ryan-malloryRyan Mallory is a full time technical analysis trader who primarily trades stocks. Ryan lives on the east coast of the United States and founded SharePlanner Inc. in 2006 where he reveals his swing-trading setups, among other things, to traders from around the world.

In the show Ryan shares:

  • The three chart lines he relies on for most of his trade setups
  • How to spot the prefect breakout
  • An indicator that will help you exit trades
  • How he keeps his trading plan simple

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25: Ryan Mallory on Simplified Technical Analysis & the Importance of Taking a Loss
00:00:00 00:00:00

Recommended book

Trading for a Living by Alexander Elder

Platform & Broker

TC2000, ThinkorSwim

Interview Links

SharePlanner.com

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Transcript highlights

Tell us a bit about you personally and what first attracted you to trading?

I was a young kid, only 11 years old and a family member had left me an inheritance of about $5000 for college, but I was a long time off going to college, so my dad introduced me to the stock market. 11 years old and all the way through high school I followed the stock market really closely during the 90’s tech bubble.

Can you give the listeners some insight into your trading? Your trading style, strategy, time frames, ave. trade duration, % winner’s, typical risk reward ratio, typical yearly/monthly return, number of instruments you trade, maximum/average number of active trades, typical drawdowns you experience… those sorts of things.

I’m a swing trader and my average trade can last from a couple of days to a couple of weeks and those that are running really well, those can be held up to a month. My winning percentage has been about 56-57%. My ideal risk reward ratio would be about 3:1, I’m fine with 2:1. I never do more than 10 trades at a time. I put 10% of my capital in each trade. I try and keep everything as simple as possible to where I can explain it to anybody.

What does your typical trading day look like?

 

I’ll wake up around 6am, here on the east coast of the United States, and then  I’ll start looking at what went on overnight and start working on a trading plan for the day (which I also post on my website) and then I’ll start going through charts. That can range between 4-500 charts a day to see which ones offer the best risk reward opportunities. And also ones that could compliment my portfolio well.

In the beginning, what differentiated you from the average “man on the street” trader out there? What traits did you have, what actions did you take? We want to hear your secrets to success.

I don’t know if I’d say it’s a secret, it’s more like a discipline I’d say. And that is, I’m willing to take losses.

I had to realize that the magic is not so much in the profits you make in a trade but the losses you manage to avoid by cutting the losers early and often.

If you were a retail trader working a day job, what 3 steps would you take to start earning an income?

I actually wrote a book on part time trading.

One of the biggest problems traders get themselves into is trying to hold down a job and trying to day trade at the same time. So, still keep your job as your first priority and build your trading strategy around your job requirements.

Another tip would be to do a lot of your studying before you get to the office because a lot of successful trading is built around planning and understanding the context of the market your trading, whether it’s a bull market, bear market or a consolidating market.

Can you explain to the listeners your preferred trading strategy, the ins and outs of how it works and why you choose this type of strategy over others?

I’m not going to take a loss that’s any bigger than 4% on a trade, so in order to do that I need to find trades that will get me in the vicinity of 7-8%. And knowing that I’m 57-8% accurate in my trades that provides me with a good return if I can successfully manage trades appropriately, take the losses as necessary and let the winners run.

From a chart standpoint what I like to do is find stocks that break clear support levels. And a support level where, if that stock breaks down I know exactly where I’m getting out of. So I want the resistance level to be overhead, so if it breaks out above that resistance level I’m getting long. If it breaks below a support level I know I need to get out because that’s going to be where I’m putting my stop loss at. I never move my stop losses down, I only move them up.

I want to move my stop losses up as soon as possible but there needs to be a good logical place to move them up to, where if that stop loss is hit I know with a high level of certainty that trade is breaking down.

Let’s use Bollinger Bands as an example. I’m a great believer in those. Great for understanding how overextended a trade might be on a short term timeframe. So if I’m in a trade and it’s gone up 6-7 days in a row and I’m up 10% on the trade and I put an overlay of the Bollinger Bands on there and I can see that it’s starting to push through the upper layer of the band and every time it does that there’s a history of the stock not being able to perform once it gets outside of that Bollinger Band. We’ll that’s probably a good reason to book your gains at the highs right there and maybe you can get in if it does come back in and you can put a full position back on again.

