A New Trading Strategy | Podcast Episode #425

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 shareplanner.com’s Swing Trading the Stock Market and today’s episode we are going to go over a fellow’s swing trading strategy and what it entails. Is there any room to improve upon it or is it good just the way that it is?

0:48
So that’s what we’re going to talk about. I always give everybody a good old Florida redneck name just because I don’t want to use their real identity and being that I’m from Florida, that only makes sense. So but this one though, he actually gave me the name to use for this podcast episode.

1:04
So I’m going with the name Jerry. Now when I think of Jerry, I think of Jerry Seinfeld.

1:08
But hey, I’m if you have a name that you want me to use instead of me assigning you one, feel free to do it.

1:13
So Jerry writes, Hey Ryan, love the podcast. Thought I would drop you some material.

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I would love to hear your thoughts on my trading strategy. I AM 60 years old and retired.

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I had a great career on Wall Street, predominantly institutional sales relationship management, but have been an avid swing trader for decades.

1:31
Here’s my strategy. I too have proprietary algos.

1:34
I downloaded a decade’s worth of S&P HLC data and correlating ETFs for SPY, SPXL, and now the new SPYU, formerly XXXXX for the extent of time that they were available.

1:49
I have a spreadsheet that can launch the space shuttle, but it signals buy and sell cash, not shorts levels that are freakishly accurate.

1:57
But in conjunction with that I also use 4 technical indicators. More on that later.

2:01
I minimize my focus to just the S&P 500 index and those related ETFs. I used to track lists of stocks but found myself in an analysis paralysis as my field of fire was too wide.

2:12
It was diluting my focus.

2:15
I spent more time looking for the perfect set up versus actually trading. I also chose the S&P 500 or SPX and related ETS for two reasons.

2:23
First it limits my research time and 2nd, I avoid single stock risk. You referenced quite a bit pre announcing earnings etcetera that can impact a stock, but the underlying stock is usually unscathed by single stock hiccups.

2:31
Also, I never play shorts.

2:37
I am a long trader only. All you have to do is look at a long term horizon chart and the markets will naturally lie rise over that period of time.

2:44
If the markets are screaming red, I would rather be in cash than worrying about scalping a quick short.

2:50
Took me too many years and meaningful losses to accept the fact that I suck at going short.

2:55
My time period for charting is 4 hour cycles, which means twice daily you’re getting candles. I find that the daily charts can be too infrequent for a good entry and exit, and my hourly charts tend to be a tail chasing exercise.

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Would love to hear your thoughts on that time block as well.

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Lastly, my technicals are as follows. I use an OHLC candle with one an outer impulse coloring.

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I also use 2A super trend as a broad indicator of my entry exits. And #3 I use the COPIC curve and #4 ADX with a plus DI and minus DI.

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Again, all these are set up on 4 hour charts. Hope you guys are with me so far here ’cause we’re we’re getting into some, not necessarily weeds,

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but we’re gonna get into some technicals here, which I guess is kind of like getting into the weeds of things.

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But anyways, hang in there with me. He goes on to say my real focus is on SPY.

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It is like the body hips of a wrestler. Where that moves the correlated ETFs will follow.

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I find focusing on SPYU or SPXL you can get some real head fakes. I wait for the green ADX to cross over and red ADX initial indicator.

4:04
I then wait for the green ADX to cross over the black line and optimally cross over the 30 line. You had a podcast on premature entries?

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I find that entering before the green line crosses the 30 can be risky. Topic needs to be positive or on an angle of ascent that is aggressively trending towards the zero line.

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Supertrend does not need to be positive, but it sure does help.

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And then finally, most importantly, my own algo. My proprietary algo needs to indicate that it is OK to enter the position.

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This swing trading strategy for me provides me about 10 good setups per year. I tend to like the leveraged DTFSP XL and SPYU.

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After all, if I am basing my decision on SPY, it might as well use the leveraged ETS to gain more return.

4:47
That being said, there is a decay element to the value of those ETS, but my average trade is between three to 10 days, so I am not too concerned about the decay or drift.

4:55
I set my mental stop loss of 4% and a target of six to 10%.

5:04
But if I make my 6% by day three, I usually take that off the table. My strategy has done me well.

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About 46% rate of return per year. Net sounds like a lot of rules, but I find strict adherence to those rules has done me well.

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Deviation has proved disastrous and my data entry and chart analysis takes me about 3 minutes per day.

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Being retired, I have no desire to be glued to a screen all day. Hope you like my analysis.

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By the way, I use the word strap in my e-mail address as an acronym for Swing Trade. Results are predictable.

