Knowing What You Are Doing | Podcast Episode #422

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.

0:16
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.

0:25
You can succeed at the stock market and I’m ready to show you how. Hey everybody, this is Ryan Mallory with shareplanner.com’s Swing Trading the Stock Market.

0:36
A couple podcasts ago I talked about what are you doing? I asked you 5 questions to help you better understand what you are doing.

0:45
This podcast episode talking about knowing what you are doing and the reason why I’ve changed the title just a little bit, going from what are you doing to knowing what you are doing is because after that podcast episode, I had already been in talks with this one guy. He had sent me an e-mail and he’s asked to be called Nicho, which is kind of like Nacho but with AI instead of an A.

1:07
So Nicho, I don’t know what the back story is on it, but instead of Florida redneck name, he wants Nicho. I don’t know, maybe it’s Niko.

1:16
I like Nicho better though. I’m gonna go with Nicho.

1:19
And Nicho asked me. He said, Ryan, I just signed up to get all your trading insights. I started listening to your podcast a short time ago and I really appreciate the information. My biggest challenge is finding good stocks to swing trade in the 10 to $150.00 range.

1:34
I seem to be getting stopped out too often. I always place trades with stop losses.

1:38
I’m a part time trader, maybe about one hour a day and trying to get to the point where I can get out of the rat race.

1:45
Thank you Nicho. So I wrote back Nicho and I said, Nicho, it’s good to hear from you and glad you’re on board.

1:50
I tell you what, expand on your e-mail a little more and give me some background and information now a little more insight into your problem and I’ll be sure to make a podcast episode out of it.

1:59
So Nieto wrote back and he answered the five questions. So the five questions from what are you doing was one, what am I trading?

2:08
Two, how am I trading 3, how am I managing the risk #4 what am I avoiding #5 how am I handling the profits?

2:19
Those are five questions I wanted you to answer. In fact, going forward, if you are kind of hard pressed on what to write the show, but you’d like to write the show, write the show and answer those five questions and tell me maybe a little bit about your background.

2:33
I’d love to hear from you. You can do that ryan@shareplanner.com.

2:36
I do read all of the emails. So Nieto writes, hi Ryan, I may be late in getting this information to you as I just listened to your What Are You Doing podcast, but here are my responses to your questions. What am I trading?

2:49
I have done some small cap stocks. I don’t like them.

2:52
I now trade mid to large cap stocks and sometimes mega cap stocks #2 how am I trading? No options, although I will later on when my account can support them.

3:01
I’m not leveraged much just with a margin account, but I always have some cash in there. Not everything is in stocks all the time #3 managing risk.

3:10
I always use a stop loss set at 1 1/2 times the average true range. However, I’m beginning to think that this might be too tight of a range.

3:16
Your percentage view has me more intrigued #4 what am I avoiding? I avoid now all the penny stocks and pretty much anything else that trades for less than $10 a share.

3:25
I don’t do anything in the utility sector, I’ve been burned there before and I’m not much into the communications sector #5 how am I handling the profits? Nieto writes.

3:36
You made an interesting comment in your podcast about watching trades go from green to red. I am beginning to think that I’m not taking profits off the table as soon as I should.

3:44
I sure appreciate the information and I hope my answers may be the subject of a podcast. Sincerely, Nieto, all right, Nicho, let’s dig into this one number one.

3:53
What am I trading? He says that he does small caps in the past, but he doesn’t like them and now he trades mid to large cap and sometimes mega cap stocks. That’s pretty similar to what I do.

4:03
I, I, I don’t steer away from small caps necessarily. I mean, I screen them just like I do mid to large cap and mega cap stocks.

4:10
And I really don’t mind trading the mega cap stocks at all. Now, the interesting thing about mega cap stocks is that they tend to be really good off of market pull backs that start to bounce or at the very end of a major market recession or major sell off. Like kind of like what we had in 2022 where the market pulled back like over 20%.

4:31
There was some really good deals there. I mean, you had good deals with Apple, you had them with Amazon, NVIDIA, Google, Netflix, Microsoft, Tesla. I mean, there was great money to be made there.

4:42
And so he also talks about that. He doesn’t like small caps.

4:47
Well, why is that? It’s because often times you can see the large caps, the S&P 500, the NASDAQ 100, or even the Dow.

4:54
They’ll go much higher on the day. But then you’ll be watching the small caps.

4:59
Or maybe you’re not even watching the small caps, but you’re looking at your individual stocks and you’re like, why in the world are my stocks not going up?

5:07
I’m looking at the market breadth. It’s pretty good.

