Trading Stock Market Panic | Podcast Episode #83

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.

0:25
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 today’s episode, the stock market panic how to deal with stock market declines. What are what are you doing to protect yourself when the market selling off 2000 points in two days on the Dow, 200 points on the S&P 500.

0:48
How how are you protecting profits? There’s been every opportunity in the world this month to remain profitable in the stock market. There has been plenty of days to to book profits. There’s been plenty of days to write up the side. That doesn’t mean that you’re not going to have losing positions.

1:06
I’ve had losing trades this month. I’ve had plenty of them, especially this week. I’ve had plenty of them. OK. We also had a lot of winning trades this week too. So that that offsets at some right. But taking profits along the way. And you know, what’s funny about this episode is that last week I wanted to do this one and I said I was in the middle of a two-part series called The Anatomy of a Good Trade Setup.

1:28
But I didn’t want to break that two-part series up and put something in between them. So I said, I said in that podcast episode, I hope the market doesn’t have a meltdown before I can get to this episode. Sure enough, it has an absolute temper tantrum, throws a fit, you know, pukes all over the place, and now we got a stock market that’s enough in a complete free fall.

1:47
But that doesn’t mean that this episode’s not going to be extremely beneficial because it is. Otherwise I wouldn’t be wouldn’t be doing that today. So I got an e-mail today and it talked about TuneIn for our webinar on how to trade stock market pandemics.

2:03
I’m thinking to myself, who knows about stock market pandemics and how to trade them. Is anybody real? I mean, what were they like? Was this like a black plague that they that they are reflecting on their times during during the Black Plague that they were? I don’t think so. And I don’t know.

2:19
I’m sure there’s been other big time viruses that have wiped out populations. I’ve, I mean, not sure I know that there is, but in any case, though, it’s just so funny if you get these emails and I don’t even know why I get on these people’s e-mail list. I think people sell e-mail lists and I don’t even know if you’re supposed to do that, but I don’t sell mine.

2:39
I have an e-mail list. A lot of you guys get my emails, but I don’t I don’t sell, I don’t sell. The only person who has access to it is me. So I guess that’s a good thing, right? But any case, yeah, they, they’re talking about how they, they, there’s a way to trade a stock market pandemic.

2:56
I don’t really think there is. I don’t think there’s a specific way that you trade a stock market pandemic of a viral outbreak like the coronavirus versus the 2008 recession where the banks were all failing. I don’t think that there’s, there’s like a specific plan for one versus the other.

3:14
Panic in the stock markets panic there. There’s so many similar traits in each one of these sell offs, whether it’s the 2018 quarter 4 sell off, it’s going to have a lot of the same features as what you’re seeing right now. It that’s just what panic is. People are selling.

3:29
They’re either buying or they’re selling. They’re even, they’re buying a little or they’re selling a little. They’re either buying a lot because they’re getting greedy or they’re selling a lot because they’re selling a lot because they’re super fearful. Whatever the case is, whatever the reason for it is, you see these things happen all the time and I don’t know if it was the last week’s episode or if it was a YouTube video that I did.

3:50
I got to figure out what it was. I, it could have been a YouTube video, now that I think about it, but I talked about, I think was my last YouTube video. In fact, I talked about how this market’s getting too easy. And it’s not because that I’m such a good trader that the stock market’s easy.

4:07
I’m not saying that at all. I have plenty of flaws as a trader. I, I wrestle with them. I wrestle with emotions just like everybody else. People who say they don’t have emotions when they’re trading in the stock market, they’re full of, you know what? They have emotions.

4:24
Everybody has emotions, OK? So it’s about how you control them, how you maintain them, so forth. But yeah, the market was getting too easy. It was getting super easy. Like everything was going up. There was always forgiveness the next day. But you want to know why? Because everybody was piling into the stock market and I knew it was getting too easy and it was getting me very nervous because so many new traders were coming into the market for the first time.

