Choppy Sideways Trading | Podcast Episode #320

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.

0:35
And today’s question, today’s email comes from the other side of the pond which I’m always excited about. I love getting the international questions as much as the domestic questions. And today this one comes from the land of England and we’re going to call him Rupert. Because Rupert is one of the most English sounding names that I can possibly come up with Rupert rights.

0:56
Hey Ryan, longtime subscriber to the podcast and to the trading block as well. Really appreciate all the games. You’ve helped me achieve, especially the profitable year I had in 2012. Me too which seems to be unheard of in the investing world. I’m learning. However, since late December, I have probably had the worst run of my entire trading career.

1:13
The good news is with good risk management. My account is barely down. The only thing I’ve struggled with is the choppy nature of the market. Before it finally, chooses a direction, I always have a book on investing or trading on the go. Currently I’m reading the swing trading Bible, which mentions short-term envelopes, giving a stock 5 to 15% of wiggle room on the 21-day.

1:35
Potential moving average basically shorted at the top of the channel, go along when it drops to the bottom of it, with the stop, just outside the range. Having looked at some of the less volatile stocks, maybe like J&J McDonald’s J&J is also Johnson & Johnson, for those who didn’t know KO, which is Coca-Cola.

1:53
The big Powerhouse dividend stocks that is they seem to fit in the range. Is this a method that you’ve implemented in your trading before? And if not, why is this a very risky form of trading? Thank you. For all of your education and support your friend Rupert.

2:10
All right, Rupert, that was a good email because right now we’re in a very choppy market and I’ve actually detailed some of my frustrations with this Market. It is definitely an absolutely not been the easiest of conditions to have to trade because every day you have what seems to be like a market reversal.

2:28
Yes, you had a pretty epic. Run in January, it lasted into much of February. And then it faded at the very end of only for February way to finish in the red for the month while January finished higher on the month. Now we’re in the month of March markets, trying to take back off again, off of the 200-day moving average on spy off of the 200 on the cues and everybody’s feeling bullish again.

2:48
And then we get the jpowel testimony before Congress and it stinks the market. So there’s a lot of back and forth a lot of choppiness and it seems like most of the moves that we get out of this Market, they only last, like two or three days at the most. And so it’s really frustrating. It’s frustrating from alongside, it’s frustrating from a Courtside.

3:06
So in this podcast, what I want to do is just talk about some of the strategies in the approaches to trading, I’ve used all throughout 2022, is shorting that less is more. I also think probably even more. So during a choppy Market, less is more choppy markets are by far the most difficult of markets to trade their hard for me.

3:26
And they’re hard for most Traders because when you’re trading breakouts, and when you’re trading patterns, that show a strong base and then the stock breaks out to the upside, it’s very difficult to have evidence in those patterns that they will last for any length of time. We can look at the invidious and the Tesla and put will look at those stocks those things rallied like 100%.

3:43
Why not just trade those but that’s looking in hindsight. A lot of your stocks don’t do that. A lot of your stocks have been trading sideways, and if you look at the market going back to May of last year, we’re in March of 2023, you go back to May of 2022. And the reason why also lay out the specifics of the date that we’re in, if you’re listening to the most recent podcast episode in, this is the one you already know that it’s more.

4:05
But the people listening five ten years into the future. I like to be very specific about the days. So any case where a March 23 right now, going all the way back to May of 2022, spy in the queues of really unchanged. So you’re looking at 10 months of price action, where stocks have really gone nowhere.

4:22
So it is a choppy Market. It’s a very difficult Market but had we known that for the last ten months we were in a choppy sideways Market. No. Because when you’re editing the very beginning you don’t know even halfway through it or in the middle of the range you do. Don’t always know that you’re in it in October, which would have been five months into it halfway through.

4:40
We were actually hitting new lows in the market, but when you look at it back in hindsight, we were essentially just trading in a sideways range. We were breaking a little bit below the June lows and then we pop back up. And then we rallied back to where we were at from last May, and so, in hindsight, yes, it looks very choppy and it looks very obvious. But in October, was it, obvious?

