When Everything Else Rallies | Podcast Episode #127

0:00
Hey, everybody, this is Ryan Mallory with Swing Trading the Stock Market. I got a good show for you guys today. We’re gonna be talking about this email that this certain someone sent in to me. I’m not gonna use his real name. Instead, I’m gonna give him the good old Florida name because he is from Florida. His name’s gonna be Boone.

0:16
That’s right, Boone. That’s a good solid Florida redneck name. That’s what the name I’m gonna be using in this particular. The podcast episode. So Boone here has a huge issue with getting into trades. He creates the stop losses. He’s trying to be disciplined. He’s not going after the Nicola or, or some of these crazy like Kodak or Hertz bankrupt stocks.

0:36
He’s going and trying to be as disciplined as possible. The problem is, is he’s not seeing profits come from it. And that’s, that’s a, a problem that That can affect a lot of traders here, and I don’t want it to affect you guys. So I’m gonna address that today and he has a really good concise email about why this is such a problem for him.

0:52
Essentially, it’s this. He creates a watchlist, he gets into his trades, and then he sees all the stocks that he did not get into from his watchlist like break out the new all-time highs or just like yellow their life away. He also placed the stop losses to keep the risk tight, and then it just goes right through the stop loss, takes them out, and then goes right back up to all-time highs.

1:12
And I know these things. I’ve experienced these things, and I know that they’re frustrating, and they are part of trading to a certain degree, but we’re gonna talk about what we can do to mitigate some of these problems in this episode here. And first off, before I forget, make sure you go to swingtradingthestockmarket.com. You’re gonna get all of my market information every day that’s going to include the charts that I find the most exciting, the most riveting.

1:32
My personal watch lists, both bullish and bearish, as well as updates on a weekly basis on the Fang stocks, that’s Facebook, Amazon, Apple, Netflix, Google, Microsoft, and Tesla. Also, you’re gonna get updates throughout the week on the S&P 500, the NASDAQ and the Russell 2000 showing you where the markets are.

1:49
So make sure to go to swingtradingthestockmarket.com to sign up for that. Now, I’d be remiss if I didn’t talk about what my choice of drink is today. It’s not a bourbon. It’s not a Canadian whiskey, it’s not an Irish whiskey. It is moonshine straight out of the Smoky Mountains.

2:04
This is Old Smoky moonshine. I’m gonna drink it straight out of the mason jar because I feel like that’s what you would do if you were in Tennessee. You’d drink it out of the mason jar. You wouldn’t pour yourself a bougie glass with a nice ice cube in it. No, you just drink it straight out of the mason jar because that’s what people in Tennessee and Kentucky probably do, right? And no, I’m not being biased towards people in Tennessee because I have a sister that lives in Tennessee.

2:24
Nonetheless, I’m drinking straight out of this Mason jar. Woo! It’s pretty good. It’s not as harsh as I thought it was gonna be. And by the way, this is Old Smoky moonshine. It’s a blackberry flavor, and the blackberry flavor is very pronounced.

2:40
In fact, it tastes like a liquefied version of jelly. In fact, I would probably make myself a peanut butter and jelly sandwich, leave the jelly off of the sandwich, and pour this all over it. Maybe I just use it as a dipping sauce. I don’t know, but let me just tell you, this has got a strong blackberry flavor and it totally tastes like jelly.

3:00
You know what it honestly tastes like? If I went to Cracker Barrel and I asked him, hey, can I have some like one of those like jams for, for my bread, for my cornbread or for, no, you don’t put jam on a cornbread for like the toast, like the wheat toast or the white toast, and they bring it back to your table and they give you these jams.

3:17
It’s kind of like that. I feel like I’m opening up one of these little condiments and I’m like slurping out the jelly. That’s kind of what it is. It’s not bad, it’s uh. It’s 20% alcohol and 40% proof. Now I, now I just, now I feel insulted, quite honestly. The score went way down. You’re gonna give me moonshine, that’s 20% alcohol?

