Reviewing a Trading Plan | Podcast Episode #181

0:07
Hey, I’m Ryan Mallory and this is my Swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex ever-changing, world of Finance, learn what it means to trade, profitably and consistently managing risk, avoiding the pitfalls of trading. And most importantly, to let those winners run wild, you can succeed at the stock market and I’m ready to show you how, hey, everybody, this is Ryan Mallory with Swing Trading the Stock Market and today’s episode is going to be Be about reviewing one person’s trading plan.

0:38
This person has a trading plan, he wants me to take a look at it. What are my thoughts on it? That’s exactly what I’m going to do here and this episode now for a good country, boy redneck, we’re going with the name Merv, I didn’t even give him this name. He gave it to himself. He wants to be called Merv. We’re going to go with Merv and his email reads.

0:56
Hey Ryan! Love the content. Most definitely going to write you a five-star podcast review. I appreciate that. I have 20,000 dollars in a locked in retirement account also Known as a lira and I want to grow that trade it. I am thinking three or four trades at a time 10 to 15 percent in each trade, three thousand dollars each position and keep the rest in cash.

1:15
I’ve read a few books and follow some Traders paper traded a bit. And here’s what I think is correct and will work. Number one, have three setups that our breakout plays one long, one short and one more who knows what direction know them very well. Those particular setups number to scan for your setups, breakout patterns like a bull flag.

1:34
Pin it a pivot Or a mean reversal after a parabolic move. Number three, keep lost a small three or four percent. Stop losses or smaller and let the winners run cell as it moves up or scale in. Depending on confidence in the trade. Number four, have a cell Target and sell rules, move stops up as the price Rises question, number one.

1:53
I know there’s some Traders follow the price action and look for patterns like cup and handles and double tops as it runs not break out Traders. But more like Trend Traders While others will buy the breakout setups, they know. Let it One until it loses momentum and then get stopped out of the stock and look for more of the same.

2:09
Breakout setup patterns, again, rinse and repeat. I am leaning towards the second option. The breakouts is it seems most manageable for a new Trader and learning the specific details of hundreds of patterns, seems difficult and more prone to errors your opinion. Question number two, some experienced Traders claimed that they can learn.

2:26
All they need to know from watching only the price and volume seems simple. But is that reliable seems like they can see the big money Acquisitions coming in by the By the volume patterns driving up price and get in with the big purchasers and institutions Etc, Great, if that works. But that seems crazy to me is that fantasy must work.

2:45
What are your thoughts on this? Thanks for all your efforts. Really helpful Merv. Alright, Merv. Lots to unpack there. We will get to all of it here first. What am I drinking? I’m drinking. Our embrose straight bourbon whiskey. Now I picked up a bottle of this back when I was in North Georgia and the Blue Ridge Mountains that Probably like four or five months ago.

3:07
I picked it up. I haven’t opened it yet and just now trying it out. I did try a sample of it at The Distillery and I wasn’t overly impressed with it, but I still got the bottle. I’m going to try. Give it a good review here. Now, the color of it it’s it feels pretty thin like it’s very light and on the nose.

3:23
It’s not that strong. That’s like a little bit of a floral smell. Maybe a little bit of vanilla, just a very soft smell the taste. It’s very buttery. It’s weird. I feel like when I’m drinking it I’m almost like Sliding my tongue, across the big ol, stick of butter, that’s kind of the best impression of it.

3:39
In fact, after you’re done with it, you’re kind of like licking your lips. Almost like you just had a big old batch of popcorn. It’s very interesting. I don’t know if I’ve had one that has that much of a buttery flavor to it. It’s good though, it really is it’s not bad at all in the Finish. It’s got like a little bit of a spice to it.

3:55
Maybe like a cinnamon flavor overall. Do I think it’s a good supper yet? I mean, it’s a smooth drink with a little bit of a spice there at the very finish and it’s easy, it’s a good sipper. Going to give it like a 7.3 for my score wasn’t bad at all. I actually thought from what I had remembered when I tried a little taste of it up in the mountains, I thought it was going to be somewhere around like a 59 61 but, no, I would say that my view of it’s a little bit different.

4:20
This go-around. It’s a 7.3. I like it and it’s 45% alcohol. 90 Proof, it’s r. M, rows, straight bourbon, whiskey. You probably have a hard time finding it just because I don’t think they have a huge distribution area but North Georgia. Dillard, Georgia, you’ll be able to find It up there.

