How To Use The Top Down Swing Trading Strategy | Podcast Episode #337

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 in today’s episode, we’re going to talk about Out the top down trading strategy, it’s a very in-depth topic. It’s not really something that I can cover all in just one podcast or even really do that without going into a lot of visuals. So I’m going to give you more of a general understanding of it so that you can apply it to your own trading.

0:49
But the email that I got today and for those who are new to the podcast, I do email q&a’s every week. I take one person’s email and I make a whole podcast episode out of it and so you can also do the same by sending me an email to ryan@shareplanner.com, I do read them all and I do try to make a Podcast episode out of each and every one of them.

1:07
As long as it’s a valid question more than likely, it’ll get a podcast episode. So make sure to keep sending those to me. So for this episode, I’m going to give a Florida redneck name to this guy who emailed me this gentleman and it’s going to be bud but good old Florida, red nickname rights.

1:23
Hey Ryan, do you think you could do an episode going more in-depth on your top down trading strategy when you are checking the overall Market or sector performance? Are you just looking at it for that day or that week I’ve been using thin viscosity Has to look at all the sectors and I’m just trying to get more of a clear, understanding of how you apply the top-down approach.

1:40
Also, can you tell me how you find out the information on the industries within those sectors? I really appreciate the episode that you did about the stop loss management on my Google trade. A few weeks ago, I’ve been taking partial profits and it has made a huge impact on the emotions and on the profits as well.

1:57
I’m still loving your patreon and you have made a good number of profitable trades from there. I also think I must be doing something right because quite a bit of this. Talks that I’ve been picking out when screening have been put on your patreon as well. Thank you for everything that you have done and have a good day.

2:12
Thank you, bud. All right. So good email. He also writes here to he followed up with another emails. I might as well read that as well. Also I forgot to ask you something when you’re drawing trend lines and looking for patterns, do you use Kindle bodies or candle wicks? Thank you. All right, so I’m going to work my way a little bit backwards here.

2:29
I’m going to talk about the candle wicks first because I think that’s kind of an easy question and like a typically, Economist which I’m not necessarily Economist. I studied economics in college but always use the famous response of. It depends. And the reason why I say that is what I’m drawing trendlines.

2:45
What I’m really looking for is a level of consistency where a stock bounces off of a key support line that’s rising and that can also go with price level supports that just go straight horizontal so sometimes it will incorporate just the body. Sometimes it’ll coorporate perfectly, the lower Shadows on the trend lines or if it’s a declining, it’ll incorporate The upper Shadows of the candlesticks but the reason why I say it depends is because this not all that common to find perfect trend lines to where it just touches that trend line perfectly and goes right back up.

3:16
Oftentimes, there’s a little bit of an intraday break. But what I like to find is that, where is that consistency at? Where is the level that the stock consistently bounces it so often times, there’s a mix of where the trend lines going through, just the lower part of the body, when it’s a rising trend line, it’s going through the body, it’s connecting the lower bodies of the trend lines and it’s may have some candle wicks that are going down below.

3:37
And then there’s also parts of that trend line that might just see price bounce off of it at an intraday low and bounce back up. And so without making it too confusing when I’m drawing trend lines to take away here is to remember that when you’re drawing the trend lines, it’s okay for it.

3:52
Not to be perfect because rarely in technical analysis is anything perfect. And that means that, if you’re looking for Perfection, you’re going to pass up on a lot of good trade setups because you made the perfect setup, the enemy of the great setup. So again when you draw a trend line, you’re trying to connect as many data points as possible, that doesn’t mean that you just let price action just run roughshod all over the, the trendline go way below and then pop back up, but it does mean that it’s okay.

4:18
If there’s some intraday breaks below as long as it can recapture it into the closed. So as long as the closing price is above the trend line, that is what I’m looking for most often times. Now, the top down, trading strategy, and I get a lot of questions on this. I do a lot of private coaching on it as well, and it’s pretty in-depth.

4:34
So, what Going to do here is give you a more of a general understanding and try to answer some of the key questions that you had your top down trading strategy is essentially stacking the variables and your favor for when you’re making a trait often times. People just look at the individual traits that I’m saying, hey, this stock ABC looked really good.

