Improving Your Scans | Podcast Episode #453

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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

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Swing trading the stock market and I’m glad to be back after a week off. Wouldn’t necessarily call it a week off.

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I had to deal with some hurricane stuff. And when you’re dealing with hurricane stuff, you don’t really have too much time to do these

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podcasts like I usually do about two a week. But hurricane hit the previous week.

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Took the time off to get ready for that. Had to put shutters up.

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How to make sure you have food supplies. And we know FEMA ain’t coming out there for you.

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And we had to make sure that everything was tied down, squared away, brought it inside, all that fun stuff.

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I mean, it’s just amazing when you go into those hurricane preparations, just how much stuff that you have to prepare for.

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Making sure you have batteries and all the flashlights, that you have enough flashlights that the flashlights actually work just on and on and on.

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Filling up bathtubs and making sure generators are going to be able to work. So it’s, it’s a pain in the neck, but thankfully it was all for nothing because the hurricane it

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was, it was a pretty dry event. I think at one point when it was making landfall, we, we didn’t have any rain and we were on the dry

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side of the, of the hurricane. There was really no rain South of the eye and was able to fare pretty well as a result.

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No flooding or anything like that, though. I know people on the West Coast just got pummeled.

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And so my prayers are with them on that and their, their recovery following a pretty horrific event. Two of them on the West Coast Even.

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So any case, I am back into the swing of things here and I’m ready to tackle the next question. I got a e-mail from a guy that wants to be called Buckwheat and I am more than obliged to call him

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Buckwheat. He writes, Hey Ryan, call me buckwheat.

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I appreciate the podcast and especially appreciate that they are not time specific and one can go back and listen to the fundamentals of trading that can be applied to the future.

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Let me give you a bit of my situation so that you can explain things better. My Portfolio is under $25,000.

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I trade single stocks for a hobby. I haven’t learned options, ETS, or any other ways to trade as I still feel I am in the learning

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phase. I’ve been trading on and off since 2020.

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I can now trade and watch more consistently. Now my platform is think or Swim.

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My trades average about 10 to 15% of My Portfolio so that I’m a little bit diversified. I’m usually about 40% cash.

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My questions are can you explain the day trading clause to me? I know it’s 4 trades in five business days if your portfolio is less than 25,000.

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I am confused on the exception of trading being less than 6% of the portfolio. I assume that means that they don’t count towards the four of my stop losses.

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I do worry about getting dinged. It is a once and done.

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Or do they not let your trades go through? I set up my scans with the top down approach as you suggest.

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I look for positive trending sectors and then look for stocks in those sectors. I have filter set as a beta of 1.2 or more, my last price being between $5 and $40, my market cap

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being over 1,000,000 and a price change of 1% or more. These seem to fit best for me for my small portfolio.

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What suggestions might you give me? My last question is is what studies do you use when looking at individual stocks?

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Currently I use Bollinger bands, RSI, and MACD. I know that you said you don’t like to use these because they are overused, but for me they are the

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simplest to understand. Bollinger bands I can see if a stock may be trending up, RSI I can see if something is overbought or

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oversold, and MACD lets me see which way the stock may be trending. Lastly, my father-in-law turned to IBDI.

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Feel this is more of a fundamental analysis to go along with my technical analysis. I don’t subscribe to it as it is not worth it for my small portfolio.

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It’s not. However, I do see the relative strength rating.

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I pick stocks at 80 plus and SMR rating of AB or higher. This is advice from my father-in-law that does well trading but I don’t know how they come to these

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ratings. Thanks for your advice and I hope that you survived the recent hurricanes.

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Thank you, Buckwheat. Good questions, Buck.

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We lots of questions too, so we may not want to waste too much time getting to them here. He asks me about the day trading clause and this won’t be the focus of the show, but I figured it

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might be worth addressing right out of the gate. By day trading clause, I think he means the pattern day trading rule.

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And that simply just means if you trade four times or more in a single day, four round trips, being like you open and close the stock in the same day, they’re going to keep you from being able to

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close out your trades in the same day going forward, which is really stupid. It’s a it’s a stupid rule.

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It came out after the .com bubble. This is what bureaucrats always do.

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They always come up with a stupid rule that actually makes things worse and not better. But they came out with this rule to say, well, we want to, we want to help out the little guy.

