Trade What You See | Podcast Episode #4

0:00
Hey everyone, this is Ryan Mallory with Swing Trading. Wanted to do another podcast with you guys and just simply. Go over 3 concepts and, and, uh, with this particular podcast, focus on the first one. And this is really, if I could break down successful trading to 3 concepts, this would be it.

0:24
And the first one is this. Trade what you see. The 2nd 1, manage the risk. And the 3rd. Let the prophets take care of themselves now. Number 3 is easy.

0:40
Believe it or not, it’s very easy. And I know a lot of people struggle with how to know when they should be taking profits, booking profits, selling half a position, getting out completely, etc. But what I’m trying to tell you though, is, is that if you do the first two, the 3rd 1 takes care of itself.

0:56
So, over the, the next 3 podcasts, I’m gonna highlight each one of these aspects. So, for today, I’m going to look at trade what you see, and it is such. An important concept that most, most traders never, they will trade years and years and years and eventually flame out or blow up their portfolio because of a lack of discipline, but.

1:20
They will never grasp this concept, and really, it’s such an easy concept to, to grasp, and when you just like think about it and it’s pure basic. Um, just pure basicness, uh, trade what you see, OK?

1:37
Because what we tend to do is we try to outsmart the market. We try to view ourselves too highly. We try to think of ourselves as being smarter than the market or being able to outsmart the market or being able to get ahead of the market and call a top or get ahead of the market and call a bottom and, and really all that does, folks, is it.

2:00
Causes you to lose money and, uh, we are ultimately in the market to increase our capital. And When it comes to trading, and particularly so when it comes to technical analysis and succeeding as from a swing trading or day trading standpoint, or even like momentum trading, um, Intermediate to midterm trading, whatever you wanna call it.

2:25
The key to it all is trading what you see and not trading what you think, OK? And this is a term that I have been using for a very, very long time, well over 10 years now, I’ve been saying and telling and coaching people, trade what you see, not what you think.

2:44
And what does that mean? What that means is. And it, we kind of touched on it a little bit here already in the early goings of this podcast. Don’t Try to outthink the market. Put your ego to aside.

3:01
That’s one very hard thing. And I actually find that to be much more difficult among men traders or male traders than female traders, so. With men, it’s hard for them to give up on a trade. If they’re losing, they take it personal.

3:16
It’s like a football game in the per per se. It’s like, I gotta win. You always, it’s not over till the fat lady sings, right? Or translate into the stock market. It’s not a loser until you sell it, OK? Well, news flash, you can have losing trades before you ever sell it.

3:33
I can promise you that, OK? There’s some stocks that are not ever going to come back, and there’s a lot of stocks that ultimately Don’t come back. If you look at the number of stocks that we’re trading, or, or the stocks that were trading just 20 years ago, and whether or not they’re even trading in today’s market, you’d be shocked at the percentage, and I don’t know it offhand, but, but you’d be shocked at the percentage of stocks that are no longer listed on the New York Stock Exchange.

4:00
And if you go back to like the 1940s, I mean, Think about Sears Roebuck, right? Or, you know, Sears SHLD and today’s, uh. Day and age, this company is going out of business, OK? It is at a point where it is not going to come back.

4:17
All right. Who would have ever thought that back in the 40s and the 50s and 60s, 70s and 80s? I mean, everybody thought this was like a warrant. You know, this thing is not going to die and eventually it does, you know, so all good companies usually do come to an end.

4:33
So, 30, 40 years from now, are we’re going to be talking about Apple or Walmart being kind of like the new Sears is right now? I don’t know, but. Nonetheless, most companies don’t survive the long term. They start going out of business.

4:49
Look at JC Penney, look at retail, look at Macy’s. I mean, these are companies that are struggling to survive because retail is getting just destroyed. The, the traditional retail is getting destroyed by, by Amazon.

5:06
Yes, long story short. You can have a losing trade before you ever actually sell it. So, what I’m trying to say here is, is that, that. Men traders have a difficult time accepting losses, so they let their egos get involved and they hold on to a stock, they double down on a stock, they triple down on a stock, and they never get out of it.

5:29
And that is such a dangerous thing. I mean, You do that enough times, yeah, maybe 1 or 2 times you get bailed out. Eventually, you’re going to, to, to lose it all. And I’m, I’m not trying to scare you. Actually, I am trying to scare you. I want you to be scared. Having a healthy fear of this market is absolutely key, and most people don’t have it, especially.

5:51
For those who have been trading, you know, in the last 4 or 5 months where there hasn’t really been a, I think there’s only been one down day that’s exceeded 1% and that happened last week. Um, so since October 11th, and, you know, the date of this podcast is March 30th.

