Considering Opportunity Cost | Podcast Episode #328

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.

0:32
Mallory, with Swing Trading the Stock Market is today’s episode? We’re going to talk about opportunity costs versus stop-loss mainly with the emphasis be in on opportunity cost. Now I’ve done a lot of episodes of late on stop losses, and why is that? Well, you guys keep asking me questions about it and I think it’s a very important topic.

0:49
And I think one of the things that I gleaned from, a lot of your emails is, that’s an area that a lot of you all struggle with this, just having that trust having that faith in the stop loss. And you guys keep giving me Front spins and twists on the stop loss.

1:04
That makes me have to address that topic in a little bit more of a detail. And there’s been times to where you guys bring up, something about stop losses that I’ve never thought about before. And it’s very helpful for me to give more thought to have a lot of your questions that you guys are posing to me.

1:20
So today’s episode is going to come from a guy we’re going to calmly that’s the name he asked because he’s from Old North Carolina and that’s a good North Carolina Backwoods name there solely rights. Hey Ryan. Which loses opportunity cost or stop loss. Okay.

1:35
So that’s the question opportunity cost or stop-loss. He goes on to write about a specific situation. He is and he says I’m in a position right now that has been trending sideways for weeks. I hate to say it but I went with Kathy woods again and it’s a rkw that I’m in about around 52 dollars a share on what I saw to be a breakout of a descending trend line on volume.

1:56
And then placed a stop loss under clear resistance at 48. Problem is it’s been about two weeks and it’s still floating between my by price and my stop loss. So my question is to you, which loses the stop loss or the opportunity cost. Do I forget the stop loss and move on to something more promising, even with the potential of three, two, one, or do I neglect the opportunity cost and see what happens next.

2:20
Thanks in advance and I’d love to be called leave. This makes it on the air, I’m from North Carolina and it’s a pretty good North Carolina Backwoods name for me. Cheers Lee man. Why you got to be doing that, man? Busting on people. With namely, my dad’s middle name is Ali. Khan him a backwoods redneck.

2:37
Nah, I’m kidding with you. So, good question, I’ve talked a little bit about opportunity cost in past episodes, maybe like one or two out of three hundred plus episodes nonetheless. I probably haven’t spent enough time talking about opportunity cost because it’s a very important thing and really something that most Traders won’t even think about About an opportunity cost goes back to basic economics.

3:01
I studied economics in college, and I remember that was the first thing that we had to learn. I was like what the heck is opportunity cost in was on the first test that I took in economics and opportunity cost for those who don’t know, is essentially the next best thing that you could be doing. So if you trade ABC, what’s the next best stock that you could have been trading, that’s your opportunity cost.

3:21
That’s the trade that you’re not in. If you’re mowing the grass, what’s the opportunity cost for mowing the grass? It might be sitting on the couch. Watching some NFL football on a Sunday afternoon, that’s the opportunity cost. That was the next best thing. So whenever you’re doing something whenever you’re taking an action, there’s an opportunity cost to it, whether it’s in life, whether it’s in the stock market, there’s opportunity cost everywhere.

3:45
You look with every action you take, There’s an opportunity cost, I think I got that. Clear right? Pretty understandable. Okay, I think they might even taught that in high school economics. So I look back at this chart here and one of the things that I try to do in this podcast, Is I try not to get too technical from like a chart perspectives. Like, hey look at this bull flag pattern breaking out here.

4:02
If I do talk about a chart, which I’m going to do here, I try to get very descriptive about it so a rkw. It’s one of those Kathy would ETFs, right? Have never traded one of her ETS before at least. I don’t recall ever trading any of them. But if he’s back in early, twenty Twenty-One and is essentially been on a strong decline, ever since 2021, it reached a high of $191.13 cents, a share.

4:29
That was the highest. It’s ever got today. It’s trading at forty, nine dollars and 87 cents. A share the acceleration to the downside happened in late 2021 or began to and 2021 and then in 2022, it just really got its head. Ripped off going from like 160 all the way down at one point to like almost $35 a share.

4:48
So, going back to last May, it’s essentially been trading in a sideways trading pattern. It’s put together a pretty good base and it took me a while to figure out what Was he trading off of what was this 52 dollar Mark? That was so significant. What was the resistance level at?