4:57
And it wasn’t obvious in December, which was only two and a half months ago. No, and December. We’re actually having one of the worst months of the trading And Then followed by January, which was one of the best January’s of all time. And then February looked like it was going to take off but then it faded at the very end. So often times the reality of being in a choppy Market is seen best in hindsight.

5:17
But one of the things that we have to do as Traders is that when the trades are not working, when the trades are struggling to really produce substantial gains is for us to recognize that. And to start trading less, not to trade more, for instance, much of 2022.

5:34
I was trading a lot of Your inverse ETFs that were like two to one. Three, two, one at. No problem, do it mostly to do one, but there was a few times where there’s three, two, one. Now, it’s all one to one. Why is? Because in a very choppy Market, those two to one in three, two, one leveraged ETFs will really mess you up.

5:49
They will get you stopped out really fast and so with the one-to-ones, what I’m essentially trying to do is avoid a lot of that turning, that takes place in the portfolio. A lot of that back and forth gyrations were if you’re Trading.

6:05
S QQ + TQ q and the NASDAQ rallies, 2% your down, 6% on your sqq, long position, and then you’re out and that can happen within one day. Whereas, if you have a four percent stop loss on PS Q, which is a 1, 1 inverse, ETF of the cues, you may be able to stay in the trade for longer and if you do get stopped out, you’re not getting stopped out as big of a loss.

6:28
You don’t have to have as big of a stop loss. So you have time on your side to see if that trade is going to work out and you also have The benefit of a tighter stop loss while because you’re not choosing to go to three, two, one route and I get that. This is not popular. I see Facebook groups where people are in these 3, 2, 1 inverse ETF and they trade like maniacs and then they do like options on these things which is even crazier.

6:51
It’s like they’re doing leverage on Leverage so in a choppy Market, really? For me the best way to not get turned up to not get stuck in a major draw down, because that’s what a lot of people are doing right now. Probably bigger, draw Downs right now, then a lot of people experience In the first five months of 2022 or even through October of 2022.

7:09
Because when you start getting this back and forth in this choppy price action, it’s only getting choppier right now. It’s easy to create massive draw Downs, because you’re getting long, you’re getting stopped out there. You’re getting short, you’re getting stopped out there. Yes, I’ve been stopped out plenty of times this year, but my treating has been fewer than even last year.

7:25
And last year, my trades last longer in the games were pretty sizable, but I didn’t trade as much. I’ll let the volatility of the markets. Do a lot of my work for me. Do a lot of the heavy lifting this year. The volatility is down the markets, not really showing clear direction for the past 10 months.

7:41
And so, and in particular over the last two months has been extremely choppy. So I’m letting the one-to-one inverse ETF. Keep me from getting constantly stopped out of positions taken on too many trades and over trading my account and taking on too many losses.

8:00
If and for those who don’t know, 3 2 1, inverse ETFs, in order to be able to give you two to one and Real one every single day they have to reset each and every day that stocked reset. So that it can provide you with the three, two, one, or the two to one.

8:19
Now, I can get into a little bit more, the numbers behind it, but it’s not an easy thing to explain on a podcast. So I would probably just tell you to Google it because there’s a lot better articles that are probably explain a whole lot better than me, but they have to reset it every day, which creates a form of time Decay on these inverse ETFs, that are leveraged.

8:38
And so, not only are they getting chopped up and getting taken out of these Markets, if they’re staying in them for any long time, let’s say they’re not using stop losses at all. Then they’re getting reset every single day to worry. Even if the market does go in the direction that you need with your inverse ETFs, it’s going to still require so much more of a move than what you originally needed just to be able to make up for all the resets that took place while you were holding that stop and it resets every single day.

8:57
One of the reasons why I trade predominantly the one-to-ones now because I’m not having to deal with that time to Decay. Like what they’re dealing with one of the Questions that Rupert asked about his trading in these ranges. He talked about this book on investing that he’s reading the swing trading Bible. I’ve heard of it. I’ve never want to say, I might have read it, I don’t know but it mentioned in short-term envelopes.

