Stock Market Correction | Podcast Episode #474

0:00
Hey everybody, this is Ryan Mallory with shareplanner.com. Swing Trading the Stock Market and today’s episode, we’re not going to do an e-mail, we’re going to talk about current market conditions. Now, most of the time I try to stay away from the day-to-day stock market activity when I do the podcast because I want these podcast episodes to be as relevant for you 10 years from now as they are today.

0:20
I want these to be topics that you can explore many years down the road and it still be relevant to you and for you to be able to go back and listen to. However, when you’re starting to see significant market volatility, I do like to address those because I also think that these are periods of time that you can go back to and reflect on and see what was the conditions, what was the fear like?

0:43
If this is a bigger market correction, we’re down about 10% off of the all time highs. If this is a bigger market correction, what was the feelings? What were the emotions in the beginning? What was, what was people acting like in the onset of a market correction?

1:00
If it’s not a significant market correction, we can go back to this period and say, OK, how are people acting when it was close to bottoming out and then it ultimately rallied back to new all time highs. So I think these are important ones to do because they’re part of a historical context that can still be relevant 5, 10, 15, 20 years from now.

1:21
So to give you a quick overview of what we seen, we were hitting new all time highs on the S&P 500 and on the NASDAQ just as late as February. I’m doing this recording in mid-March—we were hitting all time highs and then we started to pull back. To date we’ve pulled back from highs to lows about 10%.

1:39
And if I’m reading the room, I can tell traders are getting extremely exhausted. And why is that? It’s because from ’23 and 2024, most traders were able to get away with trading with heavy leverage, with just buying the dip at every turn.

1:56
You had the AI phenomenon, you had the Mag 7 or the mega cap stocks that were just always going up what seemed like perpetually each and every day. And that has finally started to wane—somewhere you’re not able to get that automatic bid underneath the stocks.

2:12
So there’s a lot of pain, there’s a lot of problems that are developing among traders. People are blowing up their accounts because they haven’t managed the risk. And that’s why I always go back to the first 3 podcast episodes that I ever did on this podcast. And I talked about the three things of the three rules of trading: plan your trade, manage the risk, let the profits take care of themselves.

2:31
Those three—if you do the first two—number three will take care of itself. But for so many traders, it’s all about how much money can I extract? How much can I make on this particular trade?

2:46
Can I knock it out of the park? Can I make it go to the moon and orbit Mars? And when you get into these kinds of market environments, all of a sudden those utopian philosophies of trading or ignorant or naive approaches to trading come back to backfire incredibly.

3:07
Now, I’m not sitting here doing this podcast acting like I’ve not been in that seat before. I have. I have been ignorant. I’ve been stupid. I learned my lessons a long time ago. That’s why I’m doing this podcast now—to try to teach you the things that I learned during the dot-com bubble when I saw my accounts go up practically 1000% over the course of a decade, only for them to come crashing right back down again.

3:33
So those are the lessons that got me to start thinking hard and heavy about managing the risk. And I hope that through this experience here—and remember it’s only a 10% pullback. The dot-com bubble was like 80% on the NASDAQ—but we’re only talking about 10% and people are losing their minds.

3:56
So to give you a little perspective, I’ve been through the 2000–2003 dot-com bubble. I started trading in ’91 when I was 11 years old. So I was very, very young when I actually went through the dot-com bubble bust. I was in my late teenage years and early 20s. But it had a significant impact because up to that point, I didn’t think that there was any chance that I would ever see a pullback in my account.

4:18
In fact, I was certain that I was just going to be a billionaire by the time I was 30. So I’ve gone through that. I’ve gone through the 2008 Great Recession. Yes, our generation had it pretty interesting. We were able to get houses much cheaper than what people coming out of college were able to get them for.

4:34
But man, we were hit with crazy recessions. So we had the dot-com bubble. Then we had the 2008 Great Recession. That was brutal. People who were buying the houses in 2004, 2005 were getting foreclosed on in 2008.

4:50
It was still a pretty rough time for my generation. So we had the Great Recession. That saw a huge, huge market impact that actually felt at times like capitalism was ending. Then you had the European sovereign debt crisis that was between 2010 and 2012—but really started peaking there in 2012.

5:10
That was a huge issue. You had turbulence with Greece and other countries. And then you had the, obviously, the pandemic that hit in 2020—that was really like a six-week sell-off followed by just an incredible buying spree once the STEMI checks started coming out.

5:26
And then again, we had the bear market in 2022, which I’ll probably, for this podcast, be doing a lot of correlations to what we’re seeing right now to what we saw in 2022 because there are striking similarities in that regard.

5:44
That reminds you to check out swingtradingthestockmarket.com. That’ll take you to my SharePlanner website where you can see all the different offerings that I have. If you want to trade alongside me in my Discord, you can do that. Or if you want to just get all my stock market research, that’s going to include things like my daily watch list—the stocks that are most intriguing to me each and every day.