4:47
They had never trade before. So they’re getting into the stock market for the first time. That makes me nervous because when I start seeing like the, the, the fresh blood, the people who feel like they were missing out, the fear of missing out, right? And they’re ready to go, you know, nuts with some, some trade setups.

5:04
That gets me nervous because I’ve seen that a lot in the past. I saw it in January 2018 specifically. I’ve seen it many times before. We’re all of a sudden it’s like the real estate market, right? Everybody was a house flipper in the early 2000s. And now you’re starting to see some of that again.

5:20
And I bet you you’ll see more housing issues here in the near future because so many people are are trying to get into rentals. I see it all the time on on my story feed on Instagram. I mean, people are like, oh, look at this house. I’m going to buy, I’m going to leverage, leverage my money and I’m going to go buy a new house, put 10% down and rent it out, You know, whatever, that’s fine.

5:40
I mean, I, I got nothing against rentals or anything like that, but I just think that it’s becomes problematic when it becomes too commonplace, when everybody is getting into it that that gets scary. So you saw that with the stock market, you saw record number of, of calls being written, which can’t even imagine what that looks like right now.

5:59
I feel bad for the people who are buying Tesla calls that, you know, a couple weeks out thinking that it was going to be going up to $1500 a share. And I’m sure you had a bunch of Yolo option calls being written for SPX 4000 over the next couple months or would not surprise me.

6:19
But when it gets too easy like that, that’s that’s really scary. So right now the S&P, it’s down to 100 plus points. Third day of the trading week. First two were pretty rough for the bulls. I did great yesterday. I was thrilled about the outcome of my trading yesterday.

6:36
So that was with another 100 point sell off. I took some losses on Monday, but I had some short positions again, helped with some of those losses. So that’s why along the way, when this market was rallying, I kept putting short setups out there and I was getting stopped out of a couple of them.

6:53
And I’ll be honest, I have a few times I felt like a absolute moron for for putting these things out there, but I knew that it was the right thing to do. So I kept doing it. And so when the the selling started hitting late last week and you started seeing the massive pull back, I had a little bit of I had a few short positions that that I was able to take advantage of and benefit from like Disney, You know, that thing went down over 7%.

7:19
I wish I would have held it today because the the CEO stepped down. So that thing’s down quite a bit as well. Again, there’s Caterpillar, there was UPS that I made 10% off of and CarGurus that was like 3%.

7:36
Discover Financial, I think that was over 5%. So there was some really good trades, really happy about that. And so I was short in the market coming, coming into the week. I also had some some long setups as well, especially on Monday. I got stopped out of a lot of them.

7:51
I would say a large chunk of them were booking profits and and then you had the others. There was some losers, but all the losses were contained. That was important as well. And then I found myself net short on Tuesday. I had a couple more long positions. They both got stopped out at the end of Tuesday. I was, I was 100% cash.

8:08
Why did I go 100% cash? Because when you’re shorting, it’s you versus the world. Nobody wants you to be successful. When you buy a stock, everybody wants you to be successful because everybody’s long on the market in general. OK, it’s only a fractional amount of people who actually short the market. Most people swear it off. I would say 99% of the world doesn’t even realize what shorting is or that you can even make money shorting.

8:28
And the only way they do know is if they watched the movie The Great Short or The Big Short. This is what it was. That was a good movie too, by the way. And even then, they probably still don’t know what the heck shorting is. I’ve explained it to more people than than ever. I think it’s a pretty simple concept, but they look at me like I’m like, I’m a complete idiot.

8:45
They have no idea what I’m talking about. But anyways, when you’re shorting, it’s you versus the world. So like right now, the markets, markets, you know, slightly lower today, but guess what? There’s forces under the surface trying to to change the entire outcome of, of this market of what we’ve seen so far this week of 200 points down.