3:35
And it’s 40% proof? I mean, I’d like to speak to the manager on this quite honestly. That is, that is bogus, man. 40 proof. Anyways, I’m giving it a 38. Don’t, don’t be coming in here with 20% whiskey. Don’t even call it whiskey if it’s 20%.

3:52
Come on, guys, I’m done with it. I took it. I took it like a shot. I’m done with it. I don’t even want to, I don’t even want it in my presence anymore. I was kind of excited about it, didn’t read the label, started drinking it, made the biggest mistake. I should have known upfront that it was only 40% proof, that was a rookie mistake. I’m still gonna give it a 38.

4:08
I wouldn’t touch that stuff with a 10 ft pole. But you wanna know what it’s not as bad as the corkscrew peanut butter whiskey. That stuff, that stuff belongs in an asylum locked away for life. Nonetheless, let’s get back to Boone and what he has to say. Good afternoon, Ryan.

4:24
My name is Boone. But being that I’m from Florida, I would like for you to think of a crazy Florida name for me. Well, you’re in luck because I already gave you a crazy Florida name. He says, I love the podcast. I’ve been watching and rewatching them, and I’m picking out something new each time I hear them. That’s great.

4:39
Keep doing it, man. Nevertheless, I have been getting extremely frustrated with the market. Hey, markets are gonna frustrate us, man. You’re never gonna get through this market in life without getting frustrated on a somewhat of a semi-regular basis. More so with how I am playing the market, not the market itself.

4:57
I feel like I can’t win, and we’ve all been there, buddy. If I’m looking at 5 setups that I like, the one I enter will smash through support while the others reach all-time highs. I practice hard stop losses on every trade. However, it’s incredibly frustrating to stop out repeatedly each week for 3 to 10% losses while hardly ever making gains.

5:17
I will enter the position when it moves above the EMA lines, usually when it’s recovering off of a support level. I will set my stop losses, usually 2% under the support level, and will increase them as it increases resistance. I’m not sure what he means by increases resistance, but we’ll try to tackle that here in a second.

5:35
Clearly this is not working for me. My question can be broken down into two parts. All right, let’s get down to the nitty gritty here. He says, Where do you set stop losses and how do you come to that conclusion? Good question. Number 2, where do you know where to take profits? Usually what happens is that it will rise a few percent only to fall back on my original stop loss.

5:54
To combat this, I will look for the first opportunity to raise my stop loss to secure a profit if it pulls back, only to stop out, then the stock takes off again. I’m not trading crazy stocks like. Nicola or Hertz. I’m part of your Patreon. I really like your trading style and I will not try to get rich quick or be greedy, which is why I appreciate your real no BS approach to trading.

6:14
Thank you for putting out tons of information for us. Best regards, boom. So this was a good email. It tackles a lot of real concerns that a lot of people have, and I, and this isn’t the first time I’ve seen these kinds of questions come my way because oftentimes when you try to keep the risk tight, when you try to manage the risk in a way that keeps the loss of small, you’re gonna get stopped out of trades.

6:36
Sometimes when you don’t want to be stopped out, and it’s gonna happen a lot of times when the market has these huge washout moments. So like, let’s say like the market’s gone up for like 10 days in a row or like 8 out of 10 days in a row, right? And you’re making gains after gains after gains day after day after day, and then all of a sudden you have this like 100 point drop on the S&P 500 and it just takes out a huge chunk of your gains and that’s, that’s real, right?

6:55
And especially if you’ve taken like new positions in the last couple of days, it takes out those positions for a los. It’s frustrating. It’s a really frustrating thing. So one of the things for me when I’m setting a stop loss, I don’t just place it below the previous day’s candle and say, oh, if it breaks the previous day’s candle, I’m gonna get out.

7:12
What I’m really looking for is multiple support levels because if you can make it to where it has to break multiple support levels, that’s going to go a long ways and telling you, OK, something’s definitely wrong in this stock. I want to go ahead and get out. So if I have like a trend line that’s been going on for like a long time and it’s bouncing.