6:01
You’re also going to get a weekly master bullish and bearish watch list as well, which I extract those setups from. Plus you’re going to get watch list reviews in a video format each day, recapping what took place with the watch list plus the mega cap or MAG7 updated.

6:19
It’s 99 stocks in total right now. I add or subtract them depending on the size of each of the stocks out there, but I do updates on those as well as the stock market as a whole. So it’s a really good value. You get all my stock market research—really cool stuff there. Check it out: SwingTradeintheStockMarket.com

6:34
So let’s talk about 2022. One of the things that proved so well in 2022 is that a lot of traders think that they always have to get short in the market.

6:51
I like to get short, and I will get short. I’ve been short already this year. I’ve already made a few bucks off of this downturn off of the February all-time highs. But if you’re not comfortable getting short on the market, the one thing I would tell you is: play the dead cat bounces.

7:07
You can do that. It’s not always the easiest thing, but the moves that you can get out of these dead cat bounces are absolutely incredible. I liken it to a rubber band. You’re going to get significant dead cat bounces.

7:24
That’s what we call them in the stock market—it’s like, you drop a cat off the top of a building, and even if it’s dead, it’s still going to bounce when it hits the ground. That’s where they get the “dead cat bounce” from. Some of you guys might be appalled by that, but as long as I’ve been trading, that expression has been around.

7:40
Not sure who started it, but once you hear it, it kind of sticks. So with the 2022 sell-off, you had five major legs lower—and what did you have in the midst of those five major legs?

7:57
You had four bounces, and you had an ultimate bottom. So the point there is that you can profit in a bear market without ever having to get short. You can play the bounces each and every time.

8:13
Going back to 2022, where the sell-off started—it essentially started at the very beginning of the year. The market peaked and it went down about 12% initially, and then from there it rallied about 9%.

8:37
So you had a 12% sell-off and it recovered about 75% of those losses with a 9% gain. Then you had a 10.2% sell-off followed by a 12.3% rally.

8:54
Now it just got a shade above the previous highs. Now why was the bounce so much bigger than the sell-off? That’s because when you have significant selling, the rallies can look bigger in percentage terms. If you go from $100 a share down to $50 a share, you’ve lost 50%. But if you go right back up to the same price again, you’ve actually made 100%.

9:17
And that’s this case here—you can drop 10% and then rally 12% and it looks almost like it’s the same amount. So those were the first two sell-offs.

9:35
You had significant dead cat bounces. Then you had another sell-off that took it down—this is where it started getting pretty crazy. Between March and May, it dropped about 17.5%. Then from there it rallied another 9.7%.

9:53
So it recovered about half of those gains, maybe a little bit less. Then we had the fourth sell-off—it took us down about another 13%, followed by another 18% rally.

10:09
And then finally, we had the ultimate sell-off that led to a bottom in the market. That was a move of about 19%, almost 20%. And then we finally bottomed.

10:25
We just went up for the next couple of years—until today. Well, not today exactly, but until this past February where we peaked out.

10:36
Now we also had a sell-off in July of last year that was about 9.7%, which is just a smidge smaller than the 10% that we’ve seen so far. Yes, we’ve technically corrected, but for whatever reason—I don’t remember—the panic right now seems to be so much greater than it was back in July.

10:56
But really, if you’re just looking at it apples to apples, it’s pretty much the same amount of selling you saw back then as you’re seeing now.

11:05
If you go back to 2022, with all those sell-offs that we’ve seen—we saw on at least two different instances where the bounce back provided more upside gain than the downside gain that could have been made from shorting.

11:25
So with bear markets, the opportunities are prime to play these dead cat bounces.

11:42
Now one of the things you have to be careful of is the one-off scenario where you get that one-day rally, where it looks like, “OK, definitely the bottom’s in,” and there’s no way this market isn’t going to just keep ripping higher—and then the next day you get the rug pull.

11:58
We’ve seen that a lot lately with this market sell-off. We’ve had four instances where the market has rallied really well, and then the next day it’s a complete rug pull. It might even rally a little bit higher the following day, and then you get the rug pull where it gaps lower and keeps on selling off.

12:16
We’ve seen that four different times so far, and it’s getting a lot of traders frustrated. I’ve actually traded most of those to the long side trying to play the bounce, but I have a very low tolerance for those bounces. If they don’t materialize, if I don’t see that euphoric bounce take place after I get in, I’m not going to hold overnight.

12:32
Why? Because I don’t trust the market to keep those gains going. We haven’t seen enough for it to show me that it’s worth holding and taking on that overnight risk. So just yesterday, the market looked like it was starting to bounce. I said, “OK, I’ll get long on it if it breaks through this level.” It broke through the level, I got long, and it looked good—for about 15 minutes.

12:58
That’s it. That’s as long as it lasted. Then it started to pull back into the close. I’m like, you know what? If it’s just going to pull back, I’m going to take the smidge of gains I still have and go back to cash. The market gapped higher the following morning on the CPI report—and then it came right back down again.

