Using Fundamentals With Technicals | Podcast Episode #457

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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. Now, today’s episode comes from a listener who has been going through all the episodes that I’ve done. And one of the cool things about my episodes is I don’t make them just, you know, in the moment kinds of episodes. I make them where, you know, 10 years from now you can listen to the first episode and it’s still meaningful for you. I don’t try to get into stuff that you can only see with a chart. I don’t get into the visualizations. So this e-mail is asking me about incorporating the fundamentals into the trading.

1:01
And he I’m just going to read the e-mail for you. Oh, and for a good Florida redneck name, because I do that for all the emails to hide the identities of the people who write the show. And because I’m from Florida and because I grew up in a very redneck part of the state, I give everybody a redneck name. So for this one, I’m going to give them Bubba Ray.

1:19
That’s about as redneck as it can get. So Bubba Ray writes Ryan, I am just getting into trading it and I’ve siphoned through tons of podcast trying to find any information that I can about trading stocks. After going through what seems like probably 50 or so podcast, I settled down on yours and one other one. The other one is more of a in the moment day-to-day update on stocks. So I listen to that each day and other than that I have you playing my entire work day. I can’t tell you how helpful it has been.

1:46
You seem like a really good guy who truly wants to help people learn with good, honest advice. Through listening, I’ve gained a lot of trust in you and a lot of knowledge and inspiration leading me into this. I definitely like how the episodes are timeless and love the fact that I’m dealing with a fellow Christian in my learning.

2:00
I would never have thought that I could come across someone who makes that a part of the teaching, but I am happy to have come across you. Thanks for all the work that you do.

2:12
I am writing because I have a zillion questions and I wish I had someone I could ask questions to on a regular basis as I am going through this, but at least the best I can do is get a couple questions out to you. I started trading about four months ago and did really well for myself on the 1st several trades.

2:26
Well, I didn’t really do well. I realized after I started to get into more detail how lucky I just got.

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Loli could have really lost my butt pretty easily, but fortunately that didn’t happen and I realized that I was getting lucky before I got too crazy with the trades.

2:41
I probably shouldn’t be trading now, but there’s two reasons I am choosing to go ahead and keep learning with real money.

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For one, I like where we are in this bull market at the moment because it seems like if I mess up my trades and misjudge something, I can just hold it for a little bit and get my money back.

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Secondly, it makes me really focus on what’s going on and makes the lesson stick more so if I was using a paper account.

3:04
My question is this. I am overwhelmed with the amount of information there is to learn, especially the fundamental stuff.

3:13
It makes me wonder if this is really something that I want to learn or not. I am definitely under the impression that technicals are going to be my Forte, but I have this feeling that I have to at least understand the basic fundamentals to safely be a technical trader. So I’m wondering what are some of the basic fundamentals that you would suggest to look at to safely enter a trade?

3:32
And while you’re at it, maybe you could suggest some beginner technical analysis as well.

3:37
I felt like I was getting a decent start. I was beginning to get the hang of this, but then I started looking up things that I heard that I didn’t understand so much that I feel like I lost my direction and how I have a bunch of information in a pile at this point that I don’t know what to even focus on.

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I’d love to hear what you have to say, but if this doesn’t make the podcast, I at least wanted to let you know how valuable it has been to be listening to your podcast and say thanks for taking the time to do this, my friend.

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It’s been a blessing.

4:02
Thanks a lot, Bubba. Ray.

4:05
OK, that was, that was a long e-mail. I like the long emails, though, because it gives you a lot more perspective on what the person’s going through and helps you to understand where they’re coming from. So he makes a a good point.

4:16
And I, and I do wholeheartedly believe this is that you’re not going to appreciate the mistakes or the successes that you have in your trading when you’re trading with a paper account.

4:26
Now, I do think that there is a place for paper trading. I think if you’re just getting started out and you’re trying to learn the mechanics and the, and understand it, it makes sense to go through paper trading. But there’s so much more to trading that paper trading doesn’t provide you with.