5:34
Happy trading, Ryan, Jerry

5:34
Happy trading, Ryan, Jerry OK, there was a lot to go over on this one. And by and large, this was a fascinating e-mail because he gives so much information and insight into his trading strategy.

5:44
And I’ve been trading since I was 11 years old in different forms, but primarily I’ve been doing swing trading since the early 2000s. So a long time.

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And what works for me doesn’t always work for everybody else because we all have different approaches to the market.

6:00
We all have different lifestyles. So it’s really cool to see somebody that has created a system for themselves that works specifically for them and something that we can still learn from as well.

6:05
Some of the indicators that he talks about, I don’t have a lot of experience in them and that’s OK too, because I just, I haven’t had to rely on those in the past.

6:13
I’ve heard of them, I’ve looked at them before, not really traded with much of them.

6:19
I mean, I mean, I know about the ADX and the positive DI minus DI haven’t done too much with Cobbett curve.

6:26
I’m I’m familiar with OHLC candles, elder Impulse, all that stuff. But by and large, this is something that he has set up for himself to work for himself, for his lifestyle.

6:36
He’s 60 years old, he’s retired.

6:37
He doesn’t want to sit in front of a screen all day. I sit in front of a screen all day and it doesn’t bother me at all.

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Granted, I’m, I’m 43 years old and not 60 years old, but maybe by the time I’m 60 years old, I’ll be creating a system for myself that requires less time in front of a screen.

6:50
But not right now. I don’t mind it.

6:52
So let’s go over some of these things right out of the gate. I don’t like to suggest improvements on a system that already works because if he’s got something that’s working for him, that’s awesome.

7:00
I don’t want to sit here and like, oh, maybe you should do this instead or do that instead because if it’s working for you, that’s what really matters.

7:06
And if he’s making 46% a year on average, that’s I’d be very hesitant about wanting to change anything around there, especially when you’re doing it off of 10 trades on average.

7:14
But if you’re just looking the the play around with it without actually making changes to it, like let’s say, hey, let’s back test this strategy and see if we can improve the results.

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Well, if if you’re gonna do that, some of the things that you can do and some of these are just fairly simple ideas, but it can, for instance, if those listening have a strategy of their own, these this can help you to perhaps fine tune it a little bit more or to maybe take some of the unnecessary indicators out of it.

7:43
So one of the things that when I feel like I’ve found a good strategy for for doing well in the stock market and it is based off of multiple indicators.

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One of the things I want to make sure is that one of those indicators isn’t holding it back.

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Because you can have a really good trading strategy. And there might be an actual indicator on that you’re using or something, you know, regarding an algo formula that you’re using that might be even holding it back that you don’t even realize because it’s already doing good.

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But if you took that 1 indicator out, it might do even better.

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So consider back testing strategies by removing an indicator or maybe tightening the parameters on that indicator, or even try loosening the parameters on that indicator.

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You can try it with multiple indicators.

8:32
If you, let’s say you have a trading strategy that has 10 indicators on, I mean, that’s probably a lot.

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But let’s say you did and you took two of them out and you were able to improve the trading strategy by another 5%.

8:38
That would be worth it, would it not?

8:45
And when you’re back testing, you want to make sure too, that you have a good understanding of the drawdown of that strategy.

8:51
So for instance, if you got something that’s yielding 20% per year and you have a average drawdown of about 4%, that’s not bad.

8:54
That’s pretty tolerable.

9:03
But let’s say you remove one of the indicators from it and it jumps the trading strategy to 30% annual returns.

9:08
On the surface, you think that would be great.

9:15
But what if the average drawdown’s 25%?

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You might not really be liking that too much at that point.

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You might say to yourself, might not wanna pull that trading strategy for that extra 10% if it’s going to increase my draw downs by an average of 21%.

9:25
The other thing that I would tell Jerry here is, is that OK, you, you’ve got a system that uses the SPY, but with SPY becoming much more tech heavy of late because of the improving evaluations of Microsoft and Apple and NVIDIA and, and just a heavy tech presence in general.

9:36
Have you considered trying this strategy with the QS using QQQ or maybe TQQQ for for the leverage stuff?

9:43
Or maybe even just trying it with QLD?

9:52
I think that could be something that would be worth looking at seeing how your system works with the queues.

9:56
I’d be a little bit hesitant on the Dow just because it’s 30 stocks and it’s all price weighted, which I hate that aspect of it.

10:01
I would be hesitant trying to use it with the Russell because I think the Russell can go in such drastic opposite directions as SPY, but by and large the queues and SPY tend to do a lot of the same stuff together with the QS being much more of the aggressive ETF because it’s so much more heavy tech.

10:13
Jerry also doesn’t like to play shorts now.

10:17
I would say most of the time the stock market there’s not a reason to short the market. I do short stocks.

