Having Sober Judgment | Podcast Episode #414

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.

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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.

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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.

0:34
In today’s episode, I have some thoughts for a beginner swing trader. The guy’s asked to be called Justin.

0:42
He’s asking to be called Justin after the Minnesota Vikings wide receiver Justin Jefferson, who is his favorite athlete.

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I could have given him a better name, but hey, if you guys have a name that you preferred that I use on these podcasts, by all means let me know and I’ll use that.

0:59
So Justin’s writing here as a person who’s just starting to get into trading and he has three questions for me.

1:06
And of course I always overanalyze the e-mail and some of the what they call Freudian slips that might come about in the e-mail.

1:14
So I’ll be doing a little bit of that as well, Justin writes Hey Ryan, I love your podcast. I listen to it each day on my way to and from the gym.

1:24
I work 2 jobs and have a one year old daughter and I’m currently getting my MBA online. I am looking to start swing trading as it will probably be the best fit for my schedule.

1:33
I am not able to consistently monitor the markets but still looking to capitalize on the current upward trend in the market.

1:41
A few questions. Number one, what is your ideal range for stocks?

1:45
I will probably be starting with $1000 in my account. What major indicators do you look at for swing trades?

1:52
From my limited knowledge, I am thinking ATR in proximity to the 50 day moving average might be two good places to start.

1:59
I will have stop losses put in for my trades but I am cautiously approaching trading with only being able to truly put in time and at the end of the trading day.

2:07
Any advice is appreciated. By the way, I am from Minnesota so you can use the name Justin Jefferson in your podcast as he is my favorite athlete.

2:13
Thank you for the great content Justin.

2:17
OK, Justin, let’s go over a couple things here. Like I said, I I kind of pick up on clues and and maybe some biases that people might have when they’re starting trading or if they’re already been trading for a while, but nonetheless, it’s always interesting to see some of the subtleties that come through and the emails, and one of them was, he says I’m not able to consistently monitor the markets, but I am still looking to capitalize on the current upward trend in the market.

2:45
So he’s probably been seeing the headlines. He’s probably been seeing that it’s been a bull market from November 2023 until now, with there being a little bit of a pullback over the past month.

2:54
So he wants to get in on that.

2:59
It’s been an impressive run, but is that the reason why you get into it is because you want to capitalize on a current trend?

3:05
And I would be careful about that because trends can change on the flip of a hat or flip of a dime. What is that saying, by the way, can change on the flip of a see the thing When you’re doing these podcasts, sometimes an expression that you might use all the time, your mind just goes blank when you’re sitting in front of a microphone.

3:23
So you kind of sound like an idiot when you’re trying to actually use them. You you sound like Biff from Back to the Future.

3:29
I think I said, I think I used them as a reference last time when I did a podcast and I blew an expression that I couldn’t remember, I think Michael Scott in The office, he also did that a bunch.

3:37
Nonetheless, you can add me to that list of Biff and Michael Scott that can’t keep the sayings correct in his mind.

3:43
But nonetheless, trends change.

3:47
They change in the short term.

3:53
But if you get in as a new trader and you’re saying, OK, I’m getting in, I’m wanting to capitalize on the current upward trend.

4:01
And let’s say you get in, you open up the account, you get fund the account, you get your charts all set up, you figure out what your strategy is going to be, now you’re ready to trade only to find out that the market trend has changed, What are you going to do there?

4:09
Are you going to hold on too tight and are you going to start forcing trades that aren’t there?

4:18
Believe it or not, over the last, I would say the last couple of months, not the easiest market to be trading.

4:25
And the reason why is because it’s doing a lot, but yet it’s not doing much. And the reason why I say that is, is that you have these big intraday price swings that can come about.

4:34
But in the end, we really haven’t changed.

4:37
We really haven’t gone anywhere.

4:44
April was a pretty hard sell off, but May has already recovered most of those losses.

4:50
April wiped out all of March and then some of February. May has already brought back most of those gains.

4:57
So if you’re short, you’re getting squeezed. If you’re long, there’s a good chance that you’re dealing with some volatility on that end of things too, especially going into April, you were getting stopped out.

5:03
So it’s a difficult market to say the least.

5:16
I mean, I did a YouTube video just the other day talking about market reversals and how quickly the market reversed when we were actually getting a breakdown just last week off of the FOMC statement.

