Premature Trading Entries | Podcast Episode #423

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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.

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Pitfalls of trading and. Most importantly to.

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Let those. Winners run wild.

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You can succeed at the stock market and I’m. Ready to show you how?

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Hey everybody, this is Ryan Mallory with shareplanner.com’s Swing Trading the Stock Market, and today’s episode we’re going to talk about premature trade entries.

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We’ve all had them. We all know what that usually entails.

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It’s not usually a good thing. If it turns out to be OK, we usually don’t even think about the fact that we had a premature trade entry into a stock. We just don’t even care.

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But when it’s wrong, we start to think to ourselves, why did I get in at that point? Why did I start trading that stock where I knew that it wasn’t ready to break out yet?

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So that’s the gist of this e-mail today we I got an e-mail, I’m going to call this guy Clyde. Good old Florida redneck name.

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And I don’t use people’s real names because they may not want to be associated with the show 10 years from now.

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Who knows, but I’d try to do that out of consideration or courtesy to them. So anyways, Clyde writes, Hey, Ryan, I’m a regular listener of your swing trading the stock market podcast.

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And I have to say that your insights and strategies have been incredibly valuable to me.

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However, I find myself struggling with a specific issue that I hope you can address in a future episode.

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As an eager trader, I often find myself jumping into trades too early, driven by my anxiety and fear of missing out on potential gains.

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Instead of waiting patiently for the ideal breakout confirmation, I tend to enter positions prematurely which often leads to sub optimal results and increased stress levels.

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I understand the importance of timing my entries and waiting for the right setup, but my emotions seem to get the best of me in the heat of the moment.

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I would greatly appreciate it if you could share some techniques or mental strategies to help manage my anxiety and develop the discipline to have wait for the optimal entry points.

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Thank you for consistently providing valuable content and taking the time to read my e-mail. I look forward to hearing your thoughts and implementing your advice and my trading journey.

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Best regards Clyde. Thank you, Clyde.

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And I don’t think that you’re alone in this. And the reason why I say that is because I see it a lot from especially like with new members to the trading block.

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I’ll see a lot of times where I’m posting different trade ideas on stocks and I’ll say, hey, look at this bull flag pattern. It’s trading inside the bull flag pattern, but you want to wait until it breaks out of the bull flag pattern before you consider it daggum it almost every time there is multiple people that will get into that stock while it’s still trading in that pattern.

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I hate to see it because often times that stock may not break out. Not every trade setup or idea that I come up with is going to result in the breakout in the direction that I want.

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And so if you get in early, before you even know whether or not it’s going to break out, you’re assuming a lot and then you’re taking on extra risk that you don’t need to take.

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And I’ll even point out exactly where I am going to get in at or where I would consider getting long at on a particular trade.

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But what I don’t want to see is traders getting in before then.

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And I think one of the reasons for that, and there’s about six different points that I want to make here today.

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The first one is, is that they see cheaper prices and they think better prices, but cheaper prices do not equal better prices.

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Cheaper prices can often times mean unnecessary losses because if you have a stock that’s in a bull flag pattern, yes, good chance that it’s going to break out of it, especially if the market’s still staying pretty strong.

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But if the market starts to roll over, there’s a chance that that could roll over as well.

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And all of a sudden you got a stock in a free fall that you didn’t even have to be in in the first place.

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So cheaper prices do not equal better prices. We think about it too from the standpoint it’s like, well, if I get in this price here, instead of waiting it for it to, you know, jump another 5%, I can get, you know, three or four more extra shares.

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But it doesn’t matter about that. That’s not what we’re in it for.

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Rent it to make gains on a trade regardless of how many shares you’re able to get. I look at it from position sizes.

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If doesn’t bother me if I’m buying 3 shares that represent 12% of My Portfolio or 3 million shares that represent 12% of My Portfolio because 12% of portfolio is what I pretty much commit to each one of my trades.

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I’m just looking at the fact that I’m committing that specific dollar amount to every one of my trades.

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Don’t care about how many shares.