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We want to make sure that they’re not encouraged to day trade and so all they really do is hurt the small, small time investor because if they do get flagged and they want to get out of a trade in the

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future in the same day they got in, they can’t. They just have to keep absorbing losses in that scenario, which is ironic because you take sports

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betting, the government allows sports betting and people are losing their shirts on sports betting. So how much do they really care about the small time day trader with less than $25,000 in their

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account? They don’t care.

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So it’s just a stupid restrictive rule that some person in, in a meeting came up with and, and people signed off on and gave each other some attaboys and, and now they’re all proud of themselves.

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This is why I can’t work in corporate America.

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I don’t think to begin with. And obviously working in Fenro would be a million times worse than working in corporate America.

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But the, the meetings, I, I can’t deal with those things. But anyways, if you did get deemed with the pattern day trading rule, you can usually call your

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broker and they’ll forgive you at least once. And you just got to tell them yeah, I’m sorry, I didn’t know, I didn’t mean to.

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I won’t do it again. And they’ll usually forgive it.

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They’ll take it off your account. But it is a stupid rule.

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I think it’s just horrible. Now he asks me about the 6% rule about your trading activities.

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And essentially is this, if the day trades that you make represents less than 6% of the overall

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activity on your account, they won’t flag you as a day trader.

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At least that’s how I’ve always interpreted. So over the course of a week, if you have 100 trades that you’ve made and only four of them are day

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trades, that’s less than 6%, they’re not going to flag you. But then it goes back to the questions, like with the $25,000 account, how many transactions are you

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expecting people to make here? Do you think they’re going to buy their shares individually?

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But that could actually be a interesting way to go about it because it is Commission free trading. So if you made let me just think this out as I’m doing this podcast, but let’s say on Monday, you

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day trade four times in a row. OK, you’ve, you’ve met the requirements to become a pattern day trader.

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But let’s say you wanted to buy 100 shares of a stock that’s trading at a dollar a share. OK, you’re, you’re talking about a hundred $100 worth of stock ABC, OK.

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And you’re going to buy 100 shares of it at $1.00 a piece. What if you just bought those individually one at a time?

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Those are all transactions. I’ve never tried this before, but that could be an interesting experiment I think.

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Because instead of just buying 100 shares of the stock that’s trading at a dollar through 1 transaction, you just buy that same stock 100 times at $1.00 a share.

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Now you may not get the same fill price every time and and it it’s going to be a heck of a hassle, but you may be glad that you tried it if it does work.

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Again, I don’t know if that actually works or not, but I would be curious to know if it does because before you couldn’t do that because you had the trade commissions.

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Now that we don’t have trade commissions, you could technically try it and see how it works. It would definitely be interesting.

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If you do try it, be sure to let me know and let me know what the outcome is because I think, I think would be really intriguing.

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Now the other thing though, that makes the pattern day trading rule a little bit less important because really it just applies to margin accounts.

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If you’re using a cash account, you can’t, it doesn’t apply to you because it takes traditionally it’s sent or at least since 2017, it has taken two days after you make the trade to settle to settle

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that trade. So you could still have good faith violations obviously, and that’s a whole other topic, but from a

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day trading rule, it takes two days. So you can’t keep just trading that money over and over again.

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But now they’ve actually changed it to just one day, so you’re not waiting as long anymore. So if you did it with just a cash account, it may not be as big of a deal or a problem for you going

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forward. You just, you’re not going to be making like 1500 trades in a single day unless you’re buying the

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shares individually for each transaction I guess. But that only really applies to a margin account.

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Trying to not get hit up with the pattern day trading rule.

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OK, that’s about all I’m going to talk about on pattern day trading rule.

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I’ve actually done other episodes on it too. So I would definitely say if you have more questions about it, check out some of the previous

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episodes on that pattern day trading rule.

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OK, so buckwheat here has his scans all set up here.

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He he looks for stocks trading at 1.2 or higher, last price of $5 to $40, market cap of plus 1,000,000 and a change on the day of at least 1%.

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I’m not sure if that’s plus or minus, but we’ll just assume it’s plus or minus. He does that because it works with his portfolio the best.

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So what would I add to his scans? When it comes to scanning, it is all an individual thing.

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It’s really what works for you. For me, I like to look at a lot of charts.

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I don’t rely on the scans to give me really good charts. I rely on the scans to eliminate a lot of the noise.

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Like there’s a lot of charts that I do not want to look at. I don’t want to look at plug trading under $10.