5:23
So one of the things you want to keep in mind is that if you get into the market and you start trading and you’re trying to capitalize on a current trend, a lot of people are doing that, what with Bitcoin, they’ve done that with you just go back in time. They did it with the whole main STONK mania.

5:30
They’ve done it with the AI even recently.

5:36
But eventually those trends and those fads, they fade.

5:41
And then there’s a moment where the market has to really decide, are these stocks worth the value that they’re trading at.

5:49
Was GME really worth it at $400.00 a share? Was Bitcoin worth it at 69,000 or $72,000 just recently.

5:58
And so that’s what the market ultimately does. And a lot of times, new traders not realizing that they’re so hyped up on all the the the press releases that they’ve seen that they’re just jumping in regardless.

6:03
They’re just trying to get in as fast as they can.

6:13
It’s like that Jurassic Park quote, and I actually know this quote, but it’s where Dr. Ian Malcolm says.

6:19
But your scientists were so preoccupied with whether or not they could, they didn’t stop to think if they should.

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And so sometimes as traders, we need to ask ourselves, should we make this trade? Not can we make this trade, but should we make this trade? We can all make a trade, but it comes down to should we make the trade.

6:33
So I would encourage Justin as he’s getting into trading here, be aware of the trends, be aware of what the market’s doing. Don’t let the excitement for trading force you into positions that you’re going to later regret.

6:47
Now about his actual three questions, he says. What is your ideal price range for stocks? I will probably only be starting with $1000 in my account.

6:52
So starting with $1000 in your account, there’s goods and bads about that. There’s going to be definitely trades that you can’t take. Like for instance if you want to trade O Reilly’s ORLY, that stock trades over $1000 a share. Yes, you can do fractional shares, but really if you’re trading with like $1000 account, it’s going to be somewhere between that like 10 to $50 range that you’re going to be trading a lot of your stocks.

7:14
Yes, you could probably go up to 100, but that’s you know if you’re looking to have multiple shares to where you can take partial profits in, then you’re gonna need more than one share.

7:24
So if you let’s say buy a stock at $100, you’re gonna need two of those. That’s going to require a 20% position size.

7:31
Now for me, I do about 12% position sizes on my swing trades now. Everybody’s different, everybody’s different and it and it hasn’t always been 12% for me, it’s actually changed over the years. It’s actually increased a little bit.

7:42
I I was much more so around that 10% mark before. And so I’ve increased it actually some over the years to 12%.

7:50
But your position size is going to have a lot to do with your price range. So my ideal price range for stocks, I’ll I’ll trade really anything that’s over $10, I’ll trade it all the way up to 1000.

8:03
I have no problem.

8:06
I mean, I can go beyond that too, but I’m a lot of time. I just don’t see the value of trading stocks trading over 1000 just because it’s not that they can’t do anything, it’s just a lot of times they’re just not there. There’s not as much movement in those.

8:18
But like, you’re not gonna see me swing trade. Berkshire Hathaway.

8:22
I think that stock, what does it trade at like 60 something, $1000. I haven’t checked it in years but it’s the way’s up there.

8:29
There’s just no reason for me to go try to trade something like that and then trying to take partial profits on it.

8:35
What major indicators do you look at for swing trades? From my limited knowledge I am thinking ATR and proximity to the 50 day moving average might be a good place to start.

8:43
So ATR, A lot of people use ATR.

8:46
I’m not a huge fan of ATR and those who don’t know at ATR it’s average true range in terms of trading off of proximity to the 50 day moving average.

8:55
The 50 day moving average only matters when it matters to the stock. So for instance, you see a stock that is trending higher and it pulls back to its fifty day moving average.

9:05
Does that mean that you should buy it there?

9:07
No, it doesn’t, because what you want to see is whether or not it has a history with that 50 day moving average.

9:13
It may be that it only has a history with the 200 day moving average and so that’s really where the significance is.

9:19
Every time I test the 200 it bounce. Now if it does have a history with it, that’s great.

9:24
Yes that is playable.

9:35
Just going about it and and saying I’m going to apply the 50 day moving average to every stock out there and make my trades based off of that. Not the best approach because more stocks than not will just simply ignore the 50 day moving average.

9:43
They don’t care about it, but where the benefits from using a 50 day moving average comes when the stock actually cares about the 50 day moving average.

9:51
So if you see a history where it’s bouncing off of it, that’s a good thing.

9:56
That’s tradable.