10:21
I have done podcasts that have contemplated whether or not shorting is dead.

10:33
I think in large part, I think short shorting stocks have been greatly handicapped at the very least over the years just because of how involved the Fed is in trying to keep us from ever having a recession or a pull back.

10:39
I think nowadays that we have three stocks now that are worth over 3.2 trillion with NVIDIA, Apple and Microsoft.

10:47
If those three stocks started collapsing, would the Feds or would Congress consider a bailout or maybe even the Federal Reserve?

10:55
I think it’s possible.

11:02
I think, I think now we’ve moved on from banks being too big to fail to individual tech companies perhaps being too big to fail.

11:09
If you take $9 trillion and you start dropping it by, you know, 30 or 40%, let’s say there was a major crash, like what you had in 2000, that’s gonna wreak havoc on the entire stock market.

11:21
I mean, you take the S&P 500 this year alone, 20% of its gains comes from NVIDIA by itself.

11:26
So you imagine NVIDIA collapsing and what that would do to the market or take all three of them collapsing.

11:31
Yeah.

11:31
I could honestly see where the Fed would try to bail out individual tech company.

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We haven’t seen it yet, but don’t be surprised if one day down the road they say, oh, Apple’s too big to bail.

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So the one thing that stands out to me, and well actually before I get to what stands out to me, make sure to check out swingtradingthestockmarket.com.

11:44
That is my website that goes hand in hand with this podcast.

11:53
When you go to it, it’s gonna take you to shareplanner.com and just show you the different features, research features that you can subscribe to that goes alongside great with this podcast.

12:04
With Swing Trade in the stock market subscription, you’re going to get multiple updates throughout the day.

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In the morning, you’re going to get my daily watch list.

12:14
These are the stocks that I’m looking at for potential swing trade setups. Also, I’m going to do a watchlist review video on those swing trades later in the day.

12:14
Just explain what I think went well with those stocks. What did not go so well.

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And I’m going to provide at the beginning of each week a master bullish and bearish watchlist that shows you all the stocks that I’m I’m considered considered bullish on versus bearish.

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And I’m going to give you updates on the big tech stocks throughout the week, plus updates on the overall market.

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So it’s a really good deal. I highly recommend checking it out.

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swingtradingthestockmarket.com.

12:47
So what stands out to me on this trading strategy that I find a little bit odd, it would be the four hour charts.

12:52
And the reason why I say the four hour charts is a little bit odd is that I think that 4 hour charts work well with futures.

12:55
I think it works well with crypto.

13:04
And the reason why is because they trade well, in the case of crypto that trades 24/7 futures trade 24, five, but they’re trading the days that they’re open.

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They’re trading 24 hours a day, yes, with some breaks in between.

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But overall, you can, you can work with a four hour chart on the futures.

13:18
When it comes to equities, what makes it weird is for one, how is the platform going to interpret what the four hour mark is? So I looked at my TC2000 and I looked at my Thinkorswim and they both interpret 4 hour charts differently.

13:25
So for instance, Thinkorswim sees a four hour period on equities or on ETFs ending at 1:30 PM and then the next one ending at 4:00 PM.

13:35
Well, why does it not go 4 hours on the second one? Because there’s only 6 1/2 hours of trading during the day, so only one can be a full 4 hours.

13:43
The other one’s going to be 2 1/2 hours. So on Thinkorswim it goes from 9:30 to 1:30 and then 1:30 to 4:00.

13:49
So the first one’s 4 hours, the second one’s 2 1/2 hours, but you go on Thinkorswim and it’s gonna go from 9:30 to 12:00.

13:57
That’s only 2 1/2 hours on the first one and then from 12:00 to 4:00. So it’s actually the flip of Thinkorswim.

14:05
So I’m not saying that it would necessarily greatly impact this trading strategy. I don’t know because I don’t know the algorithm that he uses, but I would think that you could get different results based off of are you using the Thinkorswim candles or are you using or in his case OHLC or are you using TC2000’s interpretation of a four hour period?

14:25
What I would be, if it was me, I would want it to be consistent across the board.

14:35
So for me, what I would be looking at are three hour, 15 minute charts that would make it to where the intervals are perfectly even because you really don’t have true 4 hour charts when it comes to equities and ETS because it’s only a six and a half hour training session.

14:45
So one’s going to be four, one’s going to be 2 1/2. But if you divide it in half, you get 3 hours and 15 minutes because it’s, you know, 6 1/2 hours divided by two in terms of minutes.

14:52
That comes out to 195 minute charts.

14:57
So on TC2000, for instance, I have 195 minute chart already in place. I can look at it and it’s gonna give me two even candles each time.

