Trading with Luck and Skill | Podcast Episode #502

0:00
Hey everybody. This is Ryan Mallory with shareplanner.com’s, Swing Trading the Stock Market. In today’s episode, it’s going to be a good one. We’re going to be talking about luck and skill and how the two really intertwine with each other and they play off of each other. And this e-mail here comes from a guy he’s excited about the redneck name that I’m going to give him.

0:20
And for those who don’t know the reasoning behind me giving redneck names to all the the writers to this podcast show, it’s because I don’t want to use the real identity. So I give him a good Florida redneck name because I’m from Florida, I live out in the boonies. I’m pretty much a redneck myself. So it’s a it’s a way for you guys to be able to to relate to me and me relate to the audience, I guess. So any case for this episode, I’m going to call this guy the yoinker. And the reason why is there’s this guy. He it’s it’s actually pretty impressive. He lives down in the Everglades, or at least he visits it quite a bit.

0:53
And he’s on Instagram. You can see him on there and he’s like goes up to these animals like anacondas and eels and crocodiles. Yes, we have crocodiles in Florida, believe it or not, alligators, this diamondback rattle Stacy like taps the top of their head. He calls it give him a good yoink. And so we’re going to call this guy the yoinker in in honor of this guy name. I think his name is Garrett. He’s he’s on Instagram. It’s quite fascinating, but he’s like the epitome of Florida man. Any case, Yonker writes. Hi Ryan, my name is whatever you decide to come up with, I can’t wait to see what you come up with.

1:29
Well, we came up with the Yonker and I recently found your podcast and have become enthralled. I used to be heavily invested in the financial markets, but life lives. I’ve never heard that expression before. Life lives and I got away from it in the past few years. I’ve recently started getting back into investing in trading and have used your podcast as a helpful way to renew my interest. To give a little background on my personal history in the markets, during college I was head of our Fed Challenge team and Student Government President of Finance and graduated with ABS majoring in Finance with a minor in Economics.

2:07
I spent five years on the street as a licensed sell side trader and earned my level 2 of my CFA. I spent years studying in the Ben Graham style investing and have always considered myself to be more passive deep value investor, but currently market prices are too high for me as a deep value investor and I’ve had interest in getting into swing trading. All that is to say, I have a decent handle on managing risk and portfolio size and I know how to use different order types to protect myself like stops, limits, etcetera.

2:44
But even when I was a trader I never heavily studied technical analysis and this renewed market interest. I’ve been practicing technical trading technicals, mainly studying support and resistance lines and trend lines, and I really like the wedge breakouts and trying to study volume as well in turn. I have a few questions if you could help. I know it’s a hard to explain charts in a podcast so I’ve included as much detail as I can to help paint the picture.

3:06
First example, I recently took a trade and I’m still trying to figure out if I got it right or if I just got lucky. ASAN had a long term that’s the stock symbol. Had a long term support line around the $13 level, bouncing off of it in March, April, and June.

3:23
In early August it bounced again and I entered the trade on 8/14 at 1371. When I felt support was validated, I set my stop at $13, my target at 1525, A level that showed previous resistance at 22 to one reward to risk as able to take profits along the way. Selling 20% at fourteen, 5530% at 1475, and finally selling the balance which was the final 50% at 1552 when it ripped overnight on 9/4. Thank you for your 30 minute rule by the way. No new positions, just lots of profits.

4:01
The trade definitely worked but I’d love your opinion if I made a good call or if I just got lucky on the trade. JBHT this is the second example. Has had a lot of price activity lately around the 145 level beginning in August and has ripped above but always comes back down and over the last week have been unable to break out.

4:21
I’ve been watching more importantly trying to read the volume. There has been more buyers but recently the volume has been declining the bought. The buying was also seem to be higher below 145 than at or above. I’m trying to figure out if there is a big buyer sitting at 1:45 top and when they clear out the stock will it when they clear this level out with a stock tank Or the opposite there’s a big seller with A145 low and when the they clear this out the stock will RIP?

4:50
Alternatively, is this a total whack job way to read volume and if so can you point me in the direction of how you would like to read it? As a technical trader, thank you for all you do. Your podcasts are great and really have really helped me get back into the game. Sincerely, the yoinker.