9:16
Giving 5 to 15% will room on a 21-day EMA. So essentially what he’s using his bands, right bands? Like people talk about him as Bollinger Bands, price bands, there’s all different forms of them. And so when it starts, you’re essentially fading music fading extremes and it can work as long as we stay in the pattern, but you don’t know how long we’re going to be staying in this choppy.

9:35
Sideways pattern so stocks like McDonald’s MCD it is had a sideways Channel essentially between 260 and 280 to where you could fade a lot of those moves when it gets to 260 or when it gets to 280, you fade them.

9:51
And then you take something like Johnson & Johnson J&J going back to 2021 is essentially traded, you know, in the 150s all the way up to the 1880s. And it’s been a good fading opportunity on both ends, but when they actually start to break, Down below that channel, you got to have a stoploss there, to make sure that you get out, because the fading only works as long as it works essentially because eventually there will probably be a breakout or a breakdown.

10:16
And you don’t want to be holding to where you’re given up all the games that you might have made, while it was trading in that channel. But the problem is, is you take, for instance J&J. It’s traded in the mid 150s, all the way up to mid-180s going back to 2021. If you were to fade it, you had probably, I don’t know, probably about three opportunities, where you could have made some decent coins, shorting it off of 180s.

10:35
And then buying it, you could have probably made about 124 three or four opportunities there but you need all those data points in order to know that there’s actually a channel to trade because if you had done it on the first dip down to 157 or 156 and you bought the dip, you are really just catching a falling knife at that point because there wasn’t really a range back in 2021 that was well established.

10:58
Now that it’s well-established, sometimes it can become almost too obvious and then that’s where the breakdown starts to happen or the Market conditions that allowed for it to trade in a sideways range for such a long period of time eventually changes.

11:18
And so when you start to notice it on the charts, this sideways range with all these different data points and it looks Crystal Clear. Then at some point, the market conditions do change, maybe the FED starts, I can rates are cutting rate or maybe Congress defaults on the debt ceiling. And you get this huge Dynamic shift in the market or going back to 2020. You had the covid pandemic and that shut down the entire Economy.

11:35
So you can have these new variables that come in that rendered these channels useless but one of the things I would probably say too is that I think it’s hard to play breakouts in channels at the same time, I think, oftentimes at least maybe for me. I’m one of those people that not the best multitasker.

11:52
I can do one thing really good, but I can’t really do a couple of things. Now, my wife, this woman does more than I could ever imagine doing in a single day. Before I even wake up on a Saturday morning, she’s amazing. Like she I watch her like she comes. From work and she cooks the whole family, a meal and she’s cooking family meal and she’s talking to her grandma on the phone and somehow she’s like, mopping the floors while I’m just trying to figure out how to work the espresso machine.

12:16
Actually, she makes me espressos too I should, I can’t take credit for that, but I actually did try to do it the other day and it was like being was practically going to blow up on me when I try to make it for myself but neither say she’s a wonderful person. Wonderful wife. I love her to death but she’s a great multitasker.

12:32
If I could do what she’s able to do in terms. Of juggling so many projects and so many things, I mean I see her at work. She’s got these planners and she can meet with people and she can answer emails and she can text people all at the same time.

12:47
If I tried to do that. Nothing would get done at all. I can’t multitask. I’d really just can’t so I may be speaking from personal experience when I think that it’s difficult to be okay, I’m going to trade sideways in a mark but I’m also going to be a person who’s trading breakouts and bull flag pattern.

13:05
Checkouts and Head and Shoulder breakdowns. It’s possible, but I think it’s difficult. One of the things that I try to do if I’m going to do that. As I have separate accounts for me, for instance, I have a long-term account. I have a dividend account. I’d like to split those things up because I don’t want all those things in my portfolio at once because then it starts to mess with you.