5:03
And I found it and essentially, it goes back to the highs of February 10th, at least, I’m assuming that’s what he’s trading at off of. I can’t imagine it being anything else. And there’s like multiple points where it tests this resistance level, and then it broke out on March 21st and ever, since then, it’s just been trading sideways.

5:21
So I broke out. And then the next day gave it all back up and then it kind of bounce back and it just traded sideways it. So it hasn’t done nothing. Said he’s got to stop off at 48. It was down, 3% Today it’s trading. Now at 49.87. So he still has a little over like three and a half percent before you get stopped out on it.

5:37
So what does he do? He’s tired of sitting in the sideways pattern. Should you get out of it? Or should he stay in it? Because the stop-loss hasn’t been triggered yet. I don’t think it’s bad to get out of a stock even though your stop-loss hasn’t been triggered, but it needs to be for the right reasons and this is a situation here is a breaking out.

5:53
Definitely not, he gave it a shot, it broke out and then the next day it gave back all the gains in Then it just traded sideways. It’s tried multiple times to break out ever since, but it hasn’t actually broken out. Now, there’s more to this story though. Because, well, he doesn’t mention and he may not realize this, but there’s some major resistance going back to May of last year that I found when I was doing this chart and it’s hit this resistance level on multiple occasions back in August of last year back in February of this year, back in March of this year, back in April of this year.

6:23
And this resistance has been the rejection point for every breakout attempt since he’s been In the stock. So, there’s some serious resistance in this stock that he might not even be aware of, because like I said, it goes all the way back to the beginning of May of last year. And it’s consistently rejected price.

6:39
So, that alone would be enough for me to say, hey, maybe I get back into a rkw and if I do, it’s going to have to be because it broke back above that resistance level, which is kind of around the 53 dollar Mark right now. Because as it stands at this moment, it’s trading below the 50 its trading below the 20, the 10, the five day moving average.

6:57
It’s It’s not a good-looking chart and there’s a good chance that it could continue to trade sideways because especially with the way that the NASDAQ has acted. He’s complained about a rkw trading sideways. Well, a lot of that’s due in part to the fact that the nasdaq-100 is like, going three weeks.

7:13
Now of trading sideways, in a very tight Consolidated range, three weeks, the NASDAQ has done absolutely nothing. In fact, I was telling somebody the other day and it’s the stat on this is changed now, because it’s had a couple of days to the upside but prior to Day. Which actually had to sell off.

7:29
Anyways, I’m see. That’s what happens when I start talking about charts. Kind of, from, not careful, if anybody’s not careful or something like a podcast, you can get buried into the specifics of a chart without having that chart in front of you and I tried not to do that but the cues of not gone anywhere.

7:49
So it’s a good explanation for why Arc W has not gone anywhere. Because when you look at some of the stocks that are a rkw, you got Roblox and I’m just pulling this off a TC 2000s, charting platform. It, it’ll tell you what’s in it. It. But what it’s telling me there’s about, twenty six stocks in there. You got our BLX, you got AMD, you got cloudflare, you got Square, which has been getting hammered of late, Microsoft, you got Robin Hood, you got.

8:11
I don’t know how you ever say this one. I mean, I know the stock symbol medli never actually had to say the name mercadolibre. I say that, right? It’s a retail specialty retail but there’s a bunch of these stocks, right? You got to you that’s T. Wo you for the stock symbol.

8:28
Got Shopify and their art while, oh crowdstrike. So it’s a lot of your light heavy Tech stuff, right? So if the nasdaq-100 is not going anywhere makes sense why a rkw is probably not going anywhere either.

8:54
Now one of the things I’d say about cat who would have never traded like I said, the best of my knowledge, I don’t think I’ve traded anything from her before but one of the things that I don’t like about using technical analysis on our charges because she’s changing her portfolio on a regular basis.

9:10
So let’s say a rkw had started a break. Out like what he talked about $52 and was starting to build on everything and then he sold all the current positions that or I guess it’s a, she she’s so loyal, the positions that she was in and then loaded up on some stupid penny, stock or loaded up on caterpillar and Pfizer are those necessarily stocks that would fit the profile of stocks that she’s had in the ETF before?