5:08
OK, overall, I, I, I do like the questions here. I think there is a lot to dive into. What’s kind of interesting is both me and and Yoinker here. He, he and I both started off trying to succeed at investing and then eventually got into the swing trading.

5:27
Now for me, when I started in 91, my dad was getting me into the stock market. I was starting off with like $5000 that I inherited from the, the lady that raised my mom. And I’ve you can go on my website and I talk about that a little bit more, but essentially I was doing some value investing, doing mutual funds and so forth.

5:47
And then when I graduated college, I started doing more of that. I was investing in some value place. And believe me, in 2003 or whatever it was, Walmart was not a growth play like it has behaved of late.

6:04
It was a very slow moving stock. But anyways, I was, I was getting into some of those kinds of plays there and they were very boring. Honestly, like if, if I could make like 4 or 5% in a year on those things. It was almost like trading bonds. But I started getting into swing trading because I wanted a little bit more movement, a little bit more volatility.

6:24
And, and in this case, like with, with this podcast listener here, he, he’s in a situation not so much where he was looking for, for better returns, but because the market has become so overvalued.

6:40
There’s really not a place at the moment for a deep value investor because there’s nothing that really sells at a, at a really good value right now. I mean, you look at the PES of Walmart and you look at how overbought everything has become. It’s, it’s really hard to find anything that you can invest in.

6:58
In fact, using some of the technical analysis tools that I use like the T21O8 and and so forth to to help myself time my long term investments. You hardly ever get a reading below below the necessary readings that would justify getting into a long position.

7:17
So I, I get where Yoinker is coming from and not being able to define anything of quality investments when you have stocks that are trading at 600 P ES and they’re, they’re worth, you know, 1/2 trillion dollars. Yes, Palantir, I’m talking about you.

7:32
Where in the world are you going to find something that offers a good long term value? So right now you don’t have that until we see a significant pullback in the broader market. And we had one in April, but what did that last for like a solid like couple of weeks?

7:50
I mean, it wasn’t that long. It was from March to April essentially. So we we did not get and it was early April at that. So we did not get a huge sell off from a percentage standpoint. We did, but we didn’t get it to very to last for very long. So if you were trying to build a long term position you really didn’t have much time at all to do that.

8:08
You couldn’t really build it over time. I was able to do that to a certain degree in 2022, but even then it bottom pretty quickly once October hit. Now, one of the things that I think as a trader that is that has helped me and I think this is where somebody like the person who’s who’s writing the show here, Yonker, he’s going towards swing trading because one of the the the value to swing trading and really one of the keys to success in swing trading is that you can’t really care about what the markets doing.

8:43
You can’t really care that it’s ridiculously bullish or far too bearish depending on what what market you’re you’re trading in. Instead, you have to look at the market for what it is. Your personal opinions about the market can’t matter.

8:59
If you start to let your personal opinions interfere with the market, then you’re going to likely make some bad trading decisions. Like for me, do I think the market’s ridiculously overvalued? Yes. Do I think it’s almost to the point of just sheer stupidity? Absolutely.

9:15
But from a swing trading standpoint, I’m not looking at it from a fundamental standpoint that would judge it on those merits. I’m looking at it from a technical basis. So I can get into stocks and know that they’re getting that they’re extremely overvalued.

9:30
But my, my time frame and my outlook on those stocks are such that it doesn’t really matter what my fundamental view of the market is. It matters what is the charts telling me and how am I reacting to what the markets doing right now with us trading just a a hair below all time highs right now.

9:49
If the market wanted to go up another 10% from a swing trading standpoint shouldn’t matter to me because as a swing trader I’m not trying to justify that from a fundamental standpoint that it’s a a good value to be getting in at these levels.

10:04
What I’m doing is looking to capture some momentum that might be arising in a particular stock or an ETF and ride that momentum as long as it that that momentum will will carry me higher. Another question that he has, so he talks about ASAN where he gets in.

10:23
I loved how he planned out the trade too. And, and I liked seeing how somebody else does a different way of taking profits. For instance, he took some profits the the first batch he took 20% off and then took another 30% anything. Then he rode the last 50%. Now for me, I’m, I’m a little bit more basic.