15:08
So maybe one thing to consider doing is looking at how does that strategy perform with 195 minute candle because I do think it’s difficult to apply the four hour charts to a daily handle on stocks or ETS.

15:22
Now towards the end of his e-mail, he’s talking about Jerry here is talking about using a mental stop loss of 4% and a target of six to 10%.

15:29
One of the things that gets me nervous about mental stop losses is how easy it is to slide, slide it down a little bit.

15:38
So if I’m using a mental stop loss, for instance, and I can tell you this is this is what I would be, you know, inclined to do. It gets close to the stop loss.

15:48
Let’s say I get into a stock at $100 and I have a mental stop loss at $95 and it gets down to 95 O1. I’m like, oh crap, I’m gonna get stopped out.

15:56
And so then I start putting in the order, you know, OK, let’s do a stop order at 95 to sell the stock.

16:03
And then as I’m putting it in, it hits, it hits 95. I haven’t hit the send button yet, but then I’m watching.

16:10
OK, let’s just make sure that it doesn’t hit it and then go right back up ’cause I hate it when that happens.

16:16
And it does happen. It happens all the time when one’s trading with hard stops.

16:19
You’re going to get stopped out at times and it’s gonna go back up. It’s just a matter of fact.

16:24
So I haven’t put my, in this case, I haven’t put my order in yet to close out the position. So I’m watching it now.

16:30
It’s down to like 9490 and I’m like, OK, probably should go ahead and close this out. But let’s just, let’s just wait.

16:36
I’m gonna go downstairs and make myself a sandwich and I’ll come back up and see where it’s at then.

16:43
So then you come back and it’s at 94 flat. Like, oh crap, now I’m feeling stupid.

16:47
Now I’m blowing everything out of proportion. I need it to come back just so I can go ahead and get out of the trade at where I wanted to originally get out at at 95, but instead of now it’s at 939291.

16:55
You, you see, you get the point. Mental stops are very dangerous in that regard because there’s a slippery slip, a literal slippery slope to where you can say I’m gonna let this one slide down a little bit further and just see if it doesn’t come bouncing back.

17:01
And that’s that. That’s what I do with mental stops, but I know there’s a lot of other people that’ll do it as well.

17:07
So I’m not just speaking for myself. So you wanna really, really be careful.

17:13
I, I prefer hard stops. Let it trigger, get out of it.

17:20
And so when he’s doing spy ETFs, I’m gonna guess cuz he doesn’t talk about position size at all. I’m guessing that it’s all in.

17:27
So if he has $100,000 account or a $5000 account, it’s gonna be all in on that trade.

17:38
So he can get away with that because it’s SPY, it’s 500 different companies.

17:46
Yes, there’s, there’s still risk going all in on anything, but there’s a lot of people who would do that just because you are spreading your risk out among 500 companies.

17:53
So that’s the only way in my mind that I can see where he would be able to get 46% returns on 10 trades a year.

17:58
But that’s great though. I mean, I’m, I’m thrilled that somebody’s got themselves a system that’s doing that well for them.

18:06
And it sounds like he doesn’t have to spend that much time in front of the computer. And it’s so important, like I said in the beginning of this episode, to have strategies that reflect your lifestyle and, and how you’re comfortable with trading.

18:15
Because often times if we just try to, for instance, if if I took this guy’s algorithm and tried to apply it to myself, I might not be that good at it.

18:20
I might start messing up or slip in or whatever.

18:26
But not all. Even if you know it’s a guaranteed strategy that’s going to make yourself money if it’s not something that lines up with what you’re able to do as a trader or be able to handle.

18:33
Some people are successful and they can tolerate 20% drawdowns.

18:36
For me, I can’t do that. I’m down 20%.

18:38
I’m probably gonna panic. So.

18:50
So it’s good when you’re creating these systems to make sure that they are built towards you as a person and your lifestyle and your risk tolerance and your emotional disposition.

18:50
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.

18:55
Those things do mean the world to me.

19:04
I read them all sometimes, you know, I, I, I probably get a little hurt over some of them, but by and large, you guys are really nice to me and I, I do appreciate that.

19:11
So yeah, keep sending the love my way there on those reviews.

19:17
If you have a strategy you want me to look at, or if you have a story or if you have a question about trading in general, send it to me.

19:23
You’d be shocked. With as many viewers as I have on this podcast, you don’t get a ton of questions.

19:31
So I do appreciate getting those questions from you guys and backstories and strategies. It’s it’s great and and you guys are the reason for the show.

19:37
So keep sending me the the e-mail and also make sure to check out swingtradingthestockmarket.com.

19:43
Thanks for listening to my podcast, Swing Trading the Stock Market.

19:51
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19:58
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20:06
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20:13
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20:13
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.