6:09
Between October 11th of 2016 and March 30th of 2017, there’s only been one day where the market’s dropped 1%. So there’s not a lot of fear for this market, but it can completely change on the, you know. At a moment’s notice, but.

6:25
Well, going back to the, the male traders versus female traders, female traders tend to be a lot more systematic, and, uh, they tend to follow the process more, whereas men traders try to let their egos get involved and look at everything from like more of like a sports attitude standpoint of, I can’t afford, I, I’m not gonna let myself lose.

6:45
I’m sticking it out. I’m going to win. It’s not over till the fat lady seeing as there’s no such thing as a losing trade until you actually sell it. Um. That’s bad stuff, OK? That’s, that’s trying to think, overthink the market.

7:00
It’s letting your personal convictions enter into the market. But what I’m trying to say is, is trade what you see, not what you think. And when you’re trading what you’re seeing, that’s, for instance, take Facebook, going back to January, OK? Just look at the chart.

7:16
Let’s, let’s break it down to, and if you have it, pull it up. Look at January through the end of March, OK, for Facebook. Starting on January 3rd. What has it done since then? And we’re just going to talk about it in basic terms.

7:32
From January 3rd to current March 30th, what has Facebook done? It’s gone up, right? That’s all it’s done, has gone up. Yeah, there’s been some down days in between, but it’s just goes up. OK. Let’s dig into that a little bit more.

7:49
OK. Let’s be a little bit more sophisticated than just saying it’s going up. It’s trending higher. It’s riding the 20-day moving average. It is putting in higher highs and higher lows. It’s gone from $115 a share to $142.65 a share at the end of the.

8:11
At the end of business on March twenty-ninth. It’s continuing to trend higher and higher. That’s what Facebook is doing. So. Trade what you see. What do we see in Facebook? We see a stock that is trending very nicely.

8:27
It continues to go higher, putting in higher highs, higher lows, holding the 20 day moving average very well, and most of the time it’s holding the, the 10 day moving average too. It usually bounces off the 10 day moving average. There’s only been one instance where it hasn’t done that. So, that is what we got.

8:44
We, we can look at that chart and say, OK, if I trade this, I can put in a pretty tight stop loss and do pretty well with that kind of a trade. All going back to trading what we see. OK.

9:04
Now, Creating what we think, what does that involve? That looks at the Facebook chart and says. Man, have you seen this thing? It has gone since January 30th from $115 a share. Holy cow, man, that thing is trading at $142.65. There’s no way it should be trading that high.

9:21
It’s a social media stock. Look at Groupon, look at Pandora, look at Snap, look at Twitter. Look at all these social media companies. They suck, man. There’s no way that Facebook isn’t gonna eventually come down.

9:45
So we’re thinking here, we’re thinking here, we’re trying to put logic on the market that regardless of what you think the market doesn’t care about. What you think, OK? The market’s gonna do what the market wants to do.

10:07
And, but when we start thinking about the Facebook, we start saying, you know. That stock is due for a pullback. That thing’s gonna come back. I’m pretty certain of it. So then you start talking yourself into this mindset of wanting to start shorting the stock, and you’re saying, yeah, that thing’s gonna come down.

10:24
It’s due for a pullback. It’s, and, and that’s a, that’s a famous like, oh, it is due for a pullback. And what’s the other line? It’s like, I just don’t see how it can be worth that much, or. I just think it’s got to come back at some point here and I’m, I’m, I’m ready to, holy cow, people, listen to what you’re saying.

10:47
You’re trying to basically. Pull out an imaginary uh crystal ball and say this is what the stock is going to do, it’s like. It’s like, like, uh. Remember Miss Cleo when she was on, you’re basically taking on the role of Miss Cleo where you’re saying, I see in the future, Facebook’s selling off, therefore, I’m going to go short of stock.

11:05
Don’t do that, man. Holy cow. Don’t try to project your thoughts and what you think that the stock should do or what you think that the stock has to do onto the stock itself, because now you’re not trading what you see, you’re trading what you think.

11:22
And what makes it so interesting about trading based off of what you think. Is that traders will um. You take some of the traders that, that, that like doctors or scientists and stuff like that, they usually are horrible.

11:38
They usually never do good. Very rarely have I ever met a successful doctor. Uh, and a lot of times with lawyers too, because I mean, these are people who are in prestigious professions, people who do really well with their careers, and, uh, very well respected, etc.

11:55
And they’re very smart people. There’s no doubting that very smart people. And they know that they’re smart, and so when they start doing the stock market and everything else, they try to project. They’re smart, their intellect, they’re genius onto the market.