4:39
When you start to put money into the, into the mix, when you start putting your capital work, I don’t care if it’s $10 guys, when you have your money and play, you want to make more money, just normally have a go.

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So there’s going to be more emotions associated with that.

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There’s going to be more things that you think about that you wouldn’t necessarily think about with paper trading.

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It’s, it is much easier to be disciplined in paper trading because in the end, if you don’t like what you’re getting, you can just reset the account and start over again.

5:05
You can’t just reset an account and, and the stock market losses or losses and paper trading losses are just, you know, as long as you feel like staring at it before you hit the reset button.

5:15
So you start going from paper trading to real trading and you, you feel those emotions ramp up. Now, one of the things that he says here that kind of gives me a little bit of concern is that he says he likes where we’re at in this bull market at the moment, because it seems like if he messes up on his trades and misjudges something that he can hold it for a little bit and get his money back.

5:33
That’s a very dangerous thing.

5:35
And it makes me think that he’s perhaps may not be using proper risk management and letting it just come back.

5:42
That’s that’s one of those things to where you’re saying, OK, I’ll just wait till I get back to break even.

5:47
Well, most of the time when you get back to break even, what are you going to do is like, oh, maybe this thing’s going to run now.

5:51
I’m going to I’m going to see how high this one’s to go before I get out. And then you go from, OK, I just want to get my money out to, oh, I want to see how much money I might be able to make off of the street.

5:59
I might be able to finally get rich.

6:01
Your whole perspective changes once you get back to break even and you don’t want to do that. So the other thing I would say, and I’ve talked about this before on the podcast is how easy it is for trying to get back to break even.

6:11
And it seems like a modest goal.

6:15
I just want to get my money out of it. And in the bull market, like what we’re in right now, sure, you can do that.

6:20
But if he’s only been trading for a few months here, the last month that we actually pulled back was April where we actually finished red on the month on the S&P 500 was April.

6:30
That was a long time ago. For the six months that followed April, we have been up every single month.

6:35
There’s been some pretty big moves and he’s probably talking about like the moves that he experienced in August and late July where you had the huge sell off and then we went right back up again or the one in early September and went right back up again.

6:44
Even in October we were trading lower.

6:50
So keep in mind when you say that I would just get back to break even, the market will forgive me for, you know, my misjudging.

7:01
Think about what market you’re trading in. If you’re trading in 2022, markets not nearly as forgiving, you may see a 50% loss.

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If you’re trading in 2008, you’re probably going to see a potential 80% loss or 2000. And you say, well, Ryan, that that only happens like what every few years.

7:22
Well, look at 2020, that was a ugly sell off. That was four years ago.

7:25
We had 2022, that was two years ago. You look at 2018, that was six years ago.

7:29
So recently every two years we’ve had a had a major sell off 2018, the markets dropped by 33%. Did they come back?

7:37
Yes, they’ve come back every time, but not necessarily all the stocks come back with it. You look at where Intel’s at today versus where the stock market is at.

7:44
Is Intel trading at all time highs? No, there’s a lot of stocks that don’t recover and that’s the big risk there is that you’re going to get into a stock that does not recover.

7:50
So I, I get the impression here that Bubba Ray is just not using stop loss and that’s very dangerous because it takes one bad trade to completely ruin a portfolio for successful trader. It becomes about your body of work, all of your successful trades and how you’ve managed to losing trades.

8:09
For a losing trader, it’s going to probably be about one or two stocks total.

8:15
It’s one or two stocks that wipe out a trader because a lot of times too, when they start losing, what do they do?

8:21
They just start doubling down. They throw more money at it rather than trying to make the money back up with a good stock that’s actually doing what what you would expect it to do.

8:26
He talks about the beginner’s luck. This is one of the things that I do think that plagues a lot of traders as they get in to the stock market.

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And usually it’s during a very favorable time. They hear other people making money and so they throw some some money at it as well.

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And then they, they get that beginner’s luck and, and they make a few bucks off it and they think, whoa, I’m pretty good at this.

