How Much Technical Analysis | Podcast Episode #427

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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 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.

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In today’s episode, we’re going to talk about how much technical analysis should go into one’s swing trade.

0:43
This isn’t an e-mail that I got from anybody. This actually came from a member of the SharePlanner trading block.

0:49
He had asked me a question about how much weight in my decision making would I put towards a stock that’s being included in the S&P Midcap 400.

0:59
And that doesn’t just have to go for the S&P 400 midcap. It can also go for the S&P 500, the NASDAQ 100, the Russell 2000.

1:07
Essentially, does that affect my decision making when it comes to a trade because they’re going to be included in something like that?

1:15
I responded back to the person. I said I don’t really put much emphasis on it because sometimes it has a positive effect, sometimes it doesn’t.

1:21
And often times it’s already priced into the stock.

1:25
I know that sounds like I’m riding the fence there, but really it doesn’t cross my mind at all. So whether it does play into it or not doesn’t really impact my decision making because I just don’t think it, it’s one of those things that really makes or breaks a trade per se. I get that some stocks will have a pretty crazy or wild reaction to it, but by the time that we’re actually trading in it, it’s probably already been priced in. For instance, I remember last week when everybody was like talking about, oh, man, XLK has to rebalance and they got to increase their exposure in NVIDIA from like 6% up to 22%. So there’s going to be a lot of buying on NVIDIA. It’s going to go way up. In fact, it dropped over 10% instead.

2:07
So often times when we feel like, oh, this is a great opportunity for the stock to go up because they got to buy all their shares or it’s going to be included in this index. By the time it gets to us, it’s already priced in. So that’s the reason why and I and I don’t want to play a stock like let’s say I would have played NVIDIA on the fact that XLK had to buy a whole lot more shares of it just to be able to get the balance right. And then it does that little stunt where it pulls back 10%. I feel like an idiot because I wasn’t really getting in on technical analysis. I was just getting in on hope. So that led to a follow up question.

2:46
This is really the the basis for this e-mail. And that was if you were to use a percentage, how much does technical analysis weigh on your decision to open up into the swing trade? And so I thought about that and I don’t know if I’ve ever really given that much thought to where I’m actually determining a specific percentage to how much technical analysis actually effects one of my swing trades. But I was up for the challenge. So I told him after giving it some thought and then, and that was last week when he asked me that question. And since then I’ve had more time to think about it, knowing that I was going to do a podcast episode on it. Originally I said 60% and I still stand by 60%.

3:25
Now the next logical step becomes, so Ryan, you’re a fundamental trader then as well. You’re going 60% technical, 40% fundamental. No, actually in my calculation, fundamentals do not get into it at all. There’s a category that I do list as intangibles and I will get into that in just a second. But to cover the technical analysis part of it, it’s not just the chart. There’s a lot that goes into that technical analysis.

3:53
For instance, yes, I look at hundreds if not thousands of charts every single day of my trading. It’s pretty much what I do all day long. I like it. I love it. Most of the stocks on the S&P 500, I can just look at it without even in knowing what the stock is. And I can tell you who’s charted that is, I guess that’s like a low key flex, but it’s really not a skill that I’ve developed per se. It’s just I’ve stared at these charts so much, I pretty much know them by heart at this point.

4:21
But I go through a lot of charts. I’m always putting trend lines, I’m always drawing and diagramming support and resistance levels, finding patterns. That’s part of that 60%, but also included in, and I think some people may look past this part of it, but I ask myself some questions looking at this chart, is it tradable? So when I’m looking at volume on the chart, is it trading like 1000 shares a day or even maybe like 50,000 shares a day? That’s probably not enough shares to to get me interested. I’m not going to trade that. So that’s one of the things that I’ll look at when it comes to my technical.

4:53
Other things that I’m going to look at is, is the trade set up. I might like it for let’s say a cup and handle pattern. And it’s like, OK, this is a really good cup and handle pattern. I’m pretty optimistic on it. But does it provide a scenario as it pertains to risk that makes it to where it can be managed? And if it doesn’t, then I’m not gonna play. It also can have the greatest pattern or or breakout or bounce opportunity in the world. But I’m also looking at potential target areas.

5:23
Now targets are much different in terms of its importance than a stop loss. Stop loss means everything. What I’m looking for in a target price though, is I’m looking for a path of least resistance that can OfferUp a good return if the stock is to take that path of least resistance. But the exact opposite of what I’m looking for in a stock would be as if it didn’t have a path of least resistance, let’s say, and I’ve got a couple of them now that I’m watching, let’s say the stock breaks out, but then there’s resistance right overhead. Well, that’s something that I’d be picking up on, and that’s part of the 60%.