13:24
In terms of managing risk, trying to allocate position sizes and everything else because you got too many objectives competing at the in the same account. So for me, if I was to trade channels and I was A trade break outside, have to have them broken up into two separate accounts. I just would it, maybe that’s not for everybody but I think for me I would have that objective.

13:43
Okay, this is a sideways trading account, this is a breakout account. Sounds kind of crazy but I think that’s how I’d have to do it. And one thing that I would definitely encourage you guys to also do is check out swingtradingthestockmarket.com. You knew I was going to put this plug-in there but you got to check it out.

13:59
It’s all my stock market research each and every day with it, you’re going to get all of my Daily watch this my master updated bullish and bearish watch list that I do each week. Plus you’re going to get Tech updates. You’re going to get Market updates and the cool thing about it is is that most of it’s in video format.

14:17
So you’re getting videos really good videos that are going to be detailing different trade ideas and my watch list and everything, really cool stuff. So I highly encourage you guys to check it out in the process, you’re supporting this channel. So just go to swingtradingthestockmarket.com for that. Now, the summarize everything we’ve talked about because I think we talked about it a lot.

14:35
Not chubby markets are very difficult. I remember 2015, being a very, very difficult Market. It was predominantly sideways and I think at the end of the year, it finished slightly lower overall. But I remember that was a hard Market. It was exhausting because you just couldn’t get conviction to stick one direction or the other.

14:50
And so, one of the things I wish I would probably done more back. Then, that I’m doing now is to have traded less. Like one of the things I think is helping me out through some of these, this difficult trading moments here is the fact that I am trading list. I’m not, you know, going all on red or all.

15:07
Black. I’m essentially staying predominantly in cash until I can get some kind of momentum to sustain in One Direction and a lot of times like for instance rooper he talked about J&J and McDonald’s and Coke stock symbol K 0, being good sideways trading channels and they are I’d also throw in an ee.

15:23
I mean it tends to bounce off of that 70 level quite a bit until it doesn’t of course and they also have some dividends like I think Coke has a good dividend and eee maybe not as good as it used to be used to be like 45 percent. You could always Get off of it, it’s gone up so much over the years. That doesn’t really have the dividend keeping up with the share price, but there’s a lot of good dividend plays out there.

15:43
And you know, some of those big time, staple plays like McDonald’s on like J&J or Kraft Heinz which is khc. They offer good dividends and they offer low volatility and or beta if you want to call it. And let’s remember too that a lot of people are getting their heads handed to them trading the 321 inverse ETFs, both long and short because if you get But on the wrong side of, it can be devastating to the account.

16:08
If you’re doing sqq and it and NASDAQ trolleys, 3% your down 9%. And then the next day it might drop 3%. And then you could have made it all back up. But in the meantime it’s resetting every day. So it’s actually difficult to hold for a long period of time. And if you’re not using stop losses and you find yourself bag holding one of these inverse ETFs man, long term.

16:28
It can be really devastating to your account if you don’t believe me, look at sqq over the years and what the share price is done. I mean the The reset is brutal on those in both directions. So be careful, if you enjoyed this podcast, I would encourage you to leave me a five star review.

16:44
I need those, I really appreciate those, so many of you have done it for me, over the years. And if you haven’t yet, just take five minutes out of your day and do it for me. How it would mean a great deal to me and make sure to send me your questions? ryan@shareplanner.com, I read them. I put them on the are kind of low these days.

16:59
I’m not getting as many as I would have liked. I think sometimes people think oh he won’t he won’t put it on the air. I put I would At least 95% of money or if I haven’t put yours on it are send it back to me again and maybe I just overlooked it. That’s possible too. I’m not a good multitasker, remember so it’s chance I might have been reading yours while trying to place a trade or something and I completely blew it forgot to put it on the podcast.

17:20
So send it back to me. If I have not made an episode out of it yet, as always, check out, swingtradingthestockmarket.com. Thank you guys. And God bless.

17:35
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17:53
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18:12
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