The Anatomy Of A Good Trade Setup (Part 1) | Podcast Episode #81

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, 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, you can succeed at the stock market and I’m ready to show you how, hey, everybody, this is Ryan Mallory with Swing Trading the Stock Market and One of the things that I really like about this podcast is that I get a lot of emails from you guys and I apologize.

0:40
Sometimes, I don’t get back to all of you guys and I really tried to sometimes it’s a couple weeks late but I really don’t really don’t want to do that, but sometimes you just can’t help it. I get a lot of emails every day and so it can be it can be overwhelming at times. But anyways, I do read them all and one of the cool things that I’d like is that you all give me a lot of suggestions on and ideas of what to do my podcast show on.

1:02
So often times, I’ll get something But hey, that Tesla trade that you did last week a, can you go over that and a little bit of detail or and I did that ordeal. I’ll get something like, hey, how did you know this stock is going to break out or white?

1:17
Why did you get out of that stock early or what was your feelings about that, that lost that you took on and trade XYZ? So, yeah, the that that is, that is something that I really appreciate that. I always look forward to getting these kinds of emails because sometimes I’m, like, running around the week.

1:36
I’m like, what am I going to talk about on this podcast? I really don’t know yet, so it really helps with your suggestion. So keep them coming in. Always send me a, there’s a good chance. I’ll do a podcast on whatever you ask me to do as long as it’s not something totally crazy. Like, hey, and your next podcast, can you tell me your Social Security number?

1:53
Of course, I’m not going to do that. But anyways. Today’s podcast is going to be the anatomy of a good trade setup, and there’s a good chance that this will be a two-part series. Because I, maybe it’s even a three part series. I don’t know. Well, I’ll keep an eye on the time on this podcast because I do try to keep them to somewhere between like 13 to 17 minutes.

2:13
So I’m not just talking your ear off. So anatomy of a good traits that it has a lot of components to it. Not allow hard components, quite honestly, it’s not stuff that takes a brain surgeon to figure out, okay? And oftentimes, your brain surgeon your worst kinds of Traders anyway, so but the anatomy of a good trade setup.

2:33
As many parts. And a lot of it’s just things that you start to do subconsciously over time. So, the first one is you have to be willing to plan ahead. You have to have a desire to plan out the trade. You can’t just be like, Jim Cramer said by Amazon.

2:52
Tonight, it’s gonna have a great earnings, I’m going to buy it, you know, and you buy it and you lose money, which is probably the case with most the Kramer’s stock picks, which is funny because, you know, that Jim Cramer actually has me blocked on Twitter. I don’t know. I kind of feel like it’s a badge of honor. I’ve talked about it before, I always think it’s kind of funny because basically what he did is is I called him out on one of his pics that he made on a show or on his Twitter feed.

3:15
I can’t remember what it was, but he said this stock is going to be the next great stock, and it was like a disaster and so I just said, hey, you know, why don’t you start telling people how to get out of the trade, when they make it bad trade and they came a day? Made me to comment that was kind of like indirect towards me and then he blocked me.

3:35
Oh well what are you gonna do? Right? Care less. There’s things that he does that’s actually pretty good. I just I don’t really have much respect because I think it’s so much show I just don’t think he’s he’s as good as he makes himself out to be he tries to make some in my opinion I think that He makes himself to be some kind of like rock star Trader and I don’t know, I just don’t see it.

3:59
I personally Only just don’t see it, any case and about Kramer, and most the CNBC most of CNBC has me blocked on social media, people. I don’t even know who some of these people are and they still block me, whatever, I haven’t got CNBC itself, I would love for CNBC to actually block me.

4:17
Anyways, the anatomy of a good trade setup. First, you have to be willing to plan ahead. I’ve already mentioned that, but it’s worth repeating again because if you just get into the trade and we use Jim Cramer as an example, you know about, you know, just buy it just for the heck of buying it, but you have to plan ahead.

4:37
And that’s one of the things I always try to do in the, in the trading block is I lay out the details of the trade. Where am I getting in? At what am I getting out at? I review it every day, that’s all part of the plan. That’s part of the plan of constantly monitoring the stock selling portions, raising the stop-loss, letting the rest run higher, and all that goes into having a willingness to plan ahead and to manage the trade.

5:00
So, when I put a trade setup out their own, when I take a trade for myself, I’m not just buying this on a, on a web. A lot of the stuff has been done the night before. I’ve been planning ahead. I’ve been going through my watch list, I’ve been looking at the stocks that show me the best opportunities for a risk-reward set up.

5:16
That could pay nice. Dividends in the future, I ask myself. Can I even manage the risk on the street? So I mean there’s a lot that goes into it but in number one it’s kind of a more of a generality having the desire to be willing to plan plan for the trade plan, the trade plan ahead.