4:36
All right. Now, back to Merv, there’s a lot to work with here. I could tell he’s a little bit on the newer side of trading, just because of some of his comments about certain patterns and and they’re a little bit incorrect is probably the best way to put it. But he says, I’m thinking about doing three or four trades at a time. 10 to 15% in each trade, 3,000 each position and keep the rest in cash.

4:56
Here’s what I say about that, three to four positions at a time, that’s fine. I always say, you know, manage the number of positions, one that you’re comfortable with if you have Thousand dollar account and you’re going to put a thousand dollars in each tray to manage 100 positions that’s going to be tough. It’s going to be tough to do all the technical analysis on.

5:13
Every one of those positions that you’re holding, I know, one guy he has like 200 to 250 trades, open, at a time, I have no idea how he does it. He actually set stop losses for these things every day. I think that by the time 4:00 would be rolling around, I might actually get all my stop losses in, so I don’t want that.

5:31
And then you have, like, a huge gap down where the markets running against your position. Jeans. And you got 200 positions that are just all sorts of craziness that can create some problems to as a Trader. So I’m not a huge fan of taking a lot of positions, but at the same time, you have to be able to manage the positions or that least the number of positions that you’re comfortable with, for me.

5:50
I don’t mind managing as much as, like, 10 to 15 positions. Typically, you see me around somewhere between six to eight and then in the markets where they’re less predictable, or a little bit more uncertain. And we’re seeing a little bit of a topsy-turvy Enos in the market. You might see me skill down to like, Three.

6:06
So I’m fine with Merv doing three or four trades at a time. And then he talks about his position size, 10 to 15 percent in each trait. Well, here’s the other thing about that you want to make sure that when you’re trading a certain position size, it’s a position size that’s going to cause you the least amount of anxiety.

6:21
Now, I’m not saying that. Okay, if you trade like a dollar you’re going to have the least amount of anxiety. I think anybody would say, hey, if you trade a dollar or two dollars per trade, the anxiety is going to be pretty much the same. So it’s not about going all the way down to zero. It’s about finding It, that diminishing margin of return, where the anxiety is in the stress is not going to be all that much.

6:43
If you go down any lower, and that’s what I always tell people to do, try to find the position size that’s going to cause you to least amount of risk for me. I can go anywhere between 10 up to 20% on a trade and it’s not going to bother me that much.

6:59
I could go down to 5% but it’s pretty much going to be the same risk level as if I was trading at a 10% position. So there’s no better. It had me going down to 5% and he talks about how he’s read the books, and he’s followed some Traders, paper traded a bit. And here’s the thing. And I’ve talked about this in other podcasts as well.

7:15
Is that paper trading? No matter how much success you have is completely different than trading with real money. I know that we understand that but from a anxiety standpoint, when you have your own money on the line it’s going to change the game completely. It’s going to change the way you think about trading to because all of a sudden you’re going to see that trade in a completely different light when your He is on the line.

7:35
If you’re just trading paper money, we’ll see what happens tomorrow. I don’t care. It’s paper money. When it’s your real money, and you have something that’s really pressing. And it requires that you followed that system. That’s in place. It’s very easy to break those rules. When it comes to your own money, it’s very easy to get stuck in long-term positions.

7:53
When you were really wanting to be a short-term Trader on that position because it goes through your stop loss and you’re not willing to take the loss, or you place your stop loss and an area that was far too big. So the other thing too is like you read the books, they tell you about technical analysis and that makes sense in the books, they really do.

8:10
I mean you read a book on technical analysis that this isn’t hard, you just find this pattern, you trade it like this and you go from there. But again, the emotions stop loss management. Most books are not going to address, stop loss, management or risk management in general. So you got to make sure that you’re addressing those things, that just because you understand technical analysis and a few patterns that you don’t have this false sense of security about understanding how trading works too.

8:33
I mean, I understand When you have a cavity in your tooth that you need to extract that cavity, you need to drill it out. You need to put some filling in there. I understand that in theory but if you were to hand me a drill and put a person right in front of me and say hey get that cavity out of be like whoa whoa wait a second boss, I’m not ready for that, you know, I’m not going to go drilling on somebody’s tooth and take the filling.

8:53
I don’t know what the heck I’m really doing even though in theory, I know you put the novocaine in the person, you drill out the cavity, fill it, give them a slap on the back and say hey have a good day? No, you actually have to. Do that in practice. It’s totally different. And it’s very similar to that in trading tools, that you can understand the patterns, you can understand, you know, the functionality of the stock market.