4:51
I’m going to go ahead and make a trade on this stock. Not even considering what the overall markets doing. What sector is rallying. What, sectors are not Riot, may not be that stock sector. That’s right. It may be in this deep sell off, and it had just hasn’t caught up with its own Actor yet in it may be happening later in the day, after you get into the trade, it also means that they’re not considering the industry that their stock is in.

5:13
And so there’s 11 sectors. There’s about a hundred and Forty-Eight industries that I track within those eleven sectors. So, what I want is I want the stock that I’m trained to be an alignment with the industry’s, the sectors and the overall Market direction. If any of those are not in balance with each other than I don’t want to make those traits.

5:30
So what I’m trying to do is stack the odds for Success on a given trait, set up as much my favorite Whereas possible, by making sure all of these areas are in alignment with one another. So if I like the stock ABC in the industry in the sector is doing really good, but the overall Market is trending lower.

5:46
That’s going to be a reason for me, not to get into the tree and its stock ABC. Looks really good in the overall Market looks really good, but the sector that’s trading in looks awful. I’m not going to get into it either. So again, I need all of those variables and alignment with each other.

6:03
Now, there may be times where in this does happen quite a bit where the overall Market the sector, the industry, they’re all in alignment with each other and then, I go to try to find a stock. That will reflect what I’m seeing in the overall Market sector and Industry. And I can’t I just can’t find a good stock of sometimes.

6:20
It’s just all of them are overbought or some of them are just not providing a good reward risk ratio so that happens to and so it’s important for me to keep tabs on what sectors are rallying. What sectors are doing really good. And then which Industries within those sectors are doing good too.

6:36
Like I said, there’s 11 sectors. That’s going to be materials xob. I’m going to read them off. Just in case, you don’t know them you can write them down as I’m reading them. The first one like I said materials xlb, next one’s Communications xlc, the next one energy XLE, financials X LF you see the trend here, they oftentimes start with the letter that the sector starts with not all of them but some of them do Industrials is xli.

7:01
Then you got technology. Which is X LK. Then you have, what is the next one? Staples xlp. That’s one that does not start with an S and then you have utilities xlu, you have real estate X LR e. Then there’s Health Care. XLV. Discretionary xly the see.

7:18
Did I forget any? I don’t think I did. I said utilities Healthcare XLV. Yeah. Got them all. So those are your 11 sectors within those 11. Sectors are about 140 or so industries that I track for instance, I can technology who have software.

7:33
Yes. Emmys, you have electronic components, you have internet companies list goes on and on Industrials. You can have defense companies. You can have farm equipment. You can have. There’s, there’s just a myriad of different. Everyone’s then in the Industrials, discretionary retail stores, you can have auto companies, you get the picture.

7:51
So, when I’m looking at the overall market and it’s trending higher, and then I’m looking at technology, and I’m seeing that there’s a good set up there with in the tech sector. It looks like it’s about to explode higher, and then I’m looking forward which sectors within the tech sector around and maybe I find that it’s semiconductors and then I’m looking at stocks like Nvidia, AMD onl, rcx KLA.

8:11
See, I’m just going down the list and trying to find And the one that offers up the best trade setup. So, one of the things about the top down trading strategy is that it can often times when the market is not in your favor and there’s not sectors that are in alignment with the market, it can lead to periods of inactivity especially if you’re a long, only traitor.

8:28
That’s okay. A lot of people find that that’s a bad thing but it’s not because the flip side is that down top strategy where essentially you’re just looking for stock picks, you’re looking for stock picks like an addict looks for its next tick so you don’t want to do that because oftentimes you’re getting into trades.

8:44
They’re not favorable, not because the trade setups, not favorable. But because the conditions that you’re not even paying attention to meaning the industry, the sector and the overall Market Direction, but it can also help narrow your choices to. I find. This has helped me a lot of times when I’m like, I got like 10 really good trade setups here.