9:05
The you have the federal government, they’re trying to respond. They’re trying to cure the coronavirus. Guess what? If there’s a vaccine for the coronavirus and they put a press release out about it or they make an announcement, it’s going to cause the market to go right back up if less people are getting sick. And trust me, they’re treating people as best they can.

9:22
OK, So if they’re able to limit the spread, if they’re able to cure more people or they get the vaccine, the markets going to go up. So it’s you versus the world. So you can’t just sit on a short set up forever and think, OK, it’s never going to burn me. You have to eventually take profits in it. And so I when you get these big sell offs, look, I wasn’t expecting 200 points on the S&P 500 just in the 1st 2 days of this week.

9:44
But once that happened, I started covering my positions because it’s like, look, this is great. I just made a you’re not going to see the market go up to 100 points in two days. And if it is, it’s usually because the market just sold off like a massive amount and it’s never even gone up to 100 points in one day, but maybe it could do it in two days.

10:00
I don’t think it’s even done that before. So remember, when you’re shorting the market, it’s you versus the world. The broad consensus is let’s make the stock market go up. So when you’re you’re going against that, when you’re going against that belief in that fight, you got to realize that, yeah, the profits can come flowing in faster than anything else out there.

10:18
OK, shorting and and getting caught on that elevator down what to the short side. It’s it’s beautiful. I mean, the profits are amazing, but it’s going to be you versus the world. People are trying to get that market to go back up. Trump wants it to go back up. the Fed wants it to go back up.

10:34
So they’ll cut interest rates. Course that would take take the market right back up if they chose to do that. So that’s why you have to be aggressive with your profit taking because it is a you versus or. Now some people don’t like the idea of shorting. They think it’s immoral. Well, they’ve been doing this like since the 1800s, I think.

10:51
I mean, this is nothing new. Every brokerage pretty much offers it. So you shouldn’t, it’s, there’s nothing wrong with it. You’re basically playing price action. Some people feel and it, but it can’t give you kind of like a dark outlook on things, right? Where you’re, let’s say you’re short the S&P 500 and you’ve got 3 or 4%, you know, of profits.

11:11
And then all of a sudden they come out with a cure for the coronavirus where you’re going to be like crap, they’re coming out with a cure. Hopefully it doesn’t work. That sounds horrible, but you kind of think that kind of stuff or all right, short the market. Is Iran going to act up?

11:27
That would definitely help my positions. Or you’ll think to yourself, man, maybe maybe Apple will have some bad earnings or something. And because I’m short the Apple or or short Apple, that’s that’s the kind of stuff that starts going through your mind when you’re short the market.

11:43
So it can kind of take you down a dark road and, and kind of have you hoping for certain outcomes that you shouldn’t really be hoping for. And then you also have the people who are saying, OK, and I got a lot of this Monday. It’s funny, on Monday my phone was lighting. I was like, all right, I’m ready to buy some stocks, man, What, what do I buy?

12:05
I want to buy when everybody else is fearful, they think because they’re they’re not fearful at this moment that everybody else must be. But that’s not the case when I’m getting phone calls from a lot of people saying, hey, I’m ready to put some capital to work. I want to start buying. I want to I want to take advantage of this sell off kind of tells me that not a lot of people are taking this sell off seriously.

12:21
How many people do you think called me on Tuesday to say, hey, Ryan, I really want to buy some stocks right now? Nobody did. And you want to know why? Because they were fearful all of a sudden themselves. They’re like, I’ve lost a lot of money. I don’t think I really want to put any more capital to work.

12:38
So that’s what you kind of want to start looking for. When you try to buy the dip or you try to take advantage of a huge market, sell off, it does not feel good. You don’t feel like a hero. You feel stupid, you feel ignorant, you feel like a deranged lunatic because you’re saying to myself, this market’s in a free fall and I’m just buying it now.

