Trading Volatile Markets While Preserving Capital (Episode 25)

Okay. It's, it's very interesting, cuz I completely agree with you when early on in my career, the end of day swing trading, it's a similar methodology, the cancel methodology, it's very, very similar, very lucrative, uh, made for an excellent career. But like you said, became outdated. I don't necessarily think it's because of the actual canceling system. I do believe it's more due to just the overall market conditions, algorithms, high frequency trading, the way the easy access the retail has to information now. And they're just as slow and calm as it used to be. It's much more volatile and the machines have mandates based on the VIX, making that methodology very difficult, but still at its core, it's still works. It's just not as easy as it used to be. And when too many eyes are on a certain methodology, it became very, very popular. It's gonna stop working and anything that works in the market during one phase, usually doesn't work during another phase.

It can always come back. But unfortunately I know that there's a saying that you gotta master one way to trade, but, and it's true. You, you can be a Jack of all trades and a master of none, but if you do that in today's market, there's gonna be a lot of times that you're just gonna be sitting on your hands, which there is nothing wrong with that capital preservation right now is of the utmost. I think that basically all new traders need to preserve capital here, not by the dip until you get proper setups, but when your experience and you have to make a living like I have to make a living to pay the bills, you force your force to find new methodologies. And what you do is you study individuals that are successful. You look and you see what's working and you put those game plans into action and review them and you modulate your position size according to the market you're in.

And I'm now personally, because I guess I've been doing it for so long, am able to differentiate between methodologies, timeframes and not have like short-term price action or long-term price action interfere with the other methodologies. So I have all the way out to long term methodologies, which are five to 20 year time horizons for individuals. And there's a couple that you can employ. I have quarterly portfolios to deal with the volatility that I built in 2018. So for end of day stuff, swing trading, I like to get long and I have an initial protective stop. And as the stock moves higher, I'll trim and trail. I take profits on the way up and trail my stops higher, but in a very volatile market, I find myself getting chopped out. So on the quarterly models, for instance, I just hold, you can actively trade them. And there's proper setups using moving averages.

Like the 21 exponential moving averages. I look for squeezes, it's a technical indicator. And then I like my other indicators that are momentum oscillator based like time segment volume, M a C D and cumulative money flow to all line up. But I keep it simple because it has a track record of working since late 2008 and I just buy stocks and I hold them for 90 days. Last year, bifurcation started to happen. The last time I saw bifurcation like we saw last year and I have about 30 YouTube videos on it from last year was in 2000.

Small caps were no longer leading and that's always been the IWM is not really an index that most people follow, but for me, it's everything. Small caps is where I really, when it's leading the spy in QQ. And so my other technical indicators are lined up. That's when I know I can risk 10 R per trade, five R per trade, 20 R per trade, instead of one R five R five R depending on the setup,

It's the same thing as everything, the three outta four stocks are gonna follow the general market. They all had extremely high priced earnings ratios. Some don't have earnings, they all have amazing revenue growth, but I'm old enough that I've seen that before. And in perfect hindsight, we can see that the run into arc was similar. I'm about ready to bring you back to 2000, was the run into Ken Heberer mutual fund. Oh,

Remember how hot he got with his stock? Yes. It felt very similar to that. And now in perfect hindsight, the specs, they weren't making any money. They had no revenue. Those were your IPO names back in 1999 that were coming public with no revenue and earnings that were going from 50 to 500, same things. Also the alt coins NFTs are good, but they need utility, right? The amount of NFT that were going for millions of dollars with no utilities, you know, like all, this is a sign in perfect hindsight. We, you know that you're in the season, right. You know that, oh, we're getting pretty speculative here. We're in the season. But how far does it go? When does it end? You never know, except for there's one hard metric, hard rule at big wave trading. And that I personally use and that you never fight the fed.

And as soon as the fed started to hike rates, you knew that these priced earnings ratios with higher interest rates, this was completely unsustainable. But if you're trading with rules and you have stops and trailing stops, you would've been getting hit all your stops hit. And then I was no longer getting signals. And what's funny is that with my end to day methodology, I have a lot of people will complain that I have too many long positions during good markets, even though the vast majority work it's cause it's, it can be a lot. They don't understand that. Let's say that it is very possible that I could have 10 long signals in a session, but I'm only gonna put like a little bit amount of money into nine of 'em. And one of 'em is a strong enough signal that I'm really pushing the portfolio into. And because the end of day methodology is really a hands off methodology and I've been around for so long. I can handle that many stocks but day trading. I could never ever be in more than three to four positions at one time.

Well, no indicator is ever gonna work all of the time. It's about placing odds like Mark Douglas said each individual trade is a crapshoot. Anything can happen, but over a series of trades, the odds, the probabilities, the percentages do work out in my favor, especially right now, I'm currently using a break, even stop methodology. That's completely irrational logical, but the accounts are green in a very red market. And I'm currently not shorting because on a end of day basis, I don't shorten to the spies below the 200 weekly simple moving average. So that being that first on the end of day side, I'm basically looking for similar type signals constantly. It's a variation of a bullish candle over candle pattern. It could be an engulfing candle over candle on a day to day basis, a hammer candle, a hammer reversal candle off a strong support or 52 week low, but it must be accompanied by huge volume volume.

Truncations on the charts that I look at. I post them on Twitter and stock tweets for hindsight analysis. Anybody can see these setups. I, anybody can see 'em, but it's normally a variation of a candle over candle off a support level or a 52 week low and, or a breakout of a long consolidation period in a healthy market. Not in this kind of market, the bounce plays I'll play, but not the breakouts, but the bonding truncation. And then there's one indicator I use. And it's not a great indicator, but it is for this methodology when it works. And it's called balance of power. It's a proprietary indicator by Don warden. It's not anything that's magical. It just, whenever I get my end of day candle over candle signals off that support level or 52 week low, or the breakout with the squeeze with multiple other indicators lining up.