10:01
But if it doesn’t, 50 day moving average is useless.

10:09
Indicators that I do like to use and I don’t use a lot of them guys and and I wouldn’t try to base a whole trading strategy off of them by any means.

10:09
Sometimes I’ll look at the RSI. Not much.

10:12
It’s usually just to see whether or not it’s way overextended or in in One Direction or the other. That’s really what it is and and most of the times I’m just looking at that in reference to the indices not individual stocks.

10:22
I really don’t care too much about the RSI and and you’re like well why are you even bringing it up?

10:32
Because I don’t really look at too many indicators to begin with. Like I don’t put a lot of weight in my swing trading on indicators. The other one that I do like to look at is a fast stochastics, so I’ll use like a 12/3 setting.

10:42
And again, that’s really just to make sure that you know I’m not getting into a stock to the long side on a weekly chart that has a stochastics of 99.

10:50
Because that’s probably telling you right there that a lot of the reward has already been experienced by the stock already.

10:57
Doesn’t mean it can’t go up higher still, but you’re trying to get water out of a rock at that point.

11:03
So the stochastics will really be something that I don’t really care if it’s trading in between 20 and 80 and I’m making a swing trade either direction, I don’t care if it’s between those.

11:14
Where I start to get more concerned is when I start seeing some crazy extremes popping up on that, especially when it comes to longer time frames like the weekly or the monthly chart.

11:22
And then what I do always have on my charts is the moving averages. So I was knocking on the 50, but I actually do have a 50 day moving average on my chart.

11:30
I use the 5, 10, the 20, the 50, and the 200, but I only care about them, like I said, when the stock cares about them.

11:37
So on a given chart, if you’re lucky, a chart will care about or a stock will care about one of the moving averages.

11:44
It doesn’t care about all of them. It’s usually just one of them.

11:48
Oftentimes I’ll see that the stock cares about the 20 day moving average more than any other five day moving averages.

11:53
I’ll use oftentimes when the stock is getting into a really solid breakout. And on a really good breakout, it will continue to close above the five day moving average.

12:01
When I see that taking place, I will usually use the five day moving average as an opportunity to ride that breakout as high as it’ll go.

12:09
And then I’ll wait to see whether or not it can close below the five day moving average. And if it does, I close out the position or at least take some profits in the along the way.

12:17
And then the other one that I use is the AV Web. I’ve used it a little bit more than I have over the years of late because I do think there’s some value.

12:24
A lot of people would just use the VWAP that’s tied to the very beginning of each trading day.

12:28
I don’t see necessarily anything that’s wrong with that. But I do find the AVWAP a little bit better because I can be selective with the points that I want it to be anchored to.

12:35
And I won’t go into what the AVWAP is in great detail here, but I’ll just say this is that it’s essentially telling you what the average price is from a particular point in time.

12:44
That’s where the anchor is. You’re anchoring it to a particular point in time. Maybe it’s off of the all time highs and it’s the subsequent average price paid on that time frame since then.

12:54
So it’s providing you with a little bit of support because really Wall Street, what they like to do is they will use AVWAP a lot too for trying to get customers into a stock and they’ll use the AVWAP to determine whether or not you know the value of which they’re getting into something is pretty good.

13:10
What is pretty good is swingtradingthestockmarket.com.

13:14
You guys knew this was coming. swingtradingthestockmarket.com is the website that goes alongside of this podcast.

13:23
So with it, you’re going to get all my stock market research each and every day. That’s going to include updates on the overall market, regular updates on all the big tech stocks.

13:32
Plus you’re going to get my daily watch list. And later that afternoon I always do a watch list review.

13:38
So I’m actually reviewing the stocks that I put out there, which I don’t think a lot of people do that Yes, you can find watch lists out there.

13:43
Most people won’t hold themselves accountable with the watch list itself, so I do that. I go through the watch list every day, talk about the goods, the bads of each of the setups, and what’s actually taking place.

13:51
Plus I provide a master watch list of all my bullish and bearish stocks at the beginning of each week.

13:57
So check it out, swing trading the-stockmarket.com.

14:00
I really think it’s a great value and it does support the podcast and the process.

14:08
I will have a stop loss put in for my trades, but I am cautiously approaching trading with only being able to truly put in time at the end of the trading day.

14:16
So one of the benefits to that I think in a lot of ways is if you’re trading based off of the end of the day, yes, you’re you’re not getting a lot of potential to make gains that same day off the trades. But really when I look back on most of my trades, the gains aren’t necessarily made in that first day of trade.