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I can’t even tell you how many shares I own of any of my trades ’cause even when I’m selling like partial profits, for instance, I’m just hitting, you know, close 1/3 of My Portfolio.

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I can do that on Thinkorswim or I’ll tell close half of it or close the whole thing, but I don’t really look at the shares at all.

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So don’t get caught up in the cheaper prices. It means that I’m going to get better prices.

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The chance of success on your trade dramatically decreases if you get in earlier. I mean, think about it.

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If the trade works out or plays plays out the way that you hoped that it would and you’re getting in earlier, you’re getting in while it’s still in that pattern, whether it’s a triangle pattern or a both lab pattern.

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Maybe it’s a unconfirmed inverse head and shoulders pattern or a cup and handle pattern, but you get in early and the trade still works out for you. That’s great.

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I’m glad it didn’t turn into a loss. But guess what?

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The person who waited, it worked for them too, Still worked out for them.

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Yeah. But if the thing didn’t confirm for you, that person never got in and you did.

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You got in early. He was able to avoid a losing trade.

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You did not. And so you take kind of loss that you didn’t need to take on.

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And that’s what I mean. When you get in early, you’re adding another variability to a trade result that’s unnecessary.

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Yes, if you win on the trade, so does the person that waited for the confirmation, assuming that the trade breaks out.

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But if you get in early, really the worst thing that can happen to you that doesn’t happen to the other trader that waited for the breakout, the worst thing that can happen to you is that it doesn’t break out and it goes lower.

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So you just introduced another variable that the person who’s waiting doesn’t have to experience.

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But if it does work out, the person who waits still wins. But if it doesn’t work out and it doesn’t confirm you lose, you’re essentially injecting nothing but loss into your strategy.

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And it’s unlikely to increase your profits.

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If anything, it’s going to decrease your profits

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There’s this need to get ahead of others. We see where the breakout level is.

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We think that, OK, that breakout level, everybody’s gonna be trying to get in on that stock, so I’m gonna get in ahead of others.

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You think that other people aren’t thinking the same thing? There’s millions of people that are trained in the stock market every day.

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People are having the same exact thoughts that you’re having. I’m like, oh, I’m gonna get in one penny before the breakout thinking that you’re gonna get a better price.

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None of that stuff really matters.

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Honestly, the only way it might matter is if you’re trading at I’ll liquid stock and you’re worried about some big time pumper coming in and pumping the stock higher before you can get in.

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And if you’re trading those things, you already have a losing strategy on your hands. So what does it matter?

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But if you’re trading large mid caps, some small cap stock, stocks that have liquidity to it, stocks that are trading at least like 500,000 to 1,000,000 shares, then I wouldn’t worry about trying to get in early in hopes that you’re gonna beat everybody else to the punch.

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They think they’re gonna get a better prize.

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You’re not. And again, by doing that, by trying to get in before the pattern actually breaks out, you still risk. And I’ve seen it happen before.

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I’ve seen people try to get in a penny earlier than they should and they get stuck with a losing trade.

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And I see the same thing with stopped. They see a key support level. A lot of times, I’ll say what my stop loss is and you’ll get a whole bunch of people that’ll try to put their stop losses right ahead of me.

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And you know how many times I’ve actually seen stocks get right down to to like a penny before I get stopped out and completely reverse and go right back up?

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Yeah, well, all those people who were trying to be cute and put their stop loss 1 penny above me, they got knocked out of the trade and I didn’t.

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So getting in and ahead of others, hoping for a better price or hoping that if you were to get stopped out, you don’t get stopped out right at the same time can also lead to unnecessary losses, premature trade entries, results and unnecessary losses.

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Gotta remember that trading large caps doesn’t really make a difference when you’re trying to get in at the breakout level. There’s so much liquidity in those trades.

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The thought that one other average Joe’s going to move the market or even like 100 average Joe’s are going to move the market on you to make it to where it’s not a valuable trade setup or a good trading opportunity is just ridiculous.

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The thought that one other average Joe’s going to move the market or even like 100 average Joe’s are going to move the market on you to make it to where it’s not a valuable trade setup or a good trading opportunity is just ridiculous.