If you split your trading up into technical vs fundamental, what would that split look like?

99% Technical, 1% Fundamental.

Diving a little deeper, thinking about any price chart, what 3 things would you recommend a novice or intermediate trader educate themselves on when reading a chart

I think there’s a huge problem among new traders to fill there charts with as many indicators as possible. When you look at my charts often times there’s one or two lines that I’m really paying attention to  in terms of trend lines and price level resistance/support. I don’t put a lot of indicators on my charts. I’m basically a price and volume guy.

When people discover how I’m doing my trading they’re amazed by how simple and how few variables I look at. It’s usually volume bars on a chart and price action where I’m able to identify trends that can give me an edge in my trading.

I wouldn’t do more than maybe just one indicator. I put 5, 10, 20, 50 and 200 day moving averages on the chart and I really don’t pay too much attention to them except when there’s a consistent pattern of a stock having rejection or support at a particular moving average – it could be the 200 or 5 day moving average. I’ll start paying attention to it when it tests those moving averages.

How long did it take you to go from trading newbie to consistently profitable trader?

Probably about 3-4 years.

What’s your mental approach to trading and what special techniques do you use to keep your emotions in check?

If I feel the emotions creeping up on my I’m going to back away from making any trades. I don’t want to be making a trade out of revenue or a need to be right.

What’s your favorite entry setup?

I like ones that have a tight consolidation, that it’s been trading in for 6-7 days and the best ones are where it’s coming out of a base of some kind or a bull flag. And that initial candle where it’s coming out of that range, that’s usually the best time to get in long on a trade because that’s when you can keep your losses the smallest and that stop loss the tightest.

What strategies do you use to exit and manage active trades?

I have a lot of confidence in my stop loss, so if it hits I know something’s gone wrong with it. In terms of exiting in profit you need to look at the given information the chart tells you to work out if you can justifying closing out a position.

What’s your recommended “must read” trading book?

Alexander Elder’s “Trading for a Living”.

Why does automating your trading work for you?

I don’t automate my swing trading at all. It’s all manual.

If there was one thing you would recommend any retail trader spend the next month mastering, what would it be, why and how could they go about mastering it?

Don’t hold onto the losses. Every single trader I meet seems to have a difficult time taking a loss.

What trading related internet resource, like bloomberg.com, do you always use?

I have a charting platform I use everyday called TC2000 by Worden.

What’s the biggest mistake most retail traders make?

Doubling, tripling up on positions and blowing their accounts.

Options because people are lured by the profits and they don’t realize there’s a lot of risk in these vehicles.

What’s your preferred broker and trading platform?

ThinkorSwim.

If there was one mantra or saying our listeners should reminded themselves of each day, to help improve their trading, what would it be?

Trade what you’re seeing (on the charts), not what you’re thinking.

If you could leave our listeners with one piece of advice what would it be?

Once again, take those losses. Embrace them and don’t ever double down on a trade.

We’d like you to give us the “bones” of a full trading strategy – the entry setup, stop loss, take profit targets, market, timeframe… we want to know as much as we can. So, what do you have as our “Strategy of the week” Ryan?

Look for a stock that’s not shooting straight up or straight down but does have a trend in place and it’s also consolidating at a certain point on the chart. And the reason that it’s consolidating is that whatever trend it’s on it allows it to cool off for a little bit before continuing on the up trend or down trend. So, look for a basic consolidation, and what that consolidation does for you is it allows you to place a tight stop just below the bottom end of that range/consolidation and it also gives you a clear entry on where to get long at. So you get long on the breakout of that base.

I’m not a huge believer in the target ranges. I’ll just keep moving up that stop loss as much as possible and take profits if there’s a shift in the market or a change in a stocks behavior.

Before we wrap up, what’s the best way for traders to get hold of you?

They can go to my website SharePlanner.com and you can email me at Ryan at shareplanner.com.

Have a question for Ryan?

Leave a comment below… I’ll make sure it gets to him.


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