9:01
And I don’t know which one to take and I look at him and it’s like, I’d like to take all 10 of them. But I’m only gonna take like one or two of them. And so what I’ll start doing is I’ll look at the sectors that are doing the best and then the industries. And so then I’m going to want to find that.

9:20
Trade setup out of those ten traits that have said I have that matches the best with the overall Market Direction. The sectors that are the hottest, the industries that are hottest and then I can usually narrow it down from 10 down to like one or two very quickly something else that’s really worth. Checking out, swing trading the stock market.com.

9:37
Yes, that is my patreon account that goes along side by side with this podcast and if you’re listening to it on YouTube it goes along side of my YouTube channel, you can just click join on YouTube or you can go to swingtradingthestockmarket.com and Would it be at the patron account either way, you’re going to get my weekly wash list of Master bullish and bearish.

9:50
Watch lists that I do each week you’re also going to get my daily watch list of stocks that are showing the most promise for that particular day. Plus videos of some of the best trade ideas that I can come across. Then you have updates on the tech sector and on the S&P 500 sent most of them are done via video so it’s really good.

10:07
It’s a it’s a huge addition to listening to this podcast and a way to support the podcast as well. So check that out, swingtradingthestockmarket.com or just click join below. If you’re watching this on YouTube. Okay, now that I’m done with that plug, let’s keep digging in a little bit further here.

10:23
So what I want to do now is give you a couple of examples and I’m not pulling up charts because ideally you’re probably listening to this on the way home from work and you’ve had a stressful day and the last thing you need is like some visuals to throw up there. So I try to make it as easy as possible to explain right now, you have had the S&P 500 has been on a two-day pullback, so the market has pulled back to straight days.

10:44
I don’t know if it’s going to bounce the next day. It could history over the last. Three, four months. Suggest that there’s a very good chance of that. It is overbought. So I’m going to end it. I mean this wait-and-see mode. Meanwhile, I’ve also noticed that the industrial sector is looking pretty good as well.

11:02
The industrial sector has pulled back to a key price level. It’s a key support where a previously broke out at. So what I’m watching for there is, does the Industrials breakout because I could go into technology, I could go into that sector. But what am I dealing with it Tech? And with discretionary with Communications, I’m dealing with very, very overbought conditions.

11:18
Yes, it could keep going higher and higher. Higher, we just saw Tesla go up another five percent today. But does that make that an ideal trade scenario? When there’s no Edge to find the risk underneath the trade setup in case the stock trade does go wrong? And the problem with chasing after some of these trades that is just pure fomo driven, is that there’s no way to really manage the risk in a very tight and productive manner instead of getting into a trade where you’re hoping for like a three to one return, you might be only getting into a trade setup that’s like .5 to 1 or 1 to 1 from a reward risk.

11:48
Standpoint. So as a result, I start looking in other sectors that are still setting up to the long side but are provided me with good reward risk ratio. So I start to notice that Industrials is setting up pretty well. And then within Industrials, I noticed that Diversified Industrials is also in a pretty good break out mode right now.

12:07
So now I’ve identified the market Direction, it’s pull them back a little bit, not quite sure that I wanted to go ahead and just jump into it just yet. I want to wait to see if it can balance and alignment with the overall Market. You have the industrial Is pulling back or the over the last two days to a key support level. And now, I want to see if that can bounce and then I’m noticed that Diversified Industrials has been on a pretty good bullish terribly.

12:27
So now I got all three areas. Working in my favor. So now I need to go find a stock within Diversified Industrials that provides a good quality reward risk ratio. And I find that with Honeywell h0n, Honeywell has had a cup and handle break out. Now, it’s been pulling back over the last couple days and it’s showing the potential for a bounce higher.

12:46
So that’s how the top down trading strategy, Works in real time. Now, does it take me a long time to go through all that stuff? No, because each day, I’m evaluating the market. So without even having to go back and look at the market, I usually know which sectors are already. Yup. Like right now I can tell you Industrials are setting up.

13:03
I could tell you that real estate has a double bottom and materials has a double bottom that they’re both trying to create a potential break out scenario. For I know that technology discretionary Communications, they’re kind of crazy, they’re a little bit over extended Health Care hasn’t really gone. Anywhere utilities hasn’t gone anywhere.