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I don’t want to look at stocks, you know like GoPro trading at $1.23 or whatever it’s trading at today.

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So I don’t I don’t find myself too interested in really trying to get these really good stock trades that come out of the scans.

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I want to do that through my technical analysis, going through each individual chart. What I really want to do is eliminate the stocks that I have no intention.

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I don’t care how the chart good the chart looks, I don’t want to trade it. And so one of the things that Buckwheat could do here is that he, he talks about how he uses the top

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down trading strategy. Well, when he’s going through his top down trading strategy and he sees, OK, the stock market’s

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trending higher, that’s good. OK, it looks like tech’s leading the way.

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That’s that’s great as well. And it looks like he doesn’t go down to the industry level.

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He just looked at it from the sectors, which it’s better to go down to the industry level to see which industries are actually moving those sectors.

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But just assuming that he’s looking at the sectors alone, what you could do instead of like just screen the entire stock market, you could just screen the tech stocks.

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And so you that you’re only getting results based off of stocks that are listed as a tech play. And so that’s one way to to perhaps improve it to where you’re not having to screen every single

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stock and every single sector. You’re just looking at the sectors that are moving higher with the market and, and showing and

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showing a good amount of bullishness. Now there’s a lot of different variables that you can add to your scans and a lot of the platforms

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that you’ll use, they’ll have built in formulas for being able to do that. A lot of people like stocks trading at their 52 week highs or within 1% of their 52 week highs.

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I think that’s one of the most overdone things that would not do it and usually the stocks are well overextended.

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Another one that I don’t like are the crossovers because those tend to lag quite a bit price action. Some people will incorporate fundamentals into it like they wanted.

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They want to be able to do the the scans, but with stocks that are trading below 15 PE or they want to eliminate stocks trading with over a 30 PE because they they don’t want to get into overvalued

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stocks. In some cases, it could be as simple as just trading above the 20 day moving average or even looking

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at stocks that have moved from red to green on the day because that’s showing that the stock is bouncing and maybe showing some resilience to overall market weakness and it’s trying to move back

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to the upside. I’m not so sure how I feel though, about stocks that have at least moved 1% on the day, because that

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could be that you’re, you’re going to get stocks that may not be providing an optimal entry at the expense of ones that haven’t moved to 1%, but are providing an optimal entry for a swing trade in

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the days ahead.

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Now, one of the things I would say to it, I’m kind of going back to the previous topic because it just came to my mind and it is about the pattern day trading rule.

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If you’re like, oh, Ryan, I can’t I, and I have to say this because I, I know I’m kind of jumping around here, but I want to make sure I say it so I don’t forget it in this episode.

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If you can’t trade because of the pattern day trading rule, you can’t day trade because of the pattern day trading rule.

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Consider the swing trading.

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I mean, obviously I’m going to be a proponent of it because this is the podcast that’s called swing trade in the stock market.

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I mean, obviously I’m going to be a proponent of it because this is the podcast that’s called swing trade in the stock market.

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But if you’re like, swing trading doesn’t really work for me, then I would question whether or not day trading should really be able to work for you.

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Because in my opinion, I do think swing trading is easier than day trading. I think day trading is extremely difficult, extremely hard, and it’s a great way to blow up an

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account.

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So, and I’m not saying that this is the situation with buckwheat here.

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I don’t want him to think that I’m trying to jab at him here. I’m just saying for traders in general, if you’re if you’re saying that to yourself, well, hey, I

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swing training just doesn’t work for me. Well, then you may want to consider whether you should be swing trading.

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OK, so jumping back to the scans, there’s nothing that’s really like a golden nugget that you can add to your scans that it’s like, oh, if you do this, that’s great.

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Now he talks about how he uses RSI because he wants to find things that are not oversold when he’s getting into them.

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So he could say, all right, I don’t want any stocks that have an RSI of over 70. Or he could say, I want it to be crossing back above 30 on his scan.

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That’s a way to do it. But again, don’t be like, oh, this stock showed up in my scan after I put all these variables in.

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That must mean it needs to be traded. Now you still need to do the technical analysis on it and make sure that it’s a good trade setup

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with a good reward risk approach to it. He also asks me what studies do I look at when I’m looking at individual stocks.

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It’s really price and volume. I know that that that’s crazy.

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I, I put volume buzz on my charts. That’s something that’s provided through TC 2000.