12:10
And the market doesn’t care. The market is not going to show anybody, no matter how smart they are, a look of respect. It all comes down to you showing the market respect. If you don’t show the market respect, that’s where you’re going to lose money.

12:28
The market is simply not going to comply with your wishes, with your demands. People get into a losing trade and they start saying, it’s gotta come back. I just think it’s gotta come back. I just think it’s too cheap at this level. I just think it has to bounce at some point here.

12:45
Do you hear what I’m saying? When I’m, when I’m giving you those examples? It’s all about thinking. It’s all about trading what you think, what you think it has to do. You’re projecting. Your thoughts on what the stock market has to do for you.

13:07
Now, the market doesn’t know you, it doesn’t care about you, it doesn’t care if you’re black, white, Asian, Hispanic, or anything else in between. It doesn’t care if you’re male, it doesn’t care if you’re female, it doesn’t care who you sleep with. It is not going to do you any favors, OK?

13:28
So quit thinking what the market has to do for you. Quit thinking what the stock market is supposed to do, or quit thinking about what A should be doing or thinking that doubling down or tripling down or, you know, going way beyond your normal allocation for a stock.

13:49
Quit thinking that that is a good thing to do simply because you I think you know what a stock is supposed to do, and I keep using the word think because I’m wanting to drill this into your head, that thinking. That a market is supposed to do something or that a stock is supposed to do something is the sure path to losing your money.

14:07
OK, so what are we talking about here? Trade, what you see. Not Trade what you think. Trading what you see. We talked about that with Facebook just now about it being in a good uptrend. Let’s, and I’m just gonna pull these up off my head.

14:27
I’m gonna pull up the, the Apple stock here. Give you, go into another example here. Another good company, OK, so. If you go back to. 2015, Apple was not doing that great.

14:46
I mean, it was constantly selling off, particularly, you know, from like a May. 2015 all the way until about May of 2016, it was just in a very. Consistent. Lower high, lower, low down trend, OK, and then.

15:02
In the middle of May, it finally put in a bottom, and it has been trending up higher ever since, going from $90 all the way up to $144. So, You know, like a 60%, you know, almost a 60% return since, you know, mid 2016.

15:22
So Apple is a great. Stock to use in this example here. It is a stock that is very easy to have an opinion on. You have people who are very passionate about Androids, people who are very passionate about their iPhones, people who will wait in line for the latest iPhone to come out or latest iPad, etc.

15:38
Apple for a long time, especially while Steve Jobs is still alive. was always innovating, always creating something new when Steve Jobs died. Tim Cook took over and the innovation quite hasn’t been there, but the stock is trading at all-time highs.

15:55
So, um, some of the easy things to think about when it comes to Apple is to say, when you’re trading it, it’s got to come down. It can’t. They’re not innovating. They haven’t designed anything new. All they’re doing is selling iPhones, iPads, iWatches, and, and, and Macs, OK?

16:18
That’s all they’re doing. There’s no way that that Stock can keep doing this when they’re not using the cash that they have on hand, they’re not, um. Innovating, they’re not creating anything new, they’re not pushing into any new markets. It’s got to come back down.

16:35
And you know what, you may be very right about all of your arguments, OK, about why the apple might be. Might not be that great. And you can say, you know, well, the Android operating system is better than the, the Apple iOS operating system.

16:59
And so you can convince yourself easily to where all these arguments there that you just presented yourself with means that you should short Apple. OK. And you could. And eventually, those arguments may end up playing into the stock, having some kind of like future decline or whatever.

17:19
But right now, it is going up. And if you go back to like the Trump rally that started back in, you know, the November elections, the stock has gone from $105 all the way up to $144.

17:35
So it’s all pretty much like a 40% increase. Now, you can say to yourself throughout that entire time, it’s got to come back down. It’s got to come back down. Yeah, you can’t be doing that. But all the while, you’re just losing money because you’re trading off of what you think.

17:51
Now, if you trade what you see, you look at the Apple chart and says, There’s no reason to short this stock.

17:19
Just look at the chart. It’s consistent. Well, if you break it down to its basic premise, the stock’s going up every day almost, OK. It is consistently going up. Yeah, it has some pullbacks, more pullback than, than Facebook has had since January, OK.

17:35
Actually, not, not the, the, the Apple chart since January has gone straight up, but if you look at, there’s been bigger pullbacks, you know, between November and January. But, um, So yeah, it’s just that it’s very basic level, the stocks going up, there’s no reason to short it.