13:20
They’re both trading sideways financials. I mean it’s really hard to trust the financials right now with all the regional Banks and such dire crisis. And really if you look at Citigroup and JP, And some of these others, they haven’t really moved all that much. That provides a good opportunity going forward and Staples.

13:37
Yeah, kind of sideways as well. So that leaves me with Industrials? Oh, and we forgot about energy energy. Looks like it might be starting to roll over. Yes. It’s on this nice Rising trend line, but it’s not putting in higher highs. It’s actually put in a lower highs and creating just a massive triangle that looks like it’s on the verge of breaking to the downside.

13:54
So I don’t want to touch energy right now. So again, at least me Industrials, materials real estate, that’s what I’m Looking at at this point using the top down trading strategy. So let’s talk about materials. Let’s look at the S&P 500. We talked about, it’s haven’t, it’s in the middle of a two-day pullback, not anything serious, not anything, you know, hanneke or you know, emotion driven.

14:14
It’s just kind of a systematic pull back after a pretty crazy run higher, then you have materials as forming. Like I said, a double bottom but it hasn’t broken out you, in fact, it actually had a pretty significant amount of selling today and it hasn’t broken out yet. But you get a Of days to the upside, pretty good couple days of buying.

14:34
I could see where it could actually break out. And then I come across this FCX stock and a lot of you guys are probably heard. It has a downtrend. Hasn’t quite broken out of it yet, but then let’s go look at the industry that it’s in the industry that it’s in is copper and comfort kind of looks iffy. It’s had a pretty good rally.

14:50
Since the melo’s were established in late May and it’s been on a tear since then, but I want to be careful. I want to make sure that it doesn’t take a significant pullback here because if the market can It’s putting in start the rally and cereals can also rally. I want to make sure that coppers also following suit before I jump into FC X.

15:07
So copper it isn’t as bullish right now in 2023 as some of the other sectors that I we’ve been talking about and I’m not so sure that just because the material sector rallies that copper will follow with it. It’s just like with gold you could have a big break out of materials and you think oh my gosh Cheerios are looking really good.

15:26
I’m going to start getting into some gold miners because that’s part of materials. And then as Materials is running higher, the Marcus running higher and as the materials sector is running higher, and as the overall markets running higher, your gold miners are actually selling off your like, what the heck is going on here?

15:48
And it’s because not all the industries, particularly in materials, always runs with the sector. Sometimes, it’s just one or two specific sectors that are. I might be chemicals and because oftentimes chemicals can rally all of materials while leaving a lot of your precious metals behind. So that is the top down trading strategy and that shot didn’t go into too much.

16:05
Dep there. I just kind of gave you a cursory understanding of it, but it’s very effective. It takes a lot of patience. It takes a lot of discipline because oftentimes you will come across the stock that looks really, really good. On paper, man. It’s like, it’s got the perfect reward risk ratio is like, man, I’m just know this thing’s going to break out to the upside but you don’t have a market that says hey this is a good time to be getting long and so anyways you ignore the overall Market Trend.

16:23
You get long and then all of a sudden you find yourself just getting destroyed because the market keeps sinking lower and it pulls down that stock with it. If you had just been more cognizant of overall Market direction or sector Direction you could have, avoided that whole bad straight set up to begin with. If you enjoyed this podcast episode, I would encourage you to like And subscribe on YouTube on Spotify.

16:42
Leave me a five star review. I really appreciate those things. Tell me down in the comments Below on YouTube here. What trading strategy do you? Like? You do? Use a top-down trading strategy to use a different one. I want to hear all about it and keep sending your emails. Ryan is your planner.com. I would love to hear from you guys.

16:58
Check out swingtradingthestockmarket.com. You guys and God bless. Thanks for listening to my podcast. Swing trading the stock market. I like to encourage you to join me in the SharePlanner trading block, where I navigate the stock market. Each day with Traders from around the world with your membership, you will get a 7-Day trial and access to my trading room including alerts via text email and WhatsApp.

17:21
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 and Instagram and 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 trading with you soon.