5:09
It’s two to 1-2 stocks going up for everyone going down. Feel like that, you know, out of these five or six stocks that I have now, at least one of them should be going up.

5:16
But then you find out that the reason why they’re not going up is because the small caps are not going up with the overall market and the small caps are actually struggling. You might have two to one negative breadth or something in the small caps that’s not being reflected in the overall market breadth and you’re like, why in the world am I not making money?

5:34
There’s nothing nothing worse when you have a whole bunch of stocks in your portfolio and every one of them is going down while the market’s going up What what did I do wrong?

5:42
I if I tried to pick the stocks that would go down when the market’s going up, I couldn’t do it. I wouldn’t be able to.

5:50
And yet here I am. I’ve got 10 stocks in the portfolio.

5:54
Nine of them are going down. One of them’s going up and barely going up, while the market’s just taking off.

5:59
It’s up like 1 1/2 percent a day. Like, how am I in that position?

6:02
And the reason for that is because often times the small caps will go in the opposite direction of large caps.

6:10
That hasn’t always been the case, but it’s been the case a lot over the past year and a half. Since the market bounced following 2022.

6:17
There’s been a number of times where you’re not looking at broad market rallies, you’re looking at one or the other.

6:25
If the small caps rally, NASDAQ doesn’t. If the NASDAQ rallies, small cap doesn’t.

6:30
And to a lesser degree you usually have like the S&P 500, that’ll split the difference between the two because they will rally off a tech rally, but not to the same degree that the NASDAQ 100 will rally.

6:40
And then because the Russell 2000 doesn’t have any of your mega caps in it, particularly like the Nvidia’s Amazons, Apple, Google, Netflix, Microsoft, Tesla, Meta, I don’t know if I forgot one of them, but you get the gist.

6:53
Those stocks aren’t in the small caps, they’re too big. But when it’s just those stocks that are rallying the market and a handful of other large cap mega cap stocks, then it’s lifting the large caps. But it’s doing nothing for the small caps.

7:08
In fact, the small caps will actually get penalized more times than not. So I think that’s probably why Nieto here is having a hard time or doesn’t really like trading the small caps.

7:17
And for that same reason, I haven’t been really trading small caps at all.

7:21
I’d if I have to get short or long something, it doesn’t matter if it’s long or short. I’m not getting short or long small caps.

7:27
I’m gonna get long or short. The S&P 500 or the NASDAQ.

7:32
I try to hold off trying to get into. I might get short on the small caps after I already have short positions and the queues and, and the S&P 500.

7:42
Then I’ll consider it and the, the Russell.

7:45
And the reason why I’m talking about shorting because most of the time when I’m shorting, it’s with index funds.

7:50
Most of the time when I’m going long, it’s with equities. So I I can relate to why he’s struggling or doesn’t like necessarily the small caps and the small caps have a much higher risk profile to him too.

7:59
I mean, you can get a nasty downgrade. You can get AFDA announcement and the moves as a result of those can be far greater than if you get a upgrade in Apple, you get to upgrade an Apple.

8:11
It might sneeze at it a little bit or it might give you a happy meal as a result, but it’s not gonna be anything major usually.

8:18
But if you get it in the small caps, downgrade can absolutely ruin a stock. So I think it’s good to focus on the mid to large caps and the mega cap stocks as well.

8:26
That’s typically what I do is do for myself. Number two, he said for how am I trading?

8:31
He doesn’t trade options, although he will when his account can support them. He’s not leveraged much just with a margin account, but I always have some cash in there.

8:39
So he’s not going like 110% long or 120 or 150% long. He’s he’s keeping cash.

8:44
Yes, I have a margin count too. So technically there’s a margin aspect associated with that, especially if you’re like shorting a stock.

8:51
But he’s not over leveraging himself.

8:54
And so he’s doing a good job there too. I mean, there’s a lot of solid points that Nietzsche’s doing here that’s worth, you know, a pauding him for.

9:00
However, one of the things that I don’t like is that he says not gonna do the options yet, but I will do it later on when my account will support them.

9:06
So I’m not quite sure what he means.

9:10
It’s like is he waiting for a certain threshold to where he’s not? Maybe he’s worried about being like a pattern day trader or he’s waiting for and you know, the opportunity for when he can, you know, take on more than one option contract or two option contracts.

9:23
I’m not sure what he’s exactly talking about. But I wouldn’t base it off of whether or not your account can support it just because of you have a certain dollar amount in there.

9:34
Because all it takes is a big loss and all of a sudden your account ain’t supporting that thing anymore.

9:39
OK, so keep that in mind.

9:43
But the other thing I would say is don’t get into options until you are really good at trading equities because options will be far harder.

