Swing-Trading A High Volatility Stock Market | Podcast Episode #30

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Learn to trade, stocks successfully, learn to profit consistently. I’m Ryan Mallory and on my weekly podcast, I’m going to teach you the in and out of a complex ever-changing stock market. You will learn to trade better trait, smarter and profit bigger.

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Now let’s go trade. Everyone is Ryan, Maui doing another podcast episode with you all and excited to be talking about this subject. And it comes at a time where the markets. We we’ve actually seen our fair share of volatile markets this year, but we haven’t seen it lately.

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And what I mean by that is we saw it towards the end of January and for much of February where there was a very high volatility Market. We saw some real Extremes. In fact we saw a Vicks correlated ETF completely implode and leave a lot of traders in the cold there.

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Um, you also had a pretty significant so off in March and kind of lingered into April, but since then, it’s been fairly steady and it hasn’t really been a high-volatility market, but that doesn’t mean that it can’t change. In fact, historically the month of August September, and October, they’re not the best months of trading for the stock market.

1:19
That doesn’t mean that that it can’t be good now because I mean, August actually finished higher and September remains to be seen in October we haven’t even got to yet, so lots can still happen. But it’s still good to talk about this because oftentimes when we are dealing with high volatility markets they come out of the blue.

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They come at a full surprise and they come at a time when we’re not really expecting it. So there’s a few things that we need to be weary of and the market coming up, we have the midterm elections. Obviously, you have the Mueller probe. So there’s a lot of things that can create some new volatility that we haven’t seen in the past.

1:57
And here’s the other thing, too, is that it’s not been an easy market for most Traders this year even though the markets, well, in the green so far this year and we’re trading near all-time highs. There’s like I said, there’s a lot of volatility and it’s been, you know, way down and it’s been way up and it’s just there’s a lot of that stuff in between.

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So I know there’s a lot of frustrated, Traders out there and I know the market hasn’t been easy for a lot of you and I get that. The headline risk is insane. We are in the end of the earnings season. Terrorists are still in play. The market has the feel of being The tail end of one of the greatest bull rallies of all time.

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Over the last nine years. There’s fewer stocks that are pulling us higher and more stocks that are not really contributing at all. And then, of course, you have the rising interest rates. You have a new fed chairman this year, a very active, Twitter account by a certain president.

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You have a rising dollar. You have Mueller, special counsel, you have the effects of Stormy Daniels on the stock market of late, right? I mean, she’s kind of been out of the picture. For the past month or so. But still who knows what what her and her attorney are Conjuring up.

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But you have the Iran deal that was scrapped earlier in the year, you have war with Syria going on. You have Cold War 2 with Russia. You have a trade war with China and then of course, you have War amongst ourselves here in the United States. So there’s a lot of stuff going on and like I said, you still had the midterms coming up and there’s a lot of things that can still happen.

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And so there’s a lot to digest and I Sure. Anyone can precisely impact, how all these things will ultimately play out in the market. But in some ways it feels like we have everything on the table at least and that doesn’t mean that there won’t be more volatility. Like I said, otherwise I wouldn’t be doing this podcast but at least we know what we’re facing.

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So how does that relate to your trading successfully in the market in the midst of these? Very volatile markets and what I’ve done is, I’ve put together five ways that you can play high volatility markets when they come come your way again. The first one is less less is better. And volatile. Markets less is always more being 100% long or 100%, short is dangerous and Reckless.

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And if you’re just going to even go into trading margin, just stop it, cut it out, you are setting yourself up for disaster, so keep the majority of your capital and cash. Yes. At the market, goes up 1 to 2 percent or more in a day, you may not keep up with the market for that particular day, or that particular move, but, you are not trying to doing.

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So means you expose yourself to it just as much pain to the downside if you are Wrong. So keeping fewer positions. Also helps you manage the emotions and keeps them under control, trust me, you want to feel emotions that you’ve never felt before start trading in a margin in a market that as volatile and unpredictable price swings and you’ll find out that is impossible to keep even your breakfast down.

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Fewer positions allows for cooler, heads to Prevail and that means over time, you can be more profitable and that will allow you. If you’re on the wrong side of the market to hold on through some difficult, trading days and then benefit from the reversals that go in your favor without losing your mind in the process.

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Too many positions will cause a traitor in a difficult Market to engage in a fire sale of all their positions. And if they don’t do that, then they risk getting stopped out of many of their positions for an even bigger loss. You don’t want to do that. So instead just keep a few good quality positions in the portfolio.

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My second point is this, add more stocks once there are profits on the existing positions that you have. This is one of my favorite approaches to a difficult market for trading. I’ll allocate 10 percent of my Capital on each trade and let’s say following a significant sell-off I think there is a market bounced ready to get underway and I allocate 100 percent of my Capital on that suspicion that the Mark will bounce.

5:40
I go buy everything in sight and maybe even go into marginal little bit. But instead of the market bouncing, it drops and I take a 3% hit on each position. That means I just took a 3% loss to the portfolio. That’s not good. Instead, I stair-step my positions. I might start off with a couple of positions and if I’m wrong I take a 3% loss on each one. Then I lose point six percent of my capital which is much easier to digest than a whole three percent on tip 10 positions at 100% vested. So once I have one to two percent in profits in a position, maybe I’ll go ahead and add another position. That makes it where while I’m increasing my market exposure, I’m adding positions once the existing positions are profitable and that makes it to where I am managing the drawdown risk and downside exposure should the market eventually turn against me. Now if I’m wrong, my existing profitable positions will still be profitable despite what the market does because I am—this is my number third point—raising the stops aggressively to protect my existing profits.