9:11
But then, when you start putting your Capital into play and you start feeling the Dynamics of day-to-day of your Capital going up and your Capital going down and stocks not doing what you’re supposed to and you starting to take losses, it changes the Dynamics completely. So, he says he wants to have three setups a breakout for one long position.

9:28
One short position in one more and then just know those setups very well. Well, that’s fine. And But you’re going to also find two like if you’re just trading both legs, there’s gonna be a lot of markets where the bull Flags just don’t show up. Or if you’re trying to trade like cup and handle patterns, there’s gonna be a lot of markets where you don’t see those cup and handle patterns popping up like right now, you see a lot of them and so it’s a good market for cup and handle patterns but also long-term trend lines.

9:51
There’s not a lot of those out there right now because so many of them got busted up during the covid pandemic that those trend lines have been completely dismantled. So you’re really just working with trend lines that have been developed over the last Last 14 months, rather than multi-year trend lines.

10:07
Yeah, scanning for your setups, that’s going to be good too. And again you’re going to be very limited. If you only have like a few patterns that you trade very well. I would try to broaden it out and like have like a group of patterns that you really like maybe that’s like five or six of them to the long side and a few more to the downside and a few more to the short side and you are skilled at those patterns.

10:27
If you get too small and only have like three patterns total, you may go through long stretches where those patterns are not showing up. But there’s good opportunity to be trading the market in a particular direction. It’s just not showing up in the way that you would like for it to show up in the patterns that you are only capable of trading.

10:45
And when you’re gaining for only a couple of specific patterns, your scans aren’t going to pull those patterns up all the time. So you may go long stretches and not even have any stocks that even come in through your scans. Keep the loss of small. I like that. I mean That’s essential three or four percent. Stop losses or smaller that the winners run sell it as it moves up or scale independent Pending on the confidence, you have in the trade, I’ll find on the surface.

11:06
Remember this do too is part of the reason that you set a stop loss at a certain price is that that’s going to have to be what you’re capable of handling on the position size that you’re trading. So if you’re trading 10% on a position and you’re comfortable with that, you have to make sure too. That, you know, what is your Mac?

11:22
Stop loss? You’re even willing to consider on a trade if it’s like 5%, then, you know, that, okay, I trade, 10% position sizes, but I’m not willing to get any bigger than a 5% stop loss. Because when it gets beyond that, I’m not A bullet goes outside my risk parameters or my risk tolerance. So that’s important.

11:38
Also, what’s important is swingtradingthestockmarket.com. If you haven’t checked it out yet, this is a must follow here. swingtradingthestockmarket.com is the patron website that goes along with this podcast. And it, you’re going to get all my market research each and every week. So each week, I’m providing you guys with updates on the S&P 500 and NASDAQ 100, you’re getting the Russell 2000.

12:00
Plus I’m giving you updates on all the Fang stocks Apple Amazon Netflix. Google, I’m also throwing in Microsoft and Tesla each week, and I’m giving you my bullish and bearish watch list for each week. So, that’s really cool. So for the weekend, I’m always going to be sending out my watch list for you to check out.

12:16
And each day I’m giving you my daily trade setups that, I’m following or considering at the very least and with that list of setups, I’m also going to be sending out to you. Some of the most intriguing charts and trade setups and really diagramming. A lot of different opportunities for you in the market each and every day. So check that out.

12:31
swingtradingthestockmarket.com. Now, Merv also talks about moving up his stop losses as the stock increases in value. Very important to do that because you never know how long a stock is going to Rally. We come into this belief about ourselves that we can get in at the lowest price and we can get out at the very top that we’re going to get all the gains from a stock rally.

12:55
And that’s not happening. You have to get past that idea that you’re going to get in at the bottom and get out at the very top. It’s impossible. Nobody does what you want is you want the The bulk of the move, you want the gist of the move, you want 60, or 70% of the move, that’s what I like to call the easy money.

13:12
That is where you’re getting your trade confirmations and your breakout and you’re writing that breakout as high as it will go. And then when it starts to pull back, that’s when you get out now along the way I like to take profits. Why? Because sometimes I think a stock might go up 15 or 20%. I’m like man this is an amazing break out instead, it only goes to 5 percent, I get out maybe a third of my position or a half of my position.

13:34
Hang on the kind of Market that we’re in, I secure those profits. And then the stock starts coming back down again, goes red and stops me out. And I’m like, hey, you know what, the stock didn’t go as high as I thought it did. I ended up taking five percent profit on the first third of the position and then I took two percent loss on the remaining two-thirds.