10:40
I’m like 1/3, a third and a third. Neither way is wrong. And that’s what’s kind of cool about it is that he’s found out what works for him from a trading standpoint and he his implementing that into his trading. So for him it’s 203050. For me, it’s 333333.

10:57
I guess maybe that last one’s like 34% to account for that, you know, 33 and a third. But everybody’s going to be different. Everybody’s going to have a different risk preference. And that’s what I think is so important here that Yoinker is trading according to his tolerance of risk and what he’s capable of handling.

11:21
Now he gets into ASAN after it started bouncing off at the 13 level and then it goes, he gets in at 1371, rides it up to 1552, takes profits along the way of 20% and 30%. And so at 1552, he sells that, that last batch.

11:40
Now, is he lucky or was he right? I, I don’t think that that it matters if he’s lucky or not because there’s going to be a lot of luck in trading. There’s going to be a lot of lucky being lucky and then there’s going to be a lot of being unlucky.

11:57
And I’ve, I experienced both on a regular basis, you know, and really what it comes down to is this, how are we responding to that luck? How are we responding to when we’re, the, the times when we’re unlucky and are we still managing the risk?

12:13
Are we taking advantage of profits? So you get into a stock at 100, for instance, and all of a sudden it gets upgraded and it’s trading at 110. Are you lucky? Yeah, I guess you could say you’re lucky because you weren’t getting into the trade knowing that it was going to be upgraded the very next day.

12:29
That’s that’s kind of a nice gift and and something that should be celebrated. And I don’t think it takes away from the success of the trade. You could say, well, looking back on that trade, I just got really lucky. No, it, it really comes down to how did you manage that luck?

12:45
And if you manage the luck well, then great, you did the right thing there. You don’t have anything to to to frown upon. So perfect example is just even today I was in Spotify. So the market’s trading off pretty significantly today.

13:02
And I had gotten into Spotify a couple days earlier and I was up about 2%. And they had a little news piece that they’re partnering up with somebody and this and the stock goes a lot higher at the open. Now the market’s selling off, but Spotify is going up.

13:17
And so it’s up like 3 or 4%. I use it that that opportunity where it’s trading higher and don’t even necessarily expect didn’t expect it to trade higher. I thought with the market trading lower, it probably weigh heavily on Spotify instead of did the exact opposite.

13:33
I use that opportunity to take profits off the table. So I took a third off the table, made 5% and then the stock faded the rest of the day. I ended up closing out the trade for a a smaller percentage on that final 2/3. But what I did right is I used my trading plan to to be able to take advantage of that luck.

13:49
So at the open when it was soaring higher and I wasn’t sure if it was necessarily going to be able to sustain that move. Nonetheless, I used that opportunity and what you might say is getting lucky on that trade to take some of those profits off the table. So that’s where the management and luck met and really is was about how you manage that luck.

14:09
Now another thing you can do and it has nothing to do with luck is to check out the self-made trader. If you want to be able to learn how to manage your trades and learn how to get into trades and learn everything it takes to go from the very beginning of trading, the the basics of, of learning technical analysis all the way through my more advanced strategies.

14:29
You want to check out the self-made trader, you can go to shareplanner.com, click on Trading Academy and right there you will see my course, The self-made Trader. Here you’re going to learn everything that I know about trading. I’ve, I’ve spent about four years developing this course and in it I poured into, into it over 25 hours of instructional videos and exercises and lessons.

14:49
It is something that will really be beneficial to anybody who wants to take trading serious. So I would highly encourage you to check out the self-made trader at shareplanner.com and in the process you’re supporting this podcast and everything that that this is about.

15:05
So one other thing that I would, I would say about luck as it pertains to trading is we talked about never doubling down, but a lot of times people they get into a losing trade, they don’t want to accept the loss.

15:22
So what do they do? They double their position size so they can lower their average entry price or their average share price. And so when they, what they hope to do is that they can get back into the green quicker, even though that they’re deep in the red. I’ve always said that that’s a bad idea.