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But what’s not ridiculous is swingtradingthestockmarket.com.

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Go ahead and check that out. That’ll take you to my SharePoint or website and there you can see the different packages that I have to offer.

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If you wanna trade with me, you can just go to the trading block.

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If you want to just get all my stock market research, you can get the swing trade in the stock market package that goes alongside of this podcast.

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With it, you’re going to get all of my research each and every day, daily watch lists of all the different stocks that I’m looking to potentially trade.

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Just the day alone. I made two trades off of that list.

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So you’re gonna get my watch lists. You’re also going to get a watch list review.

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I’m going to review the stocks on that watch list, see how they’re doing. It’s like, OK, what’s good about them?

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What’s not so great about them.

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And then I’m also going to give you at the beginning of each week, my master bullish and bearish watch list of stocks that I am following throughout the week and what I’ll usually get my my setups from.

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Plus you’re going to get regular updates on all the big tech stocks, plus regular updates on the stock market as a whole.

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So really cool, really good videos that you’re getting here, guys.

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Only place you can get them, so check it out swingtradinthestockmarket.com.

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So we’ve talked about the first three things here. We’ve talked about cheaper prices do not equal better prices.

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Your number 2, the chances of success dramatically decreases if you try to get in earlier.

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Number 3 You’re not doing yourself any favors by trying to get ahead of others on the trade

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Keep trading simple.

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Don’t try to outthink yourself. I think so many times people were trying to outthink themselves.

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And this goes back to #3 too, where you’re trying to get ahead of others. You’re trying to outthink the market.

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You think that you can figure out the market in a way that it won’t affect you or, or it’ll pad your bottom lines.

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You’re trying to outthink yourself. You’re trying to outthink the market.

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Don’t do it.

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And #5 this is one that I, I get a lot of times they’ll say, but by getting in now, I can get a better entry and a tighter stop loss. And that would result in a bigger reward.

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Yes, in theory you can do that. But again, you’re taking on unnecessary losses.

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And those unnecessary losses far outweigh trying to get into a stock before it’s actually breaking out of the pattern that you’re watching it trade in.

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And then you also have the time element.

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And the time element means that a stock could stay in the pattern far longer than you could ever imagine.

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And during that time, you could have made two or three other good quality trades before it actually broke out.

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And then you, if you would have not tried to trade while it was still trading in the pattern and instead waited for it to break out, you could have used that same capital for other trades.

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I’ve, I’ve seen some of these stocks, they’ll stay in the pattern way longer than you ever expect. It doesn’t invalidate the pattern, but it’s just a lot longer than I’ve seen them go on for like a couple months.

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And during that time, I could have made three or four different trades with that same money.

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So you don’t want to tie up your money in a trade that’s not even validated, that’s not confirming, that’s not breaking out, that’s not bouncing.

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You want to wait for those trade confirmations. You want to wait for it to break out.

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And I think often times when we’re saying, oh, but I can reduce the risk, don’t you like reducing the risk?

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Yes, I like reducing the risk, but you’re also increasing the risk in other ways by getting in earlier than when it’s starting to break out.

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Because if it doesn’t break out, then you’ve gone into a trade you should never been in the first place.

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But I think by trying to say, well, I’m making the risk tighter. We’re using that as a way to justify our trading decisions when we know that they’re actually wrong.

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And then they’re number six.

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And this is what you really have to watch out for. We feel validated when we get in early and then we also still see the move happen.

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We start to justify what we did going forward. It’s like, oh, it worked, didn’t it?

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They’re going to do it again. And even if they lose on the next one, they’ll still do it again and probably again and again and again because they’ll hang on that first time where it actually worked out for them.

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And all these other ones are just happened to be outliers when really the first time it was the outlier where it worked out in your favor.

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In all, by getting in early versus the person who waits for the breakout.

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The only thing, the only outcome that you’re adding is a scenario where you lose when you didn’t have to lose.

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That’s the only scenario that you’re adding to your trade in terms of outcomes versus the person who waits.

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We talk about emotions a lot on this podcast.