8:47
I’ve had so many traders over the years tell me how good they are and they’re not trading anymore because of their first four or five trades.

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It’s like, Ryan, I know you’ve been doing this a long time, but my first five trades have been pretty spectacular.

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But what I give Bubba Ray credit for is realizing and, and for going back and reviewing these, those trades and seeing was I lucky or was I good?

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In this case, he realized I was lucky and I could have, it could have really ended badly for me. Now, you don’t hear about the people who get into the stock market and they just blow up their account.

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The 1st 5 trades.

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They usually don’t, they don’t come out of the woodwork to, to brag about that. But it’s the ones that experience beginner’s luck that you always hear about.

9:26
Sometimes I wish there was a ETF that could be based off of the like the first five trades of a new trader because those guys, they always seem to, to strike it pretty good on their first few trades.

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And it’s, it’s not until later on that, wow, the stock market’s a lot harder than what I expected. It’s almost like the market wants to provide a false sense of security.

9:46
I swear it, it, it’s like, oh, we got a new trader here. We’re just going to lure him in.

9:51
He’s trading with $200. We’re going to lure him in, make him think he is boy genius here.

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And then they think that they’re boy genius. And then all of a sudden they throw, oh, I’m going to go jump into a, a scandalous prop firm or I’m going to take some money out of savings and start trading that or do a withdrawal from the four O 1K, which please don’t do that or a credit card withdrawal.

10:14
People do this stuff. I mean, the Reddit boards on Wall Street bets are filled with people who have done this.

10:19
And then all of a sudden they realize when they start putting some, some serious money that they can’t afford to lose, just how bad the market is.

10:25
But now what’s not bad is swingtradingthestockmarket.com. It’ll take you to shareplanner.com where you can support this podcast by getting all my stock market research.

10:34
It’s an incredible part of the show.

10:37
It supports the show in the process, and you’re going to get my daily watchlist each and every day. You’re going to get the setups that I’m looking at and the master watchlist each week that I’m curating these trade setups from.

10:47
Plus, I’m going to do a watchlist video at the end of each day for you so you can see what I’m looking at with these stocks, what’s working, what’s not working, and my thoughts on each one. Then I’m also providing mega cap updates.

10:59
That’s like Amazon, Apple, NVIDIA, Google, Microsoft, Tesla. I feel like I’m forgetting a couple of them, but I don’t know which one I forgot, but it’s it’s eight of them, right?

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I’m I’m doing updates on them all the time and I’m doing stock market update videos as well.

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So you’re going to get these as a member of swing trading the stock market. So go ahead and check that out.

11:21
Now to the main question here, and he’s asking me about, I want to be able to put fundamentals into my trading strategy.

11:30
Now, one thing I would tell you, and he seems like he’s overwhelmed by how much there is out there in the world of fundamentals to track.

11:35
And there is, there’s a ton of different ratios. They’re always coming up with a new ratio and people get into the PEG ratio and the PE ratio and the book, the price ratio.

11:44
And then they’ll do the inverse of it.

11:48
And then they will, I mean, it’s, it’s really wild. And, and then they start looking at balance sheets and cash flows and, and as a trader, I’ve been doing this for 30 years now.

11:56
I hardly ever look. I can’t even remember. It’s probably been 10–15 years since I looked at my last balance sheet.

12:05
I just don’t think I’ve looked at one in that, that long of a time frame. And here’s the reason why.

12:09
Fundamentals are more of a long term outlook on the stock. And the chart itself is not going to, unless it’s earnings, which I don’t hold a stock to earnings is not going to be responsive to the fundamentals.

12:19
It’ll be responsive to it at the earnings period, but remember these fundamentals only come out once every three months or four times a year.

12:27
But now the technical analysis where the fundamentals are more long term and not responsive, the technicals are short term and responsive.

12:34
So again, you got fundamentals long term, not responsive. Technical is short term and responsive.