6:43
That’s right. It is the same old thing I always do in any market that I’m trading in, I protect the profits regardless. I never expect the market to go up every day and nor do I ever expect the market to remain bullish forever and I never know when a market is going to turn bad on me. But what I do know is that when it happens, my profits won’t be a victim of circumstances. I keep my profits protected by raising the stop losses as quickly as I can with good reason. That doesn’t mean I raise them a few pennies just below the current stock price. Instead I raise them to just below a key short-term price level that if breached will let me know that I need to take my profits and leave and go on to the next trade. I never expect to get in on a stock at the bottom or out at the very top. What I want is the lion’s share of the profits. I always give it enough room to run higher if it so chooses. So that does require sacrificing some profits but never all of them. And as a rule of thumb, I try to give my trades about two to three percent of breathing room between where the price is currently trading at and where I place my stop loss.

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Here are some more ideas for stop loss placement. You can look at putting it below the 5 or the 10-day moving average. You can put it below price level support or above resistance if shorting. If nearby, use a longer-term moving average like the 50 or the 200-day moving average and if a key price level is broken on SPX consider a market order on the existing position. A rising trend line also on a chart will be helpful for placing a stop loss. So there’s a lot of options that you can use for stop loss placement and protecting your profits. Now my fourth point, don’t get overexposed to one sector. There’s a lot to say here but I’ll keep it brief and to the point. Don’t put all your eggs in one basket just because one sector is trading higher on one particular day doesn’t mean that the sector will be trading higher every day thereafter. As a result, you want your risk to be spread out some. That doesn’t mean that you want a position in every sector and be completely diversified. But it does mean that you want to have four to five sectors that you’re focused on and they need to be ones that are moving in the direction of the market.

8:37
And they need to be the sectors that are the strongest overall. There are times when the market can be broadly moving higher but a sector like the financials can be trading marginally higher or actually selling off because one of the larger banks fails to beat expectations on earnings or language from the Federal Reserve suggests lower interest rates are around the corner. As a result, you can find yourself on the sidelines watching the market rally while you have nothing to show for it. It is critical to have positions in more than just one sector. And while it’s okay to be overweight in one sector over another, you don’t want to be completely sold out to that one particular sector. And so, my fifth point for trading high volatility markets is to focus on super large caps and lower beta stocks.

9:16
When the market is in the midst of a massive sell-off, the volatility is high. Sell-offs in excess of three to four percent in a single day aren’t unexpected. It is also worth pointing out that during these times of high volatility, buying or shorting extremely speculative names is ill-advised. What a 3% sell-off is to the overall market can be more than 10% in a speculative small cap, and I’m probably being conservative in that. And that is why when I trade during these very high volatility markets, I do so with large-cap stocks like Apple, Amazon, or Alphabet. I don’t need these stocks with high betas to make money. And if the market is going to bounce off of a key support level or finally emerge out of its basing pattern, it is going to need the larger cap companies to rally as well for anything to be sustainable.

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And if the market is going to bounce off of a key support level, or finally emerge out of its basing pattern, it’s going to need the larger cap companies to rally as well for anything to be sustainable. This also makes managing risk a lot easier, because odds are you won’t catch the market right at its bottom. And once the market does start to rally and it becomes obvious, finding ideal stops will quickly become a problem for traders on new positions that you might eventually take on. So you’re going to target the stocks that are the super large caps and that means looking for stocks that have a market cap of 80 billion or more because finding ideal trade setups will be so much easier with those. And doing so the market will be bouncing hard and these stocks will likely be matching or beating overall returns of the market. That’s because when the market does bounce investors and funds in general will be looking for the stocks at a rare discount and snatching them up as quickly as possible.

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This is the time you want to be owning these large caps. So let’s go ahead and bring it all together and let’s trade successfully here because as traders, it is important to understand the conditions of the overall market and how you should be appropriately trading it. Strategies and one’s approach to trading has to change as the market changes. You have to adapt and create new edges for yourself. There are no easy shortcuts. And it takes work and plenty of it. You have to always be re-evaluating your approach and whether it is suitable for the market that you are trading in. And in doing so it requires that you know how to find the right stocks and when to trade them.

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So I’ll wrap this up and just tell you that I’d like to see you guys all come into the Swing Trading Trading Block and try it out. You can see firsthand where I manage my portfolio live and for all the traders to see. And for each trade I make I provide members with my entry price, stop loss, target, and the why of each trade. Each trade gets sent out via text and email. It is a great way to learn how to trade all the different markets because so many of the traders in there have been in there for years and they’ve seen me trading through the goods and the bads of the market, whether it’s to the long side or to the short side. But they’ve seen me able to do it and do so successfully and I’d encourage you to see the same. So that’s going to do it for today. I thank you guys for listening and I hope you guys have a great weekend and God bless.

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Thanks for listening to this week’s podcast of Swing Trading with Ryan Mallory. I’d like to encourage you to join me in the SharePlanner Trading Block where I navigate the financial markets every day with traders from around the world. With your membership you’ll get a 7-day trial access to my trading room and text and email alerts. So go ahead and sign up by going through SharePlanner.com backslash Trading Block, that’s www.shareplanner.com/trading-block backslash Done, and follow me at SharePlanner on Twitter and on SharePlanner’s Facebook page where I provide unique market and trading ideas every day.

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If you have any questions, please feel free to email me ryan@shareplanner.com. All the best to you and God bless.