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And I think that emotions are usually the main driver that leads us to get in.

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We’ll act like, oh, we don’t care. I’ll just see if it breaks out.

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I’ll, I’ll go ahead and buy it now. And if it breaks out, that’s great.

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And we’ll look at that kind of response as being like, see, I don’t have any emotions. I don’t care, but you do.

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You’re just suppressing those emotions. We all have emotions.

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Nobody wants to lose in the stock market. Nobody goes into the stock market because they don’t care.

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We all care.

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So to recap, the six points that I made, and I kind of made a 7th one but

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#1 cheaper prices do not equal better prices

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#2 the chance of success dramatically decreases if you get in earlier because you’re adding another variable to the trade that you, if you would have just waited, you didn’t have to assume

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#3 getting ahead of others doesn’t really get you ahead

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#4 keep your trading simple. Don’t try to out think the market

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#5 don’t be like, hey, but I can get my risk tighter. You’re just trying to justify why you got in before the actual breakout.

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And number six, the biggest problem that you could do is actually get in early on the trade and then feel validated for why you should do it again in the future.

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And then the 7th one was also the time element that you’re essentially tying your capital up when you’re in a trade and you don’t need to be in it.

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So with all that being said, I do have a new bourbon to try for my old fashioned.

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And again, for those who aren’t familiar with my bourbon pedigree, do I, I’m not sure if I call it bourbon pedigree, but let’s call it bourbon pedigree ’cause I’ve reviewed probably over 200 bottles of bourbon on this show in the past.

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And I, I took a little bit of a hiatus and now I’ve come back to it because I need to figure out something to do with a lot of these bottles of bourbon.

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So what I want to do here, I have a Colorado single malt whiskey.

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It’s, maybe that’s why it was so bad. I didn’t even realize this was a malt whiskey.

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It’s actually not even a bourbon, is it?

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Anyways, you don’t have to necessarily use bourbon for your old fashions. I think it’s preferable, but in this case, it’s Rocky Mountain Strahan’s Original Single Malt Whiskey.

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I did a review on this one a long time ago.

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I probably knew back then that it was a single malt whiskey. It just kind of left my mind, I guess, over time, since the last time I tried it.

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I haven’t really drinking too much of it, but has a pretty cool bottle nonetheless. They put a little measuring cup thing on the top of it, which is a kind of a nice touch to the bottle.

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But anyways, this whiskey does not taste that good.

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I’m gonna give this one like a 5 seven. It’s very nutty.

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I don’t like that. And then it’s like it’s like somebody took like freaking Tums or something and grinded it up and like dissolved it into the into my drink.

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It doesn’t taste good at all.

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And and that’s what’s kind of amazing because I haven’t experimented with a lot of bourbons in the past when it comes to my old fashions, The ones I’ve used in the past have always been, well, right now I always use Evan Williams, but in the past I’ve used like Knob Creek nine year. That’s a pretty good one, but the prices went up too much on it.

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And I think old granddad can be a pretty good one if you want a really strong one.

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But this one here, I’m I’m amazed at how many of them are starting to taste like cough syrup on some of these.

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And this one, it goes beyond coughs or it tastes like somebody grinded up Tums and put it into my old fashioned.

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So I definitely would not try that one and it’s not that good of a bourbon either.

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I do appreciate those and send me your emails. I have not been getting a ton of emails from people lately.

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The audience retention is great. More people than ever are listening to the podcast, but I need you guys to send me some emails too.

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Send me your questions, ryan@shareplanner.com. I do appreciate those.

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I do read them and I do make podcasts out of almost every one of them.

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So you’re really without excuses.

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If you’re listening to this show, you have questions about trading, why don’t you just send me to your emails?

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Tell me your back story, tell me what’s plaguing you and, and I’d love to make a podcast episode out of it and check out Swing Trade in the-stockmarket.com.

16:49
Thank you guys and God bless.

16:54
Thanks for listening to my podcast, Swing Trading the Stock.

16:54
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17:22
If you have any questions, please feel free to e-mail me at ryanshareplanner.com.

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