5:56
So there’s a lot of stuff that goes into technical analysis. It’s not just identifying a chart pattern. That’s probably the easiest part. The next part is trying to figure out whether or not it’s tradable, whether it’s not, it’s something that I can feasibly get into and not expose myself to unnecessary risk. And also the risk management where am I going to place the stop losses at and target prices. And that also too is OK, it’s great if it’s breaking out, but I need to be able to figure out where is there a good entry price on this particular stock. So that all goes into the the technical analysis. That’s 60% of it.

6:32
The next one is the 10%. And those are the intangibles and they’re important too. But the intangibles is going to include things like earnings. Is there an earnings date coming up? And if there is, that’s probably a good reason not to trade this stock because I don’t want to be stuck in a stock that’s running against me because I held it through earnings.

6:54
Is there event risk? My gosh, there’s a lot of stocks out there that have heavy levels of overnight risk. I remember back in the day when Tesla used to carry just tons of overnight risk because Elon was always tweeting something out. I remember one time he said 420 taking a private stock shot up and everything. But holy cow, could you imagine being short on that? And it wasn’t just like, you know, taking the stock private at 4:20. He’s had a history of doing some crazy things that’s negatively impacted the stock or even positively impacted it in some cases.

7:27
But he’s gotten a lot better with it. He’s not creating the that kind of drama anymore, but it’s still even to this day, it’s difficult for me to want to get behind that particular stock just because I’m always still worried about the headline risk that could still be associated with it. But like I said, I don’t actually think there’s a lot of it that goes on. I think, yes, it has some pretty wild intraday swings, but a lot of times that’s not because of a headline risk or something.

7:56
Another one is market cap. I feel like that’s a important and tangible, you don’t really want to be trading a stock that might only be worth 50 million or $100 million. I like them to typically these days because there’s so many of them too, to to be over a billion dollars in market cap. Now, if it’s 500 million, yeah, I’ll still trade that, But preferably I’d like to see them be over a billion dollars in market cap.

8:17
And another thing I would include when it comes to making trading decisions is to make the decision to join swing trade in the stock market. You can go to swing trade in the stock market by going to swingtradingthestockmarket.com. Yes, that’s gonna take you to my SharePoint website where you can see all the great packages that’s available. But one in particular that I would highlight is the one that goes along with this website. Again, swingtradingthestockmarket.com you’re going to get throughout the week, stock market updates and video format.

8:54
Plus, each morning I’m going to be sending out the list of stocks that I’m watching for potential trade setups, and later that day I’m gonna give you a watch list, review and video format. Plus, at the beginning of each week, I’m gonna send you my master bullish and bearish watch lists for the week ahead, and that’s where I’m gonna get a lot of my trade setups and ideas from. So check that out. swingtradingthestockmarket.com

9:20
So far we have talked about the 60%. That’s the technical analysis, whether it’s tradable, what kind of risk it carries, what kind of chart patterns it has, ideal profit target or no, things like that. Those are the questions that I’m asking myself.

9:35
The next is the 10% of intangibles, which is things like earnings, headline risk, event risk, market cap, what sector they’re trading in. I didn’t include that before, but that is important. And we’ll be talking about the sectors in the last 30% too. But in this particular case, there’s some sectors I don’t like the swing trade because I don’t think they make that greatest swing trading opportunities.

9:56
One of them’s Riots Utilities to a lesser degree, but I have been known to trade utilities. In fact, I have one on my watch list right now, but most of the time I’m I’m avoiding them. Only recently have they gotten a little bit more interesting because they have such a play in with the AI stuff.

10:09
So my last 30%, that’s going to be the market direction. Now remember, I use a top down trading strategy and I won’t get into too much of the details there, but for a quick overview of it, essentially, I make my trading decisions based on the direction of the market, the sectors, and the industry.

10:24
And then I pick the stocks based off of all of those three elements aligning. Meaning if I’m gonna get long on a stock, I need the market to be bullish, I need the sector to be bullish, I needed the industry to be bullish, and therefore I’m gonna find myself a bullish stock to trade.

10:40
But what I’m not gonna do is find a bullish stock to trade and then trade it within an industry and sector that’s falling apart. And this particular stock might just only be popping temporarily here in a market that’s selling off as well.

10:52
Why would I do that? I’m fighting a trend that’s unnecessary. So that’s my top down trading strategy in a nutshell. And that’s a big part of the final 30% because market direction is going to be very important for me because if I see the market just tanking at the open and it’s tanking and you know for another hour and a half or so and we’re hitting new lows after new lows, I’m not looking at buying anything new there.

11:14
I need to see the market state wise. Let’s say by the afternoon it’s does start to stabilize, then I’ll start to consider adding a new position to My Portfolio. But while the market’s falling apart, there’s just very little desire or incentive for me to manage any additional trades.

11:29
I would rather manage my existing trades and try to make sure that I’m putting myself in the best situation there. Along with that market direction, also what’s important is the sector and industry direction. That’s gonna go a long ways in determining what stock I trade because for instance, you can have the tech sector that’s strong, but it may just be the semiconductors that are rallying.