14:30
They’re made from the days that follow.

14:31
So if the trade works out, it’s not because it went up the first day or that I was able to make good money off of it the first day.

14:37
It’s usually the days that follow that provide me whether or not I’m going to do well or not do well on a trade.

14:42
So entries can be favorable by trading at the end of the day because you’re avoiding a lot of the noise that takes place.

14:49
Whether it was like an FOMC day or just a very volatile open that the Bulls bought up and bought the dip on, you get a better idea for how the stock is going to trade relative to key support level.

14:59
So if you’re playing a breakout level, you can play it in the first, you know, hour of trading and you get in.

15:05
But by the end of the day it has dropped 2% back below the breakout level. Now if you’re trading at the end of the day like Justin here, he can see that it never held that breakout level.

15:14
So why would I get into it?

15:16
He would wait the next day to see if it recaptures it and can play it that way.

15:24
So you have that benefit of being able to wait until the end of the day to see how the stock actually corresponded with key support resistance levels.

15:33
Now that may mean that if you were looking at a particular stock and it breaks out, you’re only getting in at the end of the day and it may have run 5% higher beyond that breakout level.

15:42
So you did miss out of it and you probably have to move on from the trade because then the reward risk ratio is going to be too much.

15:48
Now if you don’t want to just wait till the end of the day, then there of course is orders.

15:57
You can put conditional orders, I know think or swim for instance, conditional orders, you can actually dictate what time you want those orders to go in at and a lot of platforms have that.

16:05
So that’s a that’s a cool feature there too, that you can actually dictate the times that you want those orders to go in at, even if you’re not in front of the computer.

16:10
The more you learn about conditional orders, especially as a part time trader, the more beneficial you will find those things to be.

16:16
Because if you’re not in front of your computer all the time, like I don’t have to use conditional orders that much because I’m in front of my computer all the time.

16:21
I’m always looking at the markets. I’m always trading, not actually always trading, I’m always looking at the markets.

16:28
If I was always trading I’d be like probably have a crazy addiction of some kind.

16:38
But no, I I don’t like just non-stop trade. Most of the time I’m not trading, but I am watching the market.

16:38
So there’s some benefits to that now in terms of gap downs or let’s say there’s a significant sell off at the open that continues for the rest of the day.

16:45
You don’t want to be just you know, showing up to your computer at the end of the day when the stock you could have gone out for a 2% loss is now down 10%.

16:50
So the stop losses are important. He talks about wanting to use the stop losses. So that’s also a key there as well.

16:54
I also think it’s still important not to put good to cancel stop losses. And I put my stop losses in each and every day after the market opens.

17:02
I put them in one by one, usually takes me a couple minutes. And the reason why I do that is because you can have some opening prints that are really wild with a bid and ask like it.

17:10
You won’t even see it with the naked eye. You will just see that you got stopped out of a trade and you’re like we we didn’t even get printed that low.

17:17
Why did I get stopped out?

17:19
It happens. It’s happened to me in the past. I don’t know the frequency of how often that happens now because I don’t let that happen to me anymore.

17:25
But I have heard of other people having the same problems as well.

17:27
And that’s what I always say. Wait until after the market opens and start putting your trades in one at a time.

17:32
Now the way around that is using conditional orders if you’re not in front of your computer. If you’re not in front of your computer, you can say hey, at 931 or 932 put these orders in Or if you want to wait for the 1st 5 minutes, that’s you know, a preference of some as well.

17:42
And in the end, what I would tell Justin here, starting off as a trader, some thoughts, some tips, just know this.

17:53
Just know this. When you start off, you’re kind of like the equivalent of a penny stock.

17:58
You’re not a Apple stock yet when it comes to trading. And the reason why I’m comparing you to a stock is because when you take a penny stock, let’s say it’s trading at like pennies per share or even like fractions of penny.

18:06
There’s some wild swings. There’s some huge swings. It’s not a reliable stock.

18:14
It’s nothing that you would want to put your life savings into or that you’d want to trust, and you got to do that with yourself.

18:22
You’re starting off in a very, very, very difficult profession that not a lot of people do well at. And that’s part of the reason why I do this podcast is to bring the reality home for a lot of people and to note not that you can’t do well, but that you can’t think more highly of yourself than what you really are.