7:28
And off of that trend line and then let’s say that you have a price level support level just below that trend line. You have two support levels there, and maybe there’s a couple of moving averages there that it’s been pinging off of as well. And so then you can make it like 3 support levels. What I want to do then is put my stop loss below all 3 of those support levels, knowing that it has to break all 3 of these support levels in order to really take me out of the stock.

7:50
The more support levels, the better. Now, I’m not saying that you can’t make a trade off of like a trend line or off of a price level support level, you can. can do that. But in order to do that, like if you’re gonna play a bounce off of a trend line, you need to at least make sure at first that it’s going to make a valid attempt to hold that trend line.

8:05
If you’re seeing a day where the market’s down like 100 points and everything’s just crashing through the floor, what you don’t want to do is buy it just because it’s testing that trend line. No, let, let it, let it probably go through that trend line and see if it can come back and hold that support by the end of the day. And if it does, maybe that’s your sign to get in.

8:21
But you can’t always just blindly buy a trade setup just because it looks good on that chart at that particular moment of time. That’s why I always talk about a top-down trading strategy where you take into account not only the current situation with that particular stock, but you’re also giving consideration to the S&P 500, you’re giving consideration to the sector that’s trading in, the industry that it’s trading in, and then finally, you’re looking for the best setups within that industry.

8:44
And if that particular trade setup works, so Boone here talks about how he has like 5 or 6 trade setups and then the one that he gets into. is the one that usually works against his favor. So the first question I’d be asking him is, is, hey, are you looking to make sure that the industries and sectors that you’re trading are the best ones in the market right now?

9:04
Because you can have a good setup in energy right now, and energy sucks. Energy isn’t going anywhere of late. The markets rallied off of the March lows from here in 2020, but energy really hasn’t rallied with it. It’s been pretty much stagnant for like a half a year now. But take technology, for instance, It’s just going through the roof.

9:22
So you gotta know which sectors are rallying. You gotta know which industries within that sector is rallying. Techs rallying, but maybe software isn’t rallying while semiconductors is rallying. And you gotta make sure that you know those things because when you are trading from a top down trading strategy, you’re trying to eliminate as many barriers to success in your trades as possible by going from the very top, making sure that the market is bullish or trading in the direction that you want to trade in.

9:45
If it’s not, if the market’s bearish, there’s no reason to get wrong. On the market, you want to start slowing down on how many trade setups you’re taking, but when the market starts getting bullish, yeah, that’s a great time to start adding new long positions to the portfolio. So to answer the first question and to summarize it, one, make sure you’re using the top-down trading strategy.

10:01
Make sure you’re taking out as many barriers to success and you’re trading as possible. Number 2, you want to make sure that when you’re placing your stop loss, you’re not just like using a trailing stop loss. A lot of people use it it’s kind of like a lazy form of trading. You use a stop loss that just keeps raising. It up, people like those things.

10:18
They’re a huge detriment really, in my opinion, because you’re not really necessarily placing the stop loss below a key support level, so you can get stopped out and it not really even mean anything that you’re getting stopped out. When I get stopped out, I want it to mean something. I want it to be below a key support level so that when multiple support levels are broken, I know that there’s something technically changing on that chart.

10:38
So that wraps up the first question that he has. Number 2, where do you know where to take profits? Usually what happens is when it will rise a few percent only to fall back on my original stock loss. And I get that. That’s a problem. If you look at the trading from the last few months, the stock market has been up and down and up and down and back to up, and that can get you really frustrated because you’ll see your gains that you once had quickly go back into the red.

11:00
So one of the things that that I do is I never take the market for granted. You can never take it for granted, you can never assume that the market will rally forever. And it cause it won’t. You’re always gonna have a pullback there. You want your trades to run as fast as possible, so I wanna lose fast. I don’t want to lose slow.