11:52
It’s good to know not only the sectors that you’re trading that they’re bullish, but you also need to make sure that the industry that you’re trading in is also bullish too.

12:00
And another one, and I don’t think a lot of people give it enough credit, but sector rotations. What is the market rotating? Maybe it’s not even a sector. It might be shoot. It can be different vehicles for trading. It can be crypto that the market’s trading from equities, going from equities to crypto.

12:15
I’ve seen that some, but in general, I tend to focus on market rotation being with like sectors or with different categories of stocks. Maybe it’s large caps versus small caps, maybe it’s healthcare going into tech. But I want to know what is rotating and I want to try to capitalize on that.

12:34
Of course, whether we’re in a bullish and bearish markets. Important, but also important is the breadth under the surface. So you may have an index that’s very bullish, and we’ve seen this a ton lately, but everything underneath, it’s rotting.

12:46
And right now, we have 3 major stocks that make for about $10 trillion in market cap. That’s NVIDIA, that’s Apple, and that’s Microsoft. Together, it’s about 10 trillion. When those stocks rally, and they often do, it sucks the wind out of the rest of the market there.

13:01
And that becomes a huge problem because there’s really like, at times, seven or eight stocks that are legitimately rallying each and every day. And so unless you’re chasing after them with a sense of hopium, there’s a good chance that you’re not entering into new positions right now in those stocks.

13:17
So breadth and divergences, they’re very, very important to me, especially when I start to see a key indicator or, or an oscillator going in One Direction, like the stock market oscillator that I have on shareplanner.com. It’ll start to go South, but the market’s going north.

13:32
Like what’s going on here. That doesn’t typically happen. We should be, you know, on overbought levels right now on most of your indicators, but yet something like the stock market oscillator, it is not. It’s actually starting to break to the downside.

13:42
I like other indicators, like one in particular that I really love is the T21O8 I talk about it all the time, but that measures the percentage of stocks trading above their forty day moving average. Right now it’s at 31%. That’s ridiculously low.

13:56
When the market’s right at or near all time highs, you should be seeing prints of like 70 to 80% of stocks trading with their forty day moving average. But instead you’re looking at 31% and quite possible that we see 20s before the end of this week.

14:12
So like the market direction, sectors rallying, industries rallying, what are they rotating from what to what? Those are all important questions be asking yourself. We talked about the intangibles, about the earnings, about the economy, about the beta, about the market cast, about the event risk, those are important. And then the other 60% like we talked about, that’s just technical analysis.

14:35
Now what am I drinking here? I am drinking some Eagle Rare with my old fashion.

14:42
So for those who don’t remember, back in the past, I used to just do reviews on bourbon. I would give it a score from zero to 10. Problem is, I got a lot of bourbon. Some of you guys sent bourbon into me, which was awesome, but I got too much of it.

14:56
I probably have a couple 100 bottles and that’s a lot. So instead of continuing to buy more bottles, I thought it would be fun to start reviewing the existing bottles in my old fashioned recipe. So here I have Eagle Rare. That’s not typically something that I put in my old fashion. In fact, this is the first time I’ve ever put it in my old fashion.

15:15
I like it by itself. I think it’s a little bit overhyped by itself. I think it’s a good bourbon. I don’t know necessarily if it’s as good as everybody makes it out to be in the old fashion. I was a little bit disappointed. I talked about EH Taylor being phenomenal. It was like a 88. This here.

15:31
I’m giving it a 7.8. That may not be overly fair to a lot of people. A lot of people love Eagle Rare, but it just falls flat man. When I’m, when I’m sipping on it right now, it just doesn’t have like a knockout flavor to it.

15:48
It’s very bland. In fact, I’m not even sure I give Evan Williams. That’s my go to because it’s cheap and it’s easily attainable. I always, I started off with this whole thing. Given that a 75, I don’t necessarily think that this one’s that much better than it. So 7.8 seems right.

16:05
I might even be generous there with a 7-8. If you enjoyed this podcast episode, make sure to leave me a 5 star review on whatever platform you’re listening to it on. That would mean the world to me.

16:15
And plus check out Swing Trade in the-stockmarket.com with lots of great resources there. And keep sending me your questions. Send me your emails, I want to hear all about them.

16:22
Tell me your stories. I’ll keep you anonymous. Nobody has to know who you are. I’m the only person that reads the emails. ryan@shareplanner.com Thank you guys. God bless.

16:33
Thanks for listening to my podcast, Swing Trading the Stock Market. I’d like to encourage you to join me in the SharePlanner trading block where I navigate the stock market each day with traders from around the world.

16:46
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16:52
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17:03
If you have any questions, please feel free to e-mail me at ryan@shareplanner.com.

17:13
All the best to you and I look forward to trading with you soon.