9:52
You have way more variables that you’re dealing with. For me, I can trade at a stock.

9:57
Let’s say I buy a stock the day after earnings. Let’s for instance, call it, we’ll say I bought Microsoft, right?

10:03
And and we’ll keep it easy. We’ll say I bought it at $100.

10:06
I know it doesn’t trade at $100, but bear with me here Bought Microsoft at $100 and then over the course of the next couple months now I don’t necessarily wanna do this, but let’s just say for instance, buy it at $100 and it over the next couple of months it trades between 98 and one O 2 and doesn’t really go anywhere fast.

10:23
I’m just kind of like sitting there not making much money, but I’m not necessarily losing money either.

10:28
I’m just kind of averaging it out around my entry price that I originally got in at. But you take a person trading options and all of a sudden let’s say that he buys an option on Microsoft that expires in two months.

10:37
Well, for me, if the stock stays, you know, between, you know, around that $100 mark where I’m not making any money, and then in 2 1/2 months, all of a sudden I’m making a lot of money on the trade.

10:45
OK, I yeah, I had to wait like 2 1/2 months, but I did eventually make some money on the trade.

10:56
Person who bought an options contract two months out, he didn’t make any money. He lost his, he lost everything on that trade unless he closed it out early.

11:06
But nonetheless, you’re going to take on some heavy losses when it comes to options in general. I mean, it’s not like trading equities where you might get out for like a three or 4% stop.

11:15
I mean, you could in theory with options, but more times than not, you’re either taking complete losses or major losses.

11:21
Now, the difference between trading equities and trading options is you’re not trading with the same kind of position size.

11:27
If you were doing that, then you wouldn’t be able to survive if you were using the same kind of position sizes to buy that much in contracts for a stock.

11:36
Holy cow, the volatility that you’d be introducing to your portfolio would be insane.

11:42
But what’s not insane? Swing trade in the-stockmarket.com.

11:46
Yes, go to swingtradeinthe-stockmarket.com. It’s actually switched over to shareplanner.com.

11:52
But if you go to swingtradeinthe-stockmarket.com, it’ll take you to the place that you need to be on SharePlanner.

11:56
And essentially you’re getting all my stock market research each and every day.

12:03
That’s going to be my daily watch lists. That’s going to be the watchlist review of the watch list that I do in the afternoon.

12:09
That’s pretty cool. And then you’re also gonna get at the beginning of each week, you’re gonna get a master watchlist,

12:14
bullish and bearish one. It’s just showing you the different stocks that I’m, I’m looking to pull my setups from that creates my daily watchlist each day.

12:21
So you get that, plus you’re going to get big tech updates and the stock market updates as well.

12:24
So check that out. Again, Swing trade in the-stockmarket.com.

12:26
Tell them Ryan’s saying, yeah, I’m kidding.

12:32
Oh gosh, I think the Noah mills, maybe it’s already hitting me a little bit there.

12:34
I’m with them. I’m kidding.

12:40
I do have an old fashioned Noah’s mill. It’s not that great, but we’ll get to that in a little bit too.

12:40
I do have an old fashioned Noah’s mill. It’s not that great, but we’ll get to that in a little bit too.

12:45
All right #3 managing risk. He uses a stop loss set at 1 1/2 times ATR.

12:50
I’m not a huge fan of using ATR for my stop loss. It’s it’s kind of a popular concept that’s talked about in a lot of your old school books.

12:53
I’ve never really been a big fan of it. The reason why is sometimes that stop loss isn’t going to be below a key support level.

12:59
Sometimes it can be just above a key support level and then you get stopped out, it hits the support level and it bounces.

13:04
You’re like, what the heck, It happens. So I’m not a huge fan of trading using an average true range.

13:11
That’s what ATR stands for and the reason why I use a percentage as my guide. Like, for instance, my average stop loss is going to be about 3 to 5% on a single trade.

13:21
And I stick to that level for the most part because one, I think to be able to get a 2 to one return on your trades are far easier.

13:28
You know, you’re talking about, you know, on a three to 5% average stop loss, you’re talking about 6 to 10% to get a 2 to 1% return.

13:35
If you start trading like 10% stop losses, which a lot of you guys may say to yourself, oh, that’s fine, that’s not a big deal.

13:40
Yeah, But in order to realize that you got to get a 20% move and a lot of times you’re just not getting 20% move.

13:46
I mean, Meta’s been setting up lately and it even broke out recently, but you’re not necessarily getting a 20% move out of it.

13:53
But is a 10% move or a six to 10% move much more attainable? Absolutely.

