a nasty pullback.

10:45
And so, to Bristol’s comments earlier in the email yet, there is a lot of Trades that are only lasting like a few days in this market, that particular setup took about from September to October to November to December, to January, to be able to form.

10:57
It was a double bottom breakout, only last like, five days, pulled back, went below, the support level, and then it went on this crazy tear. At the end of January to mid-February, going from 25 to 27 s before a pulled back again.

11:10
Now, you don’t need to pull up the chart to hear all that. I’m just kind of giving you a general background without having to make you pull up a chart to understand what I’m talking about. Essentially it broke out of a double bottom formation after forming a double top over the past four or five months broke out lasted for about 5 days, pulled back and then one on like a two or three-week tear and then pull back again.

11:29
So in essence, it’s been very choppy since broke out. But now when he was looking at the chart, he was seeing that the RSI and the Macd was showing that it was overbought and that is true.

11:36
The stochastic showed that it was overbought but if you look at it I mean it had been over bought for over a month. If you look at the market run that we have been on since the beginning of January, it is just now coming off of overbought conditions and that lasted for over a month, almost a month and a half. And in some ways it’s still over body even though it’s pulled back over the last three days.

11:54
So RS, I am acting, they can give you overbought signals, but that doesn’t necessarily mean that it’s going to pull back, right? Then. And there macd doesn’t mean that, When it’s over, bought that it’s pulling back right here. And now nor does it mean the same thing on the relative strength indicator.

12:10
I think a lot of people use RSI and they use macd, and they feel comfortable with it. It’s one of the most popular indicators, those two, most people have both of them on their charts. I don’t have either of them on my charts, I don’t use them. And the reason why is because I think for one it’s an oversaturated indicator.

12:24
I think a lot of people use it. I want to focus more on price and volume, and price, and volume alone, RSI, a macd, they’re all derivatives of price and volume.

12:30
So why not just be good at price and volume right? So I Look for consolidation, I look for in particular breakouts, right? When stocks are shooting higher and they’re getting ready to break through a major resistance level, I won’t play them if they like made like a 15 or 20% run in the past week or two because yeah they’re over by.

12:47
You can tell that by the I don’t even need macd or a sight to see that you can just see it from the price it’s run up like crazy a good example of that was Nvidia man guys it had this incredible inverse Head and Shoulders pattern going all the way back to June of last year.

13:02
Beautifully formed I mentioned it multiple times. Like this thing’s on the verge of Forming a really nice inverse Head and Shoulders pattern. The problem with it is that it went from 142 neckline where that’s basically where the pattern confirms were triggers. To 185 non-stop 142. 185 talking like a 32% move.

13:20
And a matter of two weeks. Am I going to chase after that? Heck, no. I did it. Now, it broke out and to my surprise and probably just some others. It went from 185 up to 230. Now, what does that tell you? Their does that mean that?

13:36
Alice is always perfect. No. But it’s a guideline because I could tell you, as many times as I’ve seen a stock like Nvidia where it goes from 140 to 180, 5, confirm and then break higher and go from 185 to 230.

13:44
I’ve seen probably three or four times as many struggle to hold that breakout level, because it’s already exhausted when it breaks out. And instead it pulls back and creates a nasty head fake, which traps a lot of Traders. That’s why I didn’t do it.

13:58
And so it goes back to like the RSI and macd. You can have certain signals on there and you can see that it’s over but doesn’t mean that it can’t stay over by The case of Nvidia is stayed over bought for a solid month.

14:07
I mean it was almost hitting 100 on stochastics and that’s why it’s so important to not get over inundated. And in this is a big new be problem is to get over on inundated. I can’t say that word over maybe. I don’t even use the word over it to get inundated with too many charts.

14:23
I’m trying to like Wordsmith myself here as I’m doing this podcast. You don’t want to get inundated with too many indicators on your charts. My gosh, I need to go back to English class because too many indicators will often lead to analysis proud.

14:36
Moses, that’s where you have just too much information being thrown at you. That’s one of the reasons why I turn off CNBC why don’t look at a lot of commentators during the day because I want to be able to make decisions based off of what I’m seeing on the charge.

14:43
Not necessarily what I’m hearing or what I’m thinking, I want to just see it. And so with RSI macd, it’s not that you can’t trade with those, but you got to have perspective on them. The moment that they become overbought, doesn’t mean that the stock is going to come right back down again.