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I really like that a lot of kind of gives me a good reading on the volume for the day because you know, you can be at the beginning of a trading session here and you don’t know if it’s going to be

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above average volume or not. And you have to kind of dig into the numbers a lot more to figure out if the start to the day in

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terms of volume is much more than the previous days. And that can take a lot of extra work.

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But they have this volume indicator that does a lot of comparisons to different time frames, whether it’s yesterday to the week before to the month prior.

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And it gives you this return that lets you know whether or not the volume coming in so far today is above average or below average.

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So I really like that aspect of it. So I do use that a lot in mine.

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I always keep a moving average on my volume just to see, you know, how its monthly average compares to the current day’s number.

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And then when it comes to the Bollinger Bands, I am not a huge fan of those or at least keeping it on my charts all the time.

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Inside the bands, they really don’t matter too much to me. Where I get interested in them is when they start to pop outside of the Bollinger Bands, especially

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as it pertains to the overall market. Individual stocks can run outside the Bollinger Bands for a while, but when it comes to like the S&P

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500 or the NASDAQ and you have a full bodied candle outside of it, then that becomes a little bit of a concern.

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In fact, if you go back to the last two major breaches, you had one just this week on 10. For those who are listening in the future, it was on 10/14/2024.

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The candle reached outside the upper Bollinger band, which is essentially 2 standard deviations off of the 20 day moving average.

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That’s the settings that I use. So 2 standard deviations above the 20 day moving average.

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Price got above that and so that was a red flag for me. And then we ended up getting a sell off the next day, which just because we breached the upper

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Bollinger band doesn’t necessarily mean we have to have a sell off, but I think the odds greatly increase that we’re going to have one.

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And it doesn’t even necessarily mean it has to be a long extended sell off, but the, the the need to be a little bit cautious the following day or maybe holding off on new positions until it comes back

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inside those bands is a good thing. Now the other instance was August 5th where we had that like 200 point gap lower on the S&P 500 that

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day. It was a huge sell off.

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That was actually 3 standard deviations, which is a huge red flag that this market’s pretty much like stretched to the core here.

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It can’t really get too much more overextended, not that it can’t, but the odds of it happening are very unlikely.

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And, and what happened as soon as the market opened up, the dip virus came in and they just gobbled up every share insight and they’ve been gobbling it up ever since.

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So those are the ways that the Bollinger Bands work for me. I don’t care about price when they’re inside the Bollinger Bands and I don’t I don’t really think it

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provides me much with the idea of of trend or not because they’re they’re not overly indicative of future direction.

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So again, it all comes back to price and volume in my opinion, using the techno technical analysis on the charts, because unless somebody has a better way of using it, I can’t really see by using RSI

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or a MACD when a stock’s breaking out or when a stock’s bouncing. Yes, I can see that it might be improving from a health standpoint, but the real meat and potatoes

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comes from looking at the charts themselves and using your technical analysis.

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Also, what you should be using is swingtradingthestockmarket.com.

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Way better than this IBD stuff that Buckwheat mentions in here.

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In reference to the IBD stuff, it’s more of a fundamental thing that a lot of people use and I don’t really think there’s much use for it in the technical world. So.

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But again, what does have use swingtradingthestockmarket.com?

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It’ll take you to my website. It’ll give you all of my stock market research that I do each and every day that’s going to include

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my daily watch list, the stocks that I’m looking at, you know, potentially getting long or short.

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And plus I send out a master watch list update each week of the stocks that I’m going to be looking to curate those setups from.

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And I do a watchlist review every day in the afternoon. I send out a video let you see what I’m I’m seeing on all the stocks that were on my watch list.

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Plus I do videos on the mega caps and on the stock market as a whole.

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So really a great value. Can’t beat it anywhere else.

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And it supports this podcast in the process.

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

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That always means the world to me and it greatly helps me expand the reach of the show.

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So that’s, that’s, that’s important to me and I greatly appreciate the support you guys have shown me over the years.

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Plus send me your questions that I I don’t get enough of them.

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So keep sending them to me. I love this question that buckwheat gave me today are actually questions and telling me a story.

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Tell me telling me his journey and the trading world. Do that as well.

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Send me your questions, send me your thoughts. More than likely you’ll get a podcast episode out of it.

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And if you don’t hear back from me, e-mail me and I’ll shoot you an e-mail back and let you know if there was like a hang up or whatever, but shoot me your questions.

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Thank you guys and God bless.

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

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