17:51
But then you can zoom in on, on what is actually going on and during that time frame, and you can see that. You know, you have these, you know, quick bursts of, of, you know, like an 8 or a 9-day rally that’ll, that’ll commence and it’ll drive the stock up, you know, about $10 a share, and then it’ll consolidate for a while, and then it’ll go on another run, and then it’ll have an earnings period come out, and then it’ll run after earnings, then it’ll consolidate for a couple of weeks, maybe even a month, like it did for most of March, and then it breaks out again, OK?

18:20
So, That’s what we’re seeing there. That’s what we’re seeing with the apple stock. There’s some support at the 20-day moving average. There’s some support as well at the five-day moving average. So, This is trading off of what we see now, or yeah, trading off of what we see.

18:37
And, and, and then, you know, as you become more of a skilled trader, you start seeing like things like inverse head and shoulders patterns, breakouts, bull flags and stuff like that. And those aren’t even that hardest stuff to learn. But then you start incorporating risk with it, which we’ll talk about more with the next podcast.

19:06
But trading what you see is going to keep you from trying to fade the market all the time or keep it from being in a situation where If you truly respect the market and you’re trading what the market’s telling you to do, let the market come to you.

19:30
Don’t try to force yourself on the market because the market doesn’t work that way, OK? It doesn’t care about what your trading goals are for the month. It doesn’t care about how much you need to pay for this month’s mortgage. It doesn’t care about how much money you’re trying to save for your college tuition.

19:59
The market will just We’ll, we’ll take everything that you got and it won’t even blink an eye, OK, that’s just the nature of the beast.

20:20
So. You have to trade what you, what you think, what, what you. Or I’m sorry, let me back that up. You have to trade what you see, not what you think, because the moment you start trading what you think, you start thinking that you know more than what the market is, is telling you, and, and you’re ignoring what the market’s telling you because you think that somehow you’re smarter than the market, and the market’s been here for a very long time, longer than any of us listening here today.

20:57
So, respect the market, respect the fact that it has the final say so, and don’t try to put yourself in a situation where you are going to lose because you put your ego and self-worth above what. The market was willing to give you because you thought that you needed to, to meet some kind of goal or to meet some kind of, um.

21:13
Expense or some, or you wanted some kind of lifestyle because the market doesn’t care about any of that. Trade what you see. OK, trade what the market is showing you.

21:32
Avoid what, what, what you think the market should do or what you’d like for the market to do. Just trade what you see.

21:52
The stocks are going up, that’s probably not a great time to go heavily short on the market or think that you got to try to call market top. The market’s selling off, avoid the the, the need that, OK, that you just randomly start picking bottoms and, and thinking that you’re going to, to nail it on the head, cause you’re probably not, OK?

22:07
Trade what you see. Not what you think. Next week, we’re gonna be talking about managing the risk and, or the next podcast, we’ll be talking about managing the risk, and then after that, we’ll be talking about how to let the profits just simply take care of themselves.

22:23
OK. So I’m, I’m enjoying this series. I think it’s going to be pretty good. I’d also encourage you to join me in the SharePlanner Trading Block.

22:40
This is a growing community of traders. It’s got some really solid people in it with a lot of great opinions. Um, every day I’m providing trading ideas, um, setups, long and short, um, my market analysis, and it’s not just me either.

22:56
There’s plenty of really good skilled traders that have been in there for years and years and years, and they’re always providing great ideas. A lot of times I get good ideas for trading myself off of them, and, uh, really a wholesome, very welcoming, family-oriented trading community that I would love for you to be involved with.

23:13
You can jump in there on a free 7-day trial, and I think you’ll see, once you get in there, you’ll, you’ll, you’ll, you know, like what you see and, uh, you’ll want to stick around some.

23:32
So, give it a free shot, um, 7-day trial, go to www.shareplanner.com/trading-block.

23:49
That’s www.shareplanner.com/trading-block. And, uh, give it a whirl, and, uh, I hope to see you there.

24:07
If you have any questions, feel free to email me, ryan@shareplanner.com. I look forward to hearing from you or seeing you in the flash zone. And.

24:23
I hope you guys find that this podcast was helpful and that you were able to learn something from it.

24:40
Um, I know just by talking it out myself with you guys that it, it even helps me a lot as a trader cause it helps me to, to get my thoughts in line as the next day of trading.

24:56
Approaches, and, uh, it’s a good reminder for me because as traders, none of us are perfect.

25:13
We’re all struggling. We’re all trying to find, you know, ways to better ourselves as traders to become more profitable, to manage the risk better, to expand those profits even more.

25:29
So, I want to thank you for listening and God bless.