12:40
So you get a breakout. You can potentially see strong volume come following a stock breaking out of a range and the stock starts to accelerate to the upside.

12:51
That’s responsive to short term conditions. Now I think when you’re developing your trading strategy, there’s going to be some fundamentals involved.

12:58
For me, I use some very basic fundamentals.

13:01
I don’t really care about cash flow. I don’t care about the stocks EBIT.

13:06
I don’t care about PEG ratio or PE ratio. Their stocks I trade that I know have any ridiculous PE ratio and some that have a very low PE ratio and I don’t really show much difference in my poor preference towards one or the other.

13:15
Some do, but I don’t because again, the fundamentals is more of a long term outlook on the stock, not a short term.

13:26
But what I do take interest in is I don’t want to trade the the small micro cap stocks.

13:33
So in a sense that is a fundamental thing. I’m looking to trade stocks that are about $900 million or more and I’m not looking to trade stocks that are below $10 a share person.

13:40
That’s not really a fundamental, but you get what I’m trying to say is that I’m looking to trade stocks of a certain size that, you know, companies that tend to be over a billion dollars.

13:46
If the companies were 16 or $17 million, guys, I am not getting into that.

13:55
I don’t care if they even have a great cash flow, not doing it. And then more than likely, it’s probably trading at a few pennies a share, too.

14:02
But the fundamentalist is monopolized by Wall Street. The technicals are not.

14:06
Yes, they do. They have technical analysts, yes, But they have far more fundamental people on staff than they do technicals.

14:12
And technicals is more of an afterthought to Wall Street than it is on the forefront of their minds.

14:23
But they’re more concerned about is what the companies are doing, what kind of foot traffic they’re getting in their stores.

14:28
In terms of Tesla, how many of their cars are they selling? Do I care about how many cars that Tesla selling?

14:34
No, I care about whether or not it’s on the verge of breaking through resistance or bouncing off of a trend line.

14:40
But Wall Street is all over the fundamentals.

14:52
They have Staffs of people following the fundamentals of individual stocks. I mean, consider for a moment how many people Goldman Sachs probably has dedicated to Apple, just watching everything from their supply chain to how many phones are moving in the stores, talking to executives at the store.

15:01
I mean, they have way more access than any Bloomberg Terminal. They have more access than any retail trader could ever dream of having.

15:10
So there’s really not an edge that we can get in our trading that would be better than what Wall Street already has when it comes to trading fundamentals.

15:19
So I don’t use them in my trading and, and for, for Bubba Ray or for others who are like, what do I do with all these fundamentals should come as a good, good piece of news.

15:27
Now, if I know that a company’s getting ready to go bankrupt, am I going to go trade them? No, I’m not doing that.

15:33
If the stock has a lot of headline risk, like right now, Boeing has a lot, SMCI has a lot. Am I going to trade those?

15:39
No, they’re going to be on my do not trade list. But Boeing has been on there for many years now.

15:43
It just cannot find its way off of it. Now As for the technicals, what would I tell a person in terms of beginning technical analysis?

15:51
I think some of the most important parts is understanding the importance of price and volume in your trading and and relying less on the oscillators and also just becoming a master of identifying support, resistance and trend lines.

15:59
You do that, I think you’ll have a a very good grasp of technical analysis.

16:08
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16:13
That is does go a long way in helping me to expand the reach of the show. I greatly appreciate it when you do that.

16:18
I read the reviews. They mean a lot to me.

16:20
Also, send me your questions ryan@shareplanner.com. I’m the only person that gets the e-mail and the only person that will read them.

16:25
Your name won’t be the Volge. Tell me your story like Bubba Ray did here.

16:29
Great, great e-mail from Bubba Ray. I appreciate that.

16:32
And let me know what you’re struggling with what, what hamstrings you, what makes it difficult for you to find success in the stock market.

16:41
I want to hear about it and check out Swing Trade in the-stockmarket.com. Thank you guys, and God bless.

16:48
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16:56
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17:03
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17:10
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17:21
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.