11:16
I don’t want to be stuck in a losing trade for a month trying to figure out if this thing’s gonna work in my favor or not. If it’s not gonna work out, I want to know in a few days. So, usually when I set my stop. The tightest is when I initially get into the trade. As the stock starts to run, there’s a couple of things that I’ll do to mitigate risk. One, I like to take a little bit off the table as soon as I start getting into some decent profits.

11:35
If I’m up like 34, 5%, OK, maybe I’ll take a third of a position off. And then as it keeps rallying, I’m not gonna have as tight of a stop loss as I had before. One, Because I’ve already taken some profits off of the table. Two, I want to give it as much room to run as possible because it’s already showing that it wants to break out or bounce off of the support level.

11:55
And in the process, my stop loss is probably gonna be a little bit wider than what you probably would see on my original trades. I mean, sometimes I’ll have like a stop loss that might be 6 or 7%. Now if the market starts falling apart one day. And things have turned dramatically dire across the economy or in the market or something else.

12:13
OK, then maybe I’ll start taking some of these profitable trades off altogether. And so sometimes you have to just be able to react to the conditions as you see them, but in theory, what I like to do is. I give my winning trades a little bit more wiggle room to run if they’re already showing the willingness to run. A lot of times when we’re in the trade setups, they’re breaking out or they’re bouncing initially.

12:32
It, you don’t have the highest probability at that point of it continuing that success, but once it’s already continued that success, you have a much higher probability of it continuing to move higher. So. That doesn’t mean that there’s not gonna be pullbacks along the way. There is gonna be pullbacks along the way, but the key is to make sure that you can withstand those pullbacks.

12:52
Let’s say it pulls back 2 or 3% and then pushes back higher. OK, you want to be able to withstand that. And so by one taking a little bit of profit off the table, I already know that I’ve made a little bit of a profit on the trade. That helps reduce my risk greatly because now I’m only working with 2/3 of a position, but it’s still sizable. It’s still very sizable and you can still make money off of it.

13:09
But I’ve already taken a chunk off the table that helps to reduce the risk dramatically while letting the other 2/3 of the position continue to run with maybe a little bit of a wider stop loss. So those are the keys to, to trying to help out with making sure that you don’t get stopped out prematurely.

13:25
Now, does that mean that you won’t ever get stomped out prematurely? No, you’re always gonna get times in the stock market where you get a trade and it just knocks you out. I’ve been trading Tesla lately. I swear I cannot get that trade to work for me to save my life. I know a lot of you guys have been holding it for a while, but from a trading standpoint, it’s been It’s been very difficult in, in the month of October.

13:46
We’re in November right now, but in October, it kind of sucked on me. And, uh, where is it at right now? Well, it’s, it’s higher than where I got stopped out at. That doesn’t mean that I’ve lost faith in my stop losses or my approach to trading. Absolutely not. I just know that with trading comes times where you’re gonna get prematurely stopped out and you’re going to see it go back up because why?

14:03
Stocks go up or stocks go down after you get stopped out, but what you don’t want is to be stopped out of a trade and the stock continues to go down and you become a perpetual bag holder if you don’t follow that stop loss that you laid out or don’t plan any stop loss up front. So you gotta have stop losses.

14:19
It’s what keeps you in the game, doesn’t keep you from losses, it keeps you in the game. If you guys enjoyed this episode, I’d highly encourage you to, to go ahead and give it a positive rating, maybe like one of those nice 5 star ratings on like Apple iTunes. That would be really cool.

14:35
It helps me continue to uh grow my reach and to uh continue providing you guys with some great content. I’ve always appreciated your feedback. You guys mean the world to me and make sure that you are sending me your emails and your questions just like Boone did in this particular email.

14:52
I want to hear what you guys have to say. Make sure you’re sending me your questions. I will do them. I will, OK? If it becomes too much, I will let you know that I can’t get to all of them. Right now that’s not the issue. So keep sending in your emails and I will get to them, all right? And you can do that by sending it to ryan@shareplanner.com.

15:08
All righty. Thank you guys and God bless.