13:17
So I don’t give the market the benefit of the doubt. I’m willing to walk away with 0.1% in gains or 0.5% in gains because it’s not so much about how much money I make on the trade, it’s about how do I manage the risk. Again, going back to my original 3 rules: plan your trade, manage the risk, let the profits take care of themselves.

13:33
What I did there is this: here’s my trade, and if I don’t see enough from the market to show there may be a legitimate bottom in—shorts running for cover, breaking through some technical barriers like the five-day or 10-day moving average—if it does that, I’ll stay in it.

13:50
If it doesn’t do that? Peace out, I’m gone. And in these cases, that’s exactly what keeps happening. It can’t give you enough to justify holding overnight and risking a 100-point gap to the downside.

14:05
So I get out of the trade. For instance, the last one I did was in QLD. I walked away with like 0.27% on that trade. If the market’s going to gap on me the next day—fine.

14:21
I’m not going to take it personally and go, “Oh man, if I just stuck in QLD, I’d be up so much right now, I’d be killing it.” From a human standpoint, of course I’ll think that. But I can easily dismiss that because I know it’s just the carnal, greedy side of me.

14:45
The more disciplined side says: I’m in this to make good trading decisions. It’s not about one trade. It’s not about hitting a home run. It’s about the body of work. When I do that, I don’t care if it gaps higher the next day.

15:01
OK, if it gaps higher maybe I can’t get back in QLD. Maybe the only thing I can do is get into QQQs. Fine. If I make a winning trade off the Qs, and it’s half of what I could have made from QLD by holding overnight and taking on that additional risk—I don’t care.

15:23
What I want to do is plan my trade, manage the risk. And in the case of QLD, I had a plan. It didn’t work out the way I wanted. I got out with a small profit.

15:38
Even if it were a small loss, it wouldn’t have mattered. I managed the trade, planned the trade, and let the profits take care of themselves. If I keep doing that consistently, the profits will come.

15:57
And another note about Qs or leveraged ETFs: you can get into TQQQ or SQQQ and make a lot of money if you’re right. If NASDAQ rallies 3% off the lows and you got in right at the lows, you’d make 9%. That’s way better than the Qs at 3%.

16:18
But if the Qs rally against you and you’re down 2% on the trade, it’s only 2%. That’s easier to handle than being down 6% on TQQQ. While the profits might be better on a 3:1, the emotional cost is higher. I’d rather trade 1:1 or 2:1 where risk is easier to manage.

16:57
If I can’t get into QLD, that’s fine—because from a risk management standpoint, I can’t justify the risk. If I make profits on a trade, I don’t care if it came from a 2:1 or 3:1 setup.

17:15
It’s about making good trades. You can have good trades that win or lose—as long as you followed your plan and managed risk. You can have bad good trades. There’s people who just keep buying dips and eventually hit one and say, “Look, I nailed the bottom.”

17:34
They’ll brag about it for 15 years. People are still doing that with 2009. They called bottom repeatedly—then when it hit, they say, “See what I did!” You can delete tweets, but your body of work shows the truth.

18:09
The whole point in all this is: bear markets are scary—especially your first time. For me, it almost feels like home. My whole career started in a bear market.

18:27
I don’t get worked up because I believe the number of positions we hold determines how emotional we get. If we’re leveraged, emotions are higher. Fewer positions? Easier to manage.

18:44
For me, two or three positions in a bear market is more manageable than being 100% long or short. And remember, volatility is high—bigger market moves. So fewer trades can still yield strong returns.

19:22
Less is more in a bear market. Control emotions with fewer positions. Don’t overleverage. Don’t take oversized positions. It’s a very unnerving market, I get it.

19:42
But go into every trade planning your trade, managing the risk, and letting the profits take care of themselves. That approach has guided me for years.

20:02
It’s boring, absolutely. But in this kind of market, I have a no-nonsense approach. I know there’ll be a lot of one-off rallies that fizzle.

20:17
Seen it before. It all lines up perfectly—and then nothing. Make the market prove itself. Don’t take risk you don’t have to. You can always get in later. Smaller positions. 1:1 instead of 3:1.

20:51
It doesn’t make you less of a trader. Focus on the risk—not the profits.

21:08
If you enjoyed this podcast episode, like and subscribe. If you’re listening on YouTube or Spotify, leave a five-star review. Apple or any other platform too—leave a review if it helped.

21:24
Let me know your thoughts in the comments. How are you handling this market? Are you getting clobbered? Let’s talk about it. Also, send your emails to ryan@shareplanner.com. We’re getting back to those soon. Let me know what you’re struggling with in trading.

21:42
Thank you guys, and God bless.
Thanks for listening to my podcast, Swing Trading the Stock Market. I’d like to encourage you to join me in the SharePlanner Trading Block, where I navigate the stock market each day with traders from around the world.

22:02
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22:22
Follow me on SharePlanner’s Twitter, Instagram, and Facebook. If you have questions, feel free to email me at ryan@shareplanner.com. All the best to you—and I look forward to trading with you soon.