5:34
Number two is also kind of a mindset as well, but a lot of trading is mental. So much of trading is mental and that’s what gets so many Traders and to trouble is because they don’t conquer the mental game. I think that A lot of better traders to me out there in terms of probably finding better trade setups, you know, better execution, but they don’t have the mental game and I think that it’s so incredibly important.

5:57
I’m not like some person that does not feel emotions. I’m actually a very emotional person when I take someone like the like the Myers-Briggs or that, I can’t remember what the new one that everybody talks about that and a burger in Amman and I don’t know you. Some of you all might know what I’m talking about. Exactly. But all of them, say I’m actually an emotional person.

6:17
And well, I don’t, I don’t sit around and I cry about things I do. I do feel the emotions of things. I can feel the anxiety, I can feel the depression depression of the depending on what what it is is affecting those, those moods. But it’s about controlling them and trading.

6:35
And I think a lot of times because I do have those emotions, I do know that if left unchecked, it could be a liability to me that I do everything I can to manage those. And it doesn’t mean that I’m not going to get mad. I’ve broken, keyboards trading, I’ve broken Mouse, mice, is that mice for, for a multiple mouse mouse is?

6:54
I don’t know. But, yeah, I’ve done a lot of those things and that doesn’t mean that’s like a something I’m proud of or anything else. It’s I’m not proud of it. Like I am about being blocked by Jim Cramer run on Twitter. Or Doug Cass and and those blowhards, but I do have emotions and I do.

7:12
I do feel the disappointments that come with a losing trade, and the excitement and euphoria that comes with a winning trade and if I’m to be honest, I probably hate a losing trade ten times more than I do in terms of my love for a winning trade.

7:28
I’m up 20% on a trade I’m like okay you know like I’ll go take you know half off I lose three percent on a losing trade. I’m like not very happy about it. You know I I took a loss on GLW today, Corning it stopped me out. I kind of thought about that all day, you know? And meanwhile I’ve got got spce which is run up 11% on the day and I got multiple other trades that are up three percent on the day.

7:50
But that GLW just kind of got under my skin. Actually GLW was like a six percent loss. I’m sorry six percent loss. I’m not sure what I was confusing with 3% but any case it was a six percent loss yet a little bit more than I enjoy taking on a losing trade, but it still, it kind of bothered me all day.

8:08
But back to the anatomy of a good traits that have because I got a little bit derailed, they’re talking about the emotions. But what number two is is expect to be wrong, you have to expect to be wrong in your traits. Most traits that I put up a, I don’t know if it’s a doom and gloom and me or not, but I always assumed I’m just going to be wrong on the trade, i-i’ve done articles about this and everything else on shareplanner.com.

8:31
I always figured. I’m going to be wrong. I don’t know if that’s a healthy thing or not, but it’s always kind of surprising. When a trade works out like, uh, look at that. The trades. Rally at that stocks rally. And look, I’m making money on this thing. That’s great, but I don’t Don’t ever really expect that for some reason, I don’t know.

8:47
It always catches me by a little bit by surprise and I’ve done this over and over and over again through the years. And I’ve been able to be consistently successful for so many years now, but it always catches me by surprise. I’m like, Whoa, man, that’s amazing.

9:03
I honestly feel that sometimes that I deserve my losing trades and I’m lucky, I’m like my winning trades. But it all goes back to, I expect to be wrong, my trades. And why is that important is because it helps me be cognizant of the risk that can lie ahead in a trade. So number three is, why do you want to get in the stock?

9:21
What is your Edge just like, number two, you have to be expect to be wrong for number three. You got to know why, maybe you are gonna know why you want to be wrong. But no, I mean all kidding aside. You got to know why you want to get into this trade. What is your Edge? What is the edge that you’re trading off of?

9:39
Do you have a reason for getting into the stock? Oftentimes people get into a stock because there they fear of missing out on something that’s not a good reason. You see, people making a lot of money and Tesla or you see a lot of people making money and Microsoft.

9:55
You’re like, I don’t have a position in this. I need to get into it. Let me tell you, I put it out, I sent out a message to all the people on the trading block today saying, hey, I’m looking at getting into Tesla right now and it’s probably at a time when there’s not a lot of people getting into it because the volume is very low.

10:13
It’s not really moving. Much. It’s had its huge run up but it’s consolidating nicely, but I’m kind of anticipating another move to the upside. So I got a trade setup out there. But right now, it’s not rallying. People weren’t fearing, missing out on anything. It’s just sort of sitting there and nobody’s really buying that much.

10:29
It’s actually below average volume. Which it hasn’t seen that in a while but I know why I want to get in there. There’s a continuation triangle pattern there and it’s it’s an ideal setup. I feel like that I can manage the risk to my liking and I think there’s enough reward to the upside, you know, anywhere from like four or five to one of what I think the risk is to the downside, if I get stopped out.