9:36
No, because the ark ETFs has a lot of her discretion in it. So if it has a breakout doesn’t necessarily That breakouts going to continue. What has she loads up on Square? She loads up on hood or loads up on Microsoft that could skew what the chart does going forward?

9:54
And almost make irrelevant, what we’ve seen out of Arc in the past, that’s one of those things that I really wrestle with. I’m not saying that you can’t do technical analysis on it, but I would just say, be aware of the fact that you have a lot of human intervention going on that can affect the price of the stock that goes beyond regular technical analysis.

10:13
And I make that easy enough to understand. I’m not sure if you’re not quite understand what I’m saying. I apologize but in essence, Cathy wood, can buy and sell stocks and her ETS. So she loads up on a really bad stock, pick a really bad choice, and trust me, she’s done that before.

10:30
And that stock, let’s say that stock really didn’t have much of an influence in the ETF before it was even in it before. How does that work with a breakout that might be ongoing? Is that help? It does that enhance it? I don’t know. It’s just it’s kind of makes everything a lot more messy. And let’s be honest about Kathy, Don’t like I don’t have much faith in her.

10:47
I see her on TV all the time and I’m always wondering man, if she’s managing These funds, how is she always on CNBC and always seems like, you know, they’re bringing her on there. They like to talk her up and everything and everybody swears by what she has to say. I think she’s most overrated Trader of our time. I really don’t think she is good in the least bit.

11:04
I mean you look at her fun where she gained the most popularity was off of the early 2020 and then you had the covid lows. We’re just went straight up. I’m were talking about going from $40 a share in the of 2020 or around March late. March all the way up to 190 by the beginning of 2021.

11:22
Yeah, she’s going to get a lot of attention for her because she was like, in stuff like Tesla and she was in stuff. She was in a lot of the Fang, stocks in the big tech companies and as a result again, I don’t, I’m not saying specifics about what she has in her portfolio because I don’t know it all in detail. I know that she’s always been very Tech Centric but that was a period of time where the market just shot through the roof.

11:45
Anyways, she did great because the market was doing great. She didn’t get those kind of results in a bear Market know she’s had Equally as battle results returns and a bear Market considering the fact that, you know, it’s not too far off about 20 percent off from where it started that massive bull run back in early 2020 and there’s not a lot of women in finance and I get that but I really don’t think that you make a lot about somebody.

12:01
That really hasn’t done a lot except for benefiting during about a less than a one year period or her. ETF just went skyrocketing with the rest of the market. I just don’t know what she has to offer, but I’m kind of going down a rabbit hole talking about her. I just just had to get that off my chest. I’m just not a big fan of her, but you know what?

12:17
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12:33
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12:49
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13:05
Some of these questions though that Lee’s have in here. I will frequently get out of a stock even if my stop-loss hasn’t been hit because oftentimes conditions change the thesis for why you got into a trade originally changes, we might see a big correction, that starts to come about in the broader market and in the sectors that we’re trading in, but it might not have stopped us out yet.

13:25
But it becomes very obvious that the likelihood is that it will. I think the most important part of a stop loss is the fact that you’re using one, but then there’s better ways to use them than what a lot of people do. A lot of people like to use these trailing stop losses. I’m not a fan of those. I’ve mentioned that a bazillion times, but I do think that finding key support levels to place your stop loss below makes it ideal so that when those stop losses are hit, you know that there’s something that’s changed in the stock from a technical standpoint that doesn’t make it worth being in any longer.

13:41
But sometimes those stop losses aren’t going to be hit. Let’s say that you don’t want to increase your exposure to the market even if you have extra capital laying around because the conditions don’t warrant it. But you also have a trade setup that you’d like to be in that you think is a better opportunity than the one that you’re currently in. Then yeah, I would get out of the other one and get back into the one that has a better opportunity.

13:58
It might have a better risk reward profile and it might have better upside to it. So why not get out of that old one, but you want to make sure you’re not doing it out of emotions. You want to make sure that you’re not doing it because you’re dollar watching or anything else. You want to make sure you’re doing it because that’s what the chart dictates that you do and your trading strategy suggests that this would be a better opportunity from a reward risk profile.

14:13
So I don’t think there’s any shame in doing that. I don’t think you’re being undisciplined at all. If anything, you’re mitigating some of the risk, giving yourself a better chance to succeed in a better trade setup. Now, look, you could actually get out and this has happened to me before too you think, okay, I’m getting out for the right reasons here. That sounds kind of like something that they would say in The Bachelor.