13:53
But guess what? Because I took some profits early on. I actually made a little bit of a profit off of that trade, so I was able to avoid a loss, right there, and secure some profits on a small segment of that. That trade. Now, he also talks about scaling in and one of the things I don’t like about scaling in this, people tend to get too big of a position size.

14:12
So everything can go right for you can scale in and all of a sudden, you’re sitting on like a five percent profit on a trade, but when you’re scaling in, usually, it’s because the stocks going up and you’re scaling into it, as it continues to increase in value, which also means that your entry price is increasing as well.

14:28
So you might have originally got in with a half position at $20 and then you added the other half at $21. And now all of a sudden That instead of having an entry price and average entry price of $20, you have an average entry price of $20.50, which is essentially two and a half percent more than where you originally got in at.

14:46
So, for me, while skill out of a position, I go all in on the position at once and when I say all, and that doesn’t mean I put my entire portfolio on it. I put the amount of money that I’m comfortable with trading on one trade to the next. I put all that in at one time. And the reason for that is because I have confidence in the trade, in the sense that I’m playing this Breakout.

15:05
The breakout doesn’t work. I got a stoploss that’s pretty close underneath it. That if triggered, I’m okay with that size of a loss, I’ll move on to the next trade. And then the other thing too is when we tend to scale and we keep scaling, it’s like the opposite of the Double Down effect.

15:21
When we have a losing trade, we keep doubling down and doubling down thinking that if it only comes back up a dollar or two of then, I can break out, even because I kept doubling down, and what usually ends up happening there is they just keep losing more and more money in it eventually, they completely blow up their account. On the flip side, you keep adding A stock increases in value, you end up having perhaps a far too large of position and that stock.

15:41
Now, there’s this thing called overnight risk, headline risk, earnings risk, all these different events of you’re holding through earnings. I am not a fan of that at all, because it’s so unpredictable, and the swings are so large, it’s not worth doing. But the other thing that you don’t really have much control over is the headline risk.

15:58
You take spce Virgin Galactic. Just recently, Richard Branson goes up into space or kind of in the space. And everybody’s thinking this stock is going to take off, it was a successful flight, but guess what? They started doing another secondary offering on their stock and as a result, they diluted their shares, the stock drops like twenty percent.

16:17
And so that’s that overnight risk that I’m trying to tell you about in that headline risk that even if the trade is going very much into your favor, you still have that lingering out there for a long time, Boeing was one of the best stocks that you could ever buy. And then they started getting just nailed with bad news, after bad news with their planes and everything else.

16:35
So the headline risk is very very real and you want to respect the fact that at any time whether you’re in a winning position or a losing position, you can get nailed with some bad news. I had one just recently with broadcom. I was up 2% on the trade and then there was some kind of investigation that was announced on the company, not a bad investigation but it’s sent the stock down like three or four percent.

16:57
I immediately got stopped out of it and it sucked. I was really upset about that because I hate it, when that kind of stuff happens. But nonetheless had I’ve been scaling into it. It won my entry price would have been a lot higher than where I originally got in at and to I would have taken a bigger loss because I would have been adding shares at a much higher price, so we don’t want that either.

17:15
So this is actually been a, pretty, long podcast episode so far and I think it would take me. Probably another 30 minutes, probably or 20 to 30 minutes to cover everything he’s talking about. So I’m going to break this up into two pieces, okay? Two segments, two episodes and the next episode, I’ll cover the rest of his questions, but if you enjoyed this podcast, I highly encourage you to give it a five star review that would mean.

17:35
World to me. If you could do that, most people they leave reviews on the Apple podcast app and that’s a great way to do that. Please do that. It continues to help me to grow this audience and grow to listenership based. Also check out swingtradingthestockmarket.com because you’re going to get research that you can’t find anywhere else.

17:52
And remember to keep sending me your questions about the stock market in the situations that you’re dealing with. I love tackling these things. This is a lot more complex one than I’ve done before but I’m doing this one just as much soap to me York. Questions, your concerns and we’ll try to make a podcast episode out of it.

18:09
Thank you guys. God bless. Thanks for listening to my podcast. Swing trading the stock market. I 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 7-Day trial and access to my trading room including alerts via text email and WhatsApp.

18:29
So go ahead sign up by going to shareplanner.com trading block that’s www.shareplanner.com/trading-block. And follow me on SharePlanner’s, Twitter, Instagram, and Facebook, where I provide unique market and trading information. Every day you have any questions, please feel free to email me at ryan@shareplanner.com all the best to you and I look forward to trading with you soon.