13:57
So I do like it, but I don’t want it so tight to where it’s like, OK, I’m gonna go into Tesla with a 1% stop loss.

14:03
Almost guaranteed. I’m gonna get stopped out of that the next day.

14:06
So you had to have a little bit of a understanding for what you’re trading and realizing, yeah, maybe you could get away with a 1% or 1 1/2 percent stop loss on AT&T for a while.

14:17
But also AT&T moves like a snail. The other reason why I like the percentage range because you know, any kind of a loss I take between 3 and 5%, I’m comfortable with.

14:25
That doesn’t bother me too much. OK, it’s a dollar amount that I’m not too worked up about.

14:28
And so that’s a good because then that keeps the emotions even.

14:36
It keeps it all even across the board and also makes my position sizes the same as well.

14:48
So I’m keeping a position size that isn’t going to absolutely wreck me if things go bad.

14:54
So same emotions, same position size. That’s why I like using a percentage stop loss below my entry.

15:04
But notice how I say it’s typically between like 3 to 5%. Sometimes it can be 2 1/2, sometimes it can be 5 1/2, but it, it’s usually around that area there or something.

15:09
But the reason why there’s like a range there and I just don’t say, oh, 4% on every tray is because support can be different.

15:15
So when I get into a stock at 100, I’m not just, you know, arbitrarily saying, Oh, I’m gonna put my stop at $96 and if it goes below it, I’ll, I’ll jump out of it without any regard at all for what you’re seeing on the charts.

15:23
No, I’m looking at the charts. So if I see on one stock, you know that I’m looking to go long on, there’s a stop loss about 3% below the entry.

15:29
So I get in that 100, there’s a key support level at 97.

15:34
Then I’m gonna put my stop loss just below that, maybe at like 96.95 or on another stock. It could be the key support levels at $95 and I’m getting it at 100, and so I’m putting my stop loss just below the $95.

15:45
But there’s a Technical Support level there that’s important.

15:49
If I can’t find a Technical Support level, I’m probably not gonna trade it just because it doesn’t make any sense because it’s very easy to get stopped out when there’s no support.

15:57
That’s defining the line in the sand for me. If it crosses this level, I’m getting out number four.

16:03
What am I avoiding? Penny stocks, he says, and pretty much anything less than $10 a year, that’s good.

16:08
I mean, he also says he avoids utilities. I think utilities is changing a little bit from what we’ve traditionally associated it with.

16:15
And it may just be for a period that we’re seeing this. It may not last forever, but utilities are hot right now because of the whole AI thing, because of how much energy AI requires to run their programs to to run these semiconductor chips.

16:23
So there’s a lot of energy being consumed and as a result, these utility companies are making a big profit as a result.

16:35
So keep that in mind.

16:38
Communications is also evolving. So communications in the past we would think about like Verizon AT and TT Mobile, you know, the cell phone carriers, the stuff that it’s really boring.

16:45
But now you got Google and you got Meta in there.

16:49
So you can’t completely ignore it because you do have some big mega cap plays that can really rally that sector.

16:55
Even if Verizon and AT&T is sitting on its hands or selling off, they’re just so much bigger in comparison.

17:02
And then #5 how am I handling the profits? He says.

17:05
I made an interesting comment in my podcast about watching trades go from green to red, Beginning to think that I’m not taking profits as soon as I should.

17:12
Yeah. I mean, Grant, you can’t keep every stock going from green to red.

17:15
There’s going to be some that do that to you. I had a trade this past week.

17:19
So you had the market. I got long on SDS I think it was like 25.25.

17:23
It got up to almost like 25.75 or so. I was up about 2% at one point on the trade.

17:29
And then at like 12:00 there was this hard reversal. The market kept inching higher.

17:33
It’s like, OK, we’re at the 38.2% retracement, we’ll probably start stalling out here and resume the run lower.

17:39
And then it hit the 50%. It’s like getting a little bit uncomfortable with this and then like when the last 20 minutes of the trading session, the market just absolutely went nuts.

17:49
It was one of the biggest end of day rallies. It was like up 43 points.

17:55
But before it really got started, I said to myself, you know what, we’re starting to cross this 50% Fibonacci retracement level.

17:57
We’re not seeing any kind of pullback.

17:59
We’re going into end of month and going into the beginning of month, people will start putting money into the market probably on the Monday.

18:03
So I went ahead and got out. I think I would have been down like 2% on that, that particular trade had I held it over the weekend.

18:09
But what I didn’t want to do is I didn’t really want to see a trade that was up once 2% on go from green to red.

18:15
That was just not acceptable. I wanted to at least come away with something, even if it was just a few pennies.

18:17
I sold out at 25.30.