15:39
But in, in another way though, sometimes we try to double our luck. We, we have a good news piece that comes out, the stock shoots up 20%. We’re like, oh, no, I think it’s going to go to 40% higher or 50% higher or I’m not going to sell out of anything because what if it’s, this is just the beginning?

15:56
Well, I don’t want to take any profits off the table. And in the same way, that’s kind of like, you know, trying to double your luck, just like, you know, you try to double, you know, double your position size or you double down. What you don’t want to do as well when you’re up on a trade is to try to double the luck.

16:11
You get something that’s really good in a in a news piece you weren’t expecting and it sends your stock shooting much higher. Take some profits off the table because you don’t know how long that will last. So many times really good news is failed to be seized upon or captured by traders because they wanted even more.

16:30
They weren’t satisfied with, with the the good news that came out, the upgrade or the OR the partnership that was created. They wanted more. And as a result, they end up finding themselves with, just with far less because they didn’t take advantage of those profits when they had them.

16:46
Now, one of the things about this particular trade is that he went ahead and took profits arbitrarily at 1552. He made a good trade there. I mean, he made it a really nice profit. I probably would have done it a little bit differently. I would have wanted to say, OK, I’ll take some more profits off the table at 1552. I’d probably be down to 1/3 of a position there. Try to see how much further it can run from there. Now on that particular stock, that means I probably would have taken a little bit more of a hit on the on the gains on that final third then where he probably got out with that final 50 percent. But nonetheless, I would encourage anybody you know at some point when you you know, you’re down to your last quarter percent of a trade or your your last lot to try to see how far you can let that ride and keep moving the stop loss higher. Even maybe even trim some additional micro profits off of there just to keep skimming it down some to where when it finally does pull back, you can go ahead and get out of the trade for maximum profit.

17:51
So we don’t want to try to double our luck. We don’t want to try to differentiate between being right and just being lucky because lucky, being unlucky and managing your positions with skill and precision, they all go hand in hand together. Yet another trader JBHT that he was talking about some of the resistance at 145.

18:10
Now ultimately on JBHT, it kept hitting that 145 and pulling back and then eventually and then probably because of earnings, it gapped well above it. So one of the things that I’ve noticed a lot of times with trading, especially probably over the last three or four years is that when a resistance level keeps hitting and the stock is unable to break through it, it will use a gap higher. Often times as a result of news or an upgrade or or just maybe some market momentum. That’s a strong market momentum that’s heading into the close to be able to push through that level and the pre market. So then it opens up and it’s already well beyond that level.

18:50
I see that all the time. And they’re able to do that because in the pre market typically your volume is far less than what you see during regular trading hours. So they can prop it up beyond that level and get past that resistance that he was dealing with on JBHT. Now if you see a lot of volume at that particular price level, yes, that means that a lot of people are typically selling at that point. So until it can push through all those sell orders, it’s not going to be able to break out. One of the great tools that you can use on that, depending on what kind of charting software that you use is volume by price.

19:28
Volume by price is a great way to see how much volume is at a particular price level and something that a lot of people are are starting to use now. I don’t rely on it too heavily just because I’m pretty confident in my skills using the the volume the way that I do that. Sometimes I’ll reference it, but I don’t get too too involved in it. But if you’re starting off as a trader, highly recommend checking that out and see if that’s something that works for your own trading benefit. So if you enjoyed this podcast episode, and I hope that you did, make sure to leave me a five star review on whatever platform you’re listening to me on.

20:03
Or if it’s on YouTube, make sure to. Like and subscribe to this channel and check out the self-made Trader. I would love for you guys to be able to check out that training course. I think it’ll be very beneficial to you. And make sure to send me your questions, ryan@shareplanner.com. I read them all. I try to make a podcast out of every single one of them.

20:18
And I want to hear your back story. I want to hear your history and what’s troubling you, what’s giving you problems. I want to hear about that. So send me your questions and remember this Jesus Christ, He’s the way, the truth and the life. Nobody comes to the Father except through him. Thank you and God bless.

20:36
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. With your membership, you will get a seven day trial and access to my trading room, including alerts via text, e-mail and WhatsApp.

20:53
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21:14
All the best to you and I look forward to trading with you soon.