10:52
But you have to know what your edges. So for the Tesla trade that I put out there today, I know what my edges, I just explained it to you. There is there some consolidation light volume pullback, and I think that it’s, it’s only a matter of time before, breaks back out to the upside of that consolidation. So you have to know what your Edge is.

11:09
Why are you wanting to get and this particular trade it, whether it’s Apple, whether it’s Tesla you have to know. And when the more volatile they are, you really got to hammer home your reason for getting into them because if you’re just getting into one because you’re thinking, I’m going to get rich off of this, that’s a bad reason.

11:24
You don’t want to do that, man. Come on. Everybody wants to be a traitor. Or or who wants to be a Trader? Does it because they want to get rich right? Nobody ever thinks about. Well I’m going to have, I’m going to become a traitor because I like managing the downside or I like I like being wrong fifty percent of the time.

11:41
Nobody Does it for that. Nobody everybody wants to do it because they want to make money, okay? But that’s the very thing that gets you into trouble. You don’t, you don’t want to do it for that. Very reason your, your reason once you are into trading, should be to manage the risk to manage the problems that arise with trading, because there’s going to be plenty of That do happen.

11:59
Now, on to point number four here, the first three, have to be willing to plan ahead. You got to lay out the details of the trade. And then next week’s podcast, when I continue this, this two-part series, I’m going to get into that number to expect to be wrong. I always expect to be wrong. It’s just surprises me when I’m right. Number three.

12:16
Why do you want to get into the trade in the first place? What is your Edge? Why are you getting into it? A better not be because of fomo. It better. Not be because you Hope to get rich. Those are not valid reasons. And number four, there’s no obvious pitfalls.

12:35
Perfect example of that today I’ve been watching this one stock pluralsight, PS is the symbol and man it has this beautiful cup and handle pattern of starting to break out my eyes like man I want to get into this thing to pitfalls. One is already got plenty of software stocks okay and there’s none of them that I really want to cut out for them because my by and large, I’m pretty happy with my software’s.

12:55
You know I got smar it’s a place 16% for. Me and I got cou P, that’s just now starting the bouncing give me a good move and I’m up about 3% on that and there’s others that are square them up. A good chunk of change in that one as well. But portal site has all the makings for a stock that wants to go higher.

13:13
But the first Pitfall is that I don’t need to add any more software, okay? Because software at times can be really thickly, they can all just sell off at the drop of a hat. And when they do, it’s like 56 percent sometimes when they do sell off. And so if I have all software stock in my portfolio, that’s not going to be a very fun day.

13:31
It’s gonna be very difficult to manage the risk when that happens. So I can’t load up the portfolio with too many of them. The second one and this is the really the big Pitfall. I had earnings after the bill. Yeah, I hate the fact that it was breaking out today and I had earnings after the The Bell. But let’s forget about the fact that I have a number of software stocks in my portfolio, already.

13:49
Let’s say that it was a legitimate trade set of that. It made sense for me to get into, but it had earnings after the Bell. Well, I would have gone in and probably around 2050 today, earnings comes out. Guess where it’s trading at right now at this very moment, portal site is trading at $19 and 18 cents.

14:08
So, you’re talking about a 7% sell off their after hours. It may keep going lower. I mean, it hasn’t really bounced yet at all, so, who knows? But that was an obvious Pitfall, don’t trade the earnings. That’s my biggest thing. I there’s time there’s times where I want to trade earnings.

14:26
There are, but I know that I can’t just do that all the time, that it’s not wise to do that. I don’t know where earnings is going to stake a stock. Take a stock, I never know where it’s going to take a stock as a result. I can’t just play the earnings thinking that I have an edge, or that.

14:44
There’s a reason why I believe that it’s going to keep going higher because, you’re basically hoping that the analysts whatever numbers they come up for what, what they were, they expect the revenue and their earnings to be or future guidance that that somehow the company will be able to beat that and that there won’t be any pitfalls in their estimations.

15:00
So I don’t trade earnings. And PS was breaking out today. It looked great, but they had earnings today. Now, I’m not going to go buy a stock right before earnings and then watch myself, get wiped out on the trade. That’s stupid. Okay, so I didn’t trade it. That is an obvious Pitfall.

15:17
So anyways, I’m kind of pushing the boundaries of how long I want this particular podcast to be. So I’m going to wrap it up here and next week, I’m going to get into the next four points and who knows? Maybe maybe there’s a point or two that I forgot, and I’ll have to add it to that, that next podcast.

15:33
But anyways, I will have what for you next week. So as they say in TV or in cinema, or know, I guess it’s just TV. Or in the case of Back to the Future it’s to be continued. Thanks for listening to my podcast. Swing trading the stock market.

15:49
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16:18
Every day you have any questions, please feel free to email me at ryan@shareplanner.com all the best to you and I look forward to trading with you soon.