18:42
And that is a beginning trader. I’ve never seen a beginning trader become an expert trader overnight.

18:46
It just doesn’t happen. There’s a verse in the Bible that my dad has always told me growing up, and I’ve I’ve always tried to remember it.

18:53
And that’s Romans, chapter 12, verses 3.

18:56
Now I know some of you guys are like, Oh my gosh, I can’t believe he’s gonna throw in the Bible here.

19:00
Bible’s important to me. And actually, I believe the Bible has helped me quite a bit as a traitor, ’cause there’s a lot of wisdom in the book, whether you’re reading Proverbs, or even, in this case, whether you’re reading in the book of Romans.

19:10
I quote Proverbs a lot, but this one’s really good. And it says, for by the grace given to me, I say to everyone among you, not to think of himself more highly than he ought to think, but to think with sober judgement, each according to the measure of faith that God has assigned.

19:23
Now why is that important? It’s because as traitors, especially when we’re starting off as that new trader who’s the equivalent of like a penny stock out there, you get a couple of good wins.

19:31
You get a couple of good trades under your belt and you’re gonna all of a sudden think way more highly of yourself than you ought to think.

19:40
So I would implore you to keep a sober judgement using the mind that God has given you to realize that, hey, one trade, 2 trades, 3 trades is not gonna define me as being a good trader.

19:50
I need to realize I am very new. I’m very green at this and I can’t think more highly of myself as a trader than I am.

19:58
I’ve been doing it for 30 years and I try to really stay grounded in my views of myself.

20:08
That’s why I go into every trade assuming that I’m going to lose. Because if I think I’m too good at something, I’m bound to fall.

20:15
Because it’s when you think you stand, that’s when you’re going to fall.

20:26
So that is why the best advice that I could give Justin or any new trader is to not think more highly of themselves than they ought to think, and to have a sober judgement when evaluating themselves as traitors.

20:33
Because what I typically see from new traders is the belief that I’m good at this. I’m really good.

20:39
And you may end up being good at this one day, and hopefully you do, but when you’re starting off, you’re not good.

20:44
You’re probably horrible. But that’s OK though, because as new traders, we have to learn.

20:50
That’s why I do this podcast, ’cause I’m helping you guys to move along.

21:00
If I told you guys, hey, if you get 5 trades in a row, you’re an unbelievable trader. In fact, you’re the best there is.

21:04
That wasn’t beginner’s luck. That was skill.

21:10
I would be doing you the biggest disservice because I know what’s out there. I know how difficult it is, and there’s probably not a day that goes by that I don’t look at the market at some point and say what the heck just happened, because it happens all the time.

21:22
It’s very difficult. It’s a moving target.

21:25
So don’t think more highly of yourself as a new trader. Go into it with a sober mind and learn from each trade.

21:34
Do these things. Plan your trade.

21:37
Manage the risk. Let the profits take care of themselves.

21:40
If you’re starting off with $1000, you’re not gonna get rich. More than likely you’re gonna lose some of that because you’re gonna be learning some valuable lessons along the way.

21:47
But don’t lose heart. You’re gaining invaluable experience.

21:51
And don’t watch the dollars.

21:56
Follow your trading plan. Yes, you’re gonna know if you got stopped out for a 3% loss or a 4% loss, but when we’re just watching the dollars go up and down, our judgment’s gonna be based on what those dollars mean to us.

22:03
If you enjoy this podcast, I would encourage you to leave a five star review on whatever platform that you listen to me on.

22:14
That is one of the best things that you can do.

22:19
If you’ve been able to get something out of this podcast episode or any of the podcast episodes that I’ve done.

22:23
I think this is like like #414. Now, if you enjoyed one of these episodes, leave me a review.

22:29
I really do appreciate those things. And check out Swing trade in the-stockmarket.com.

22:33
That’s gonna also be a great way to say thank you. And if you want to keep this show running, keep sending me emails. ryan@shareplanner.com Guys, this is the best way to get your answers to your questions.

22:43
Send them to me. ryan@shareplanner.com.

22:48
Tell me your story, tell me your background, tell me what’s bothering you, what you’re struggling with, and I’ll make a podcast episode out of it.

22:54
Simple as that. All right guys, take care and God bless.

22:58
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23:06
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23:14
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23:31
If you have any questions, please feel free to e-mail me at ryan@shareplanner.com. All the best to you and I look forward to trading with you soon.