14:32
What you’re getting out of the stock for all the right reasons, and I only know that because, well, I don’t watch it anymore, but there was a time where I might have been in the presence of some people that did watch it. They don’t want me to say their name, so I won’t say their names, but I used to hear that saying a lot, and sometimes I would watch that with them. But nonetheless you have a stop-loss.

14:52
You’re getting out of it for the right reasons, and you’re putting your money towards something that’s going to provide a better opportunity. However, that doesn’t mean that stock that you just got out of can’t suddenly turn around and go back up. And if it does that, you got to be okay with it. I always tell myself when I get frustrated because I get out of a stock early, or I take profits at some point, and the stock keeps going in my favor or it starts to go in my favor.

15:17
It’s easy to beat yourself up on it, right? But then you have to ask yourself were you making a decision at that time that was based on the best information available. And if it was, well you don’t know what the next day holds or what tomorrow brings. So then you can’t beat yourself up over what happens the following day because you had no idea. If you were making it based off of the best information that you had on hand, then you’re in a good position.

15:38
But don’t go beating yourself up for something that happens after the fact. But you have no hand in that. That’s easier said than done. I’ve beat myself up over the years for things. I probably still do, but it’s easier for me to tell you guys don’t do that to yourself than it is sometimes for me to implement it for myself as well. But yes, going back to opportunity cost when there’s a better opportunity, when there’s a better trade setup.

15:58
If you want to go for that, and that may mean at times getting out of your trade early. Now you don’t want to be hyper about it to where you’re getting out early out of all your trades and you’re constantly not giving it enough time to play out. But I mean, when I’m like looking at ARC, if I was in this trade right now and seeing that massive resistance level, I’d be peacing out on that thing.

16:15
I’d be like, see ya. I’d be moving on to the next trade. And I like to lose quick and I like to win slow. But sometimes, for instance, there’s some trades that I could be taking right now. I don’t want to increase my exposure in the market right now. I’m actually short S&P 500 at this moment.

16:34
And I haven’t been for very long, maybe for like a couple weeks, but the trade really hasn’t done anything. I’ve just kind of been sitting there. Now I could put that money into something else, but I don’t see the opportunity cost being more favorable. I could chase after some of the long setups that have been coming after, and I’m using SH for the short on the S&P 500. I’m not shorting SPY I actually bought SH but it represents an inverse 1-to-1 return of SPY.

16:52
So but right now the market’s really not tilting its hand where it wants to go. When I initially really got in, it did, but it hasn’t really played out in the way that I was hoping for it to do. So I’m kind of sitting in this position right now. I’m not even close to getting stopped out of it and just essentially waiting for it to play itself out.

17:10
I think the market will still go down, but I’m just waiting for that to happen. There’s not a better opportunity for me to be in at the moment. So I just stay in it. So just because you get stuck in a trade you have to ask yourself, is there a good reason for me to get out? Sometimes it may just be it’s stuck sideways and there’s no hope of it ever getting out. If that’s the case.

17:27
Well, you don’t want to be tying your capital up in a dead position. You want to take the next best trade or opportunity. For me right now, I don’t see a better opportunity so I’m staying in what I got. So any case we talk a lot in this episode about opportunity cost, about this ARC W, about Cathy Wood and not a fan. And what was I drinking?

17:45
I didn’t even tell you guys what I was drinking. Crap. It went somewhere. What was oh it was a bottled and bond, Kirkland’s bottled and bond. So it’s 100 proof, 50%. Don’t have the bottle in here. I think I might have thrown it away because it was like the last drips in there. And I just wanted to get rid of that bottle, but Kirkland has some pretty good stuff. If you get the bottled and bond, that’s my favorite one.

18:03
Not bad. I don’t know if I would use it for old fashions, but by itself it’s pretty good. So that’s it for the podcast, guys. Again, make sure to check out swingtradingthestockmarket.com. Keep sending me your emails, ryan@shareplanner.com. I do read them. I do make episodes out of them. Just ask Lee here. And make sure to leave me a five-star review because I do appreciate those.

18:22
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18:27
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18:39
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18:53
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19:00
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 trading with you soon.