13:00
That doesn’t mean to go go buy XOM because it just feels like a stupid trade right now or anything. I’m not saying that of course XOM does have like a 6 1/2 dividend, which is quite amazing in itself, but I’m not buying it. But anyways, what I’m trying to say is that if you adhere to that whole principle of buying when others are fearful, you’re also fearful when you’re buying, OK?

13:23
You’re not just buying when others are fearful, you’re buying when you’re fearful. You’re buying when you feel sick to your stomach about it, where you feel like that if you do it, it’s going to cause you to have an ulcer, OK? It’s a sick feeling, OK, When that bottom starts to kick in.

13:39
And I can tell you looking at like the T21O8, there’s still 20% of stocks that are trading above their 40 day moving average. When you saw the December 2018 sell off, we got down to like 3% of stocks. That’s where that gut wrenching buy comes into place right now.

13:56
I’m not saying that that’s a legitimate strategy for you to be doing because a lot of these strategies have to be something that that you yourself can sign up to. I bought some stocks for myself during that. I, I literally one of the few times in my life I’ve ever perfectly timed to bottom was, was the day after Christmas when the market opened up or, or was like the next trading day after the market opened up from, from the Christmas holiday.

14:17
I got into like Apple and Amazon and they or Apple, Amazon and Facebook or or a combination of those. Any case, they did phenomenally well. I mean, it was, it was amazing. But when I bought them at the time, I, I did not like it, but I knew that they were sitting on some, some key support levels and that the bounce was, was eminent.

14:34
But the biggest thing during these sell offs is that you have to be willing to play the market both ways. You have to be able to play both to the long side, the short side. So when the market sells off, you’re playing a short, but you don’t, you don’t try to squeeze every dime out of the market. Yes, it’s going to bounce back up pretty hard. Even if it’s a dead cat bounce, it’s going to bounce back up.

14:50
But the key is, is to catch the gist of all these different moves because there’s some big moves that are going to be happening. And then if that bounce fails, then you all of a sudden reach short at a higher prices than where the where you originally where you previously covered your your other trades at. So you’re you’re trying to take advantage of some of these these big moves that are going to be playing out.

15:11
And you ought to remember too, less is more in the stock market. If you’re if you’re 100% short or 100% long, just trying to play full tilt on anything and everything that’s going to get you killed. OK, I got stopped out today or I actually didn’t get stopped out. I added one position. That one position started falling apart right out of the gate.

15:27
I said, I’m out, see it, OK. And that’s what you got it. You got to have that mindset. You got to say to yourself, look at this thing’s not going to work. I’m going to get out, but I’m only going to test the waters with 11 toe at a time, 11 foot at the time, because when you test the waters using both feet, you’re going to sink straight to the bottom.

15:42
So test the waters with with one foot, OK, maybe a pinky toe or something, but don’t don’t go too crazy. Expect a lot of gaps. OK, that the gaps it look if if it gaps so much that you can’t get into a position, just let it go. OK, there’s always another trading day for the next day like wait for those trade setups to present themselves and in the end, if you manage the risk, if you don’t let let the fear grip you or the greed overwhelm you to making bad decisions, the returns are going to be amazing in the end.

16:11
I, I, I live for these things. This, this is some of my most favorite times in the market, especially avoiding losses that everybody else is having an experience and taking profits instead that that to me is the best thing so far this this year, stock market’s down in January, the stock market’s down in February both months.

16:26
I’m a pirate and that’s, that’s the beauty of managing the risk. That’s what most people will never understand when it comes to trading. It’s not about how many, how much profits you can make. It’s about how you manage risk, manage the risk. What have I always said, profits take care of themselves. Thanks for listening to my podcast, Swing Trading the Stock Market.

16:44
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17:02
That’s www.shareplanner.com/trading-block and follow me on SharePlanner’s, Twitter, Instagram and Facebook where I provide unique market and trading information every day. You have any questions, please feel free to e-mail me at ryan@shareplanner.com.

17:19
All the best to you and I look forward to trading with you soon.