15:00
It can stay at those levels for a very, very long period of time. What we want to do is Traders is make sure that there’s a good risk scenario for us. At long on if that’s what were wanting to do there whether or not the stop loss is something that is within our personal tolerance and go from there.

15:15
You want to remember to with the kind of Market that we were in with 2022. When you get these dead cat bounces off of the lows, you get some extreme moves over just a short couple of days and just within those time periods you can get almost instantly overbought within a week’s time.

15:24
You can spend almost the entire year and oversold territory, but then you get that dead cat bounce and it can be a solid move. Like when you hit the bottom, usually you see some of your biggest moves.

15:33
And those can be like within a matter of a week you can see a 10% move in the market. And what is that going to do is probably going to put you in overbought territory but those moves can last for a very long time don’t believe me.

15:42
Just go look at the lows from the covid 2020 era. Dudes were some crazy moves and we’ve seen some crazy moves of late here to where the NASDAQ seems to go up two percent every day and it doesn’t ever have a pullback until just the last week or so.

15:54
So, dead cat bounce is, can quickly get you to where it looks like? You can’t trade anything because everything’s already made these major moves, and if it’s in a such a scenario, where the moves are so great, that You can’t find a good risk reward and a good stop loss placement, then wait for that, secondary set up to get long.

16:09
Now finally, I’ll wrap it up with this Bristol talks about getting into trades and, which resistance level should he play the breakout in? Because there’s all these multiple layers of resistance. I’ll tell you this. If you’re trading a stock with a lot of levels of resistance overhead, that means that you have a very poor Target price.

16:25
Usually, I don’t mind, they’re being resistance overhead. But if I’m getting into a stock stock, ABC at $100, and I’m using a ninety five dollar stop loss. I really don’t want to see any resistance until I get up to 110 because that’s about a two to one ratio right there.

16:38
But if I see resistance at 102 and 103 and 104 and 105, I’m going to be like, you know, I’m passing on this. There’s too many layers of resistance overhead. That’s going to stall the stock out more than likely.

16:50
And so I want to go where there’s not a lot of resistance overhead where there’s a lot of opportunity for the stock to make a run without running into any heavy resistance. That’s how I come up with my target prices.

17:02
So now that I’m done with the podcast, let’s talk about this whiskey that I’ve enjoyed during the show again, I don’t know how to say this. It’s Brew which ladach Classic laddie, Scottish barley, strong proof, you definitely taste the spiciness in the drink, from the high proof, but what the one thing you taste right out of the gate, is apple juice.

17:18
And I don’t know. Apple juice, always takes me back to, like, childhood. When I’m drinking apple juice from like a sippy cup. I’m 42 years old. That hasn’t happened in a long time, but it kind of gives you that nostalgic taste without the alcohol. Obviously, back then a bit of saltiness to it.

17:32
So, some flavors that I haven’t picked up in a lot of my Bourbons that I’m picking up here. One is the apple juice once the saltiness and the one. That’s Crossover from the bourbon is the vanilla taste, a lot of that but overall, it’s not bad.

17:44
I mean maybe Scotch is growing on me and I just don’t even realize it but it’s not bad. It’s got a very ugly color to it though. It’s like toilet bowl P. Color. It doesn’t look good but maybe that’s why it’s got that apple juice tastes right scale of 0 to 10.

17:56
I’m inclined to give this like 70, I guess in the day Portnoy world. That’s a rookie score but I can’t go any higher and I can’t go. Any lower 7.0 is the score for that.

18:07
So if you enjoyed this podcast, Make sure to leave me a five star review. I really need those guys. Those really do mean the world to me and it helps me to continue to grow the audience and get people to listen to this podcast and make sure to send me your emails ryan@shareplanner.com as well as sign-up for swingtradingthestockmarket.com.

18:18
But if nothing else, send me your emails, let me know your story. Let me know what you’re dealing with. Let me know your frustrations in your questions. I want to hear about. I want to do an episode, so send it to ryan@shareplanner.com.

18:28
Sign up for swingtradingthestockmarket.com, and get all my stock market. Research. Thank you guys. God bless.

18:33
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18:53
So go ahead sign up by going to shareplanner.com trading block, that’s www.shareplanner.com/trading-block and follow me on SharePlanners. 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 chatting with you soon.