18:21
And that was also in conjunction not with just the fact I didn’t want it to go from green to red.

18:26
But I’m looking at the charts. It’s like this is not going to work out in my favor.

18:28
I knew it wouldn’t.

18:28
So not letting stocks go from that are that are well in the green, go back to red.

18:33
There’s a reason why I take partial profits along the way is because it preserves my emotional capital.

18:36
For one, it gives me a really good chance of ending the trade profitable if I’m able to take a third off the table in profits.

18:41
If I’m able to do that, my chances of being profitable on the trade exponentially increases, but if I don’t, I’m more than likely to not get out at the best exit price possible.

18:48
Now on SDS this past Friday, I was wanting to get like 3 to 4% up before I took that first profit.

18:52
I got it to like a little over 2% I believe is what it was.

18:59
And looking back, I’m like, man, I wish I would have just gone ahead and taken some profit there.

19:06
I didn’t do it. I it wasn’t part of my trading plan, But if I had, it would put on a lot.

19:11
It would have put a lot less stress on me on making that end of the day decision to say, you know, I just need to go ahead and close out this whole position.

19:18
So wrapping this up, Nietzsche has some pretty good things that’s going in his favor.

19:27
I think that he’s setting up pretty well here.

19:35
He’s got a pretty well defined category of things that he’s willing to do and what he’s not willing to do, things that he avoids.

19:40
Again, I would highlight the idea behind getting into options just because you have an account size that can support it.

19:44
It’s like that movie Jurassic Park. It’s what, you know, trying to figure out if we could do it.

19:51
We didn’t ask whether or not we should do it.

19:55
And I always say that’s a great illustration when it comes to trading options.

20:02
It’s not a matter of whether you can do it. It’s a matter of whether you should do it.

20:02
And to wrap this podcast episode up a little bit further, I told you I was drinking Noah’s Mill for my old fashioned.

20:08
I poured some of this and there I’ve got about 1/2 bottle of this stuff. I’ve, I’ve sipped on it over the, over the past couple of years.

20:10
I don’t think it’s the worst bottle. I don’t think it’s the greatest bottle.

20:20
I probably put it in the overrated category cause a lot of times people will spend a little bit more than they should for it, especially during the COVID years where all these bourbon bottles are going way overpriced.

20:22
But anyways.

20:25
This has got 57. Where’s that at?

20:32
57.15% alcohol, 114.3 proof. So it’s a strong pour. But let me tell you though, when I drink it, it’s got like a cough syrup flavor to the old fashioned.

20:39
I don’t dig that at all. Now the finish was good.

20:41
Now, if you remember the, the last one I did, I, I talked about how it had a little bit more of an ethanol finish.

20:46
It was the Russell single barrel. It was a good old fashioned selection, but it had a little bit of a ethanol finish that wasn’t too crazy about that, kept it from going a little bit higher than it should have.

20:54
But in this case with Noah’s Mill, it’s got like a cough syrup flavor that I detest in the very beginning.

21:05
Now, if I drink this stuff, drink a little swig out of the bottle just to remind myself what it tasted like back when I last had some of this.

21:10
Yeah, it tastes a lot better neat. It’s not bad at all neat, but again, I do think it’s kind of overrated bottle.

21:14
But for whatever reason, when I put it in there with the bitters and I put it on the simple syrup, it tastes straight cough syrup.

21:24
I don’t know if it’s the combination of the simple syrup that does it or what, but it’s just not good.

21:29
I I’d, I’d give it a 66.2 for a old fashioned.

21:34
I would never use this on an old fashioned ever again. Just drink it neat.

21:38
That’s Noah’s Mill. Again, it’s not to disparage the the bottle itself.

21:42
The bottle is a is a decent drink, but making it into an old fashioned it is not the answer.

21:53
If you enjoyed this podcast episode, I would encourage you to leave me a 5 star review on whatever platform you’re listening to me on.

21:59
I saw one just the other day from a guy who left me some really kind words.

22:07
It was K88 Joshi on Apple. So I appreciate that five star review and I appreciate everybody else that’s left me five star reviews in the past.

22:17
It’s really one of the major reasons why the podcast has become as popular as it has been because you guys have been willing to continue to leave your encouragement.

22:23
So I really do appreciate that. Plus, check out swingtradingthestockmarket.com and send me your questions ryan@shareplanner.com. We do appreciate those.

22:29
Thanks for listening to my podcast, Swing Trading the Stock Market.

22:37
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22:43
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22:55
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23:04
If you have any questions, please feel free to e-mail me at ryan@shareplanner.com.

23:04
All the best to you and I look forward to trading with you soon.