I know that I can increase size. And for instance, there's been three trades recently, since I got bearish on this market in November. Can you tell us what these are? T w N K FLX S and T and P. I believe that I have reviewed them on social media, all three of these with the current percent return, whenever something I get long hits a post signal high, I go ahead and review it for everyone so everybody can see, Hey, this stock is up 26% in three weeks since I went long from this signal. And if I have time, which a lot of times I don't, I explain what the signal was. However, you can look at the, your, the chart yourself. And if you do this enough times, you're gonna see exactly what I see. But T w N K FLX S and TMP have been three stocks that have had great standalone signals even in this tape.

But that being said, the overall chart leading into those three great standalone signals were not great. They were solid. The signal itself warranted more capital placed into it, but it doesn't warrant 20% of my capital, 50% of my capital. And here's the problem with all three of them because of the overall market condition. They've been very choppy. And I basically have been knocked out of all three of 'em before they realized that full potential, but T w K is never gonna move a lot. And either is FLX S but TMP wouldn't think of would have either, but shippers got hot and it did. But unfortunately the volatility is so intense right now that it's hard for me to get size. It's hard to hold on the end to day basis right now, my focus is super granular intraday. And even then I'm trying to go for the swings in the trades intraday, and they're turning out to be scallops because right after I start taking profits on small caps, and whenever I start taking profits, I immediately place a break, even stop for educational purposes right now in these accounts and for the big cap trades I'm taking, once I take my second profit, I place a break, even stop.

And today two names I tried to get long, but I'm a conservative entry trader, and I didn't get 'em roadblocks and Roblox and Oxy. And they both worked out post my chatroom alert post, where I wanted to get in. I couldn't get my conservative entry. So I ended up taking a tertiary trade that I was watching Chevron CVX, and it was profitable, but the market seemed so heavy early on that after the first take profit, I immediately moved my stops to break even, and that was hit and I was taken outta CVX,

Just for right now on the long side, it's just the day trades. Cuz the end of day side, I still want to stay within my parameters. So I tell all members, like we had a winner that was just a new long position. Um, two days ago, sky H sky H hit like 10 25 after hours last night, I told everybody if you're long, this stock because of this market, you might as well just take profits. Now, if you're afraid of losing them and, or take some profits on it and then put a stop at break, even however I'm following my game plan methodology, because I don't wanna deviate when the market does change and I'm still using an original logical rational stop until something on the chart tells me moving 'em all up. But until the chart actually tells me move all your rational logical stops at a support level that you can see clearly on the daily chart or weekly chart.

I go ahead and let it play out. The difference is, like I said, instead of putting 20% of my portfolio into a trade from, by stop to my cell stop, I only put 0.2 R but whenever I started by using this break, even methodology, even in November, the long, only small cap, only day trading only account that only allows 20% to 25% of the capital to be used per trade it's up almost. And I got my post, the trade review statistics every day in the chat room. And as often as I can on social media, it's up 25% since November alone by using this break even stops. If I was using my logical rational stops, that would be allowed in a hot market. In 2020, when stocks were running like GSI, a C Y if I was getting a hundred, 200, 500, 1000% moves in today, I would use those rational stops, but the vast majority are ending up hitting those stops instead of continuing on further red box continued on further, right after shaking me out with a break, even stop.

So be it because the vast majority are hitting those logical stops. And I don't think I would be green. Everybody should be okay with keeping their losses small or break even right now. And that's just what I'm using now on the entry day side. But on the end of day swing side, I have very few trades right now. And when I do get 'em, the most I'm willing to risk from my entry to my stop level is probably 1% of my account capital. And that's at most right now for the best setups and normally in a bull market, I'm gonna risk five, 10 R initially. Explain

Oh, just and ours, like percent of your account capital. So from buy stop to sell stop, let's say something's at 20 and my stop levels at 19, that's a dollar a share. I then figure out whatever is of 1% of my account value. And that's the trade size I take on the trade that way, if it triggers and fails immediately all hell cuz it can happen. I mean it happens. But luckily for me it doesn't happen a whole lot, but it does happen. And if that happens, oh no. Instead of losing like five R or two R in a bad market, we're three outta four stocks. Aren't gonna work anyway. I'm gonna lose one R max. But like I said, those three stocks I told you about those are the only three trades since November that have even got received. One R of capital, the vast majority are gonna be 0.2 R and I know you're like, well, why even go?

Why even do it? Because I have to keep some skin in the game with the signals and tone in the water. So whenever that market does turn around and things start working, I'll already probably have a few names really working and I will then know, okay, we gotta increase size here. The fed is halting raid hikes. They're no longer running assets off their balance sheet. I'm getting signals. Hopefully, maybe I've seen signs of capitulation via the put call VIX Sharpies get long, which is the commercial hedgers in the options market. Hopefully I start seeing flow on the tape that sweeps million dollar plus sweeps out of the money long dated options and like Q C Q apple, Microsoft Tesla, AMD, and video. And they keep hitting 'em day after day after day. Yeah. Then I know I'll go full margin with trades if it's a great setup once that happens. But until then for now break even stops work on the end to day side, still using the logical rational stops, but modulating positioning my size accordingly to make sure the portfolio doesn't hurt. And because the fed is doing what it's doing, quarterly portfolios are 0% invested. 100% cash long term portfolios always keep at least 50% invested because timing the market is a very difficult proposition.

Oh absolutely. So when the market's selling off like this on the end of day side and quarterly side, I'm like, oh no, no, no, no, no, no, no, no, no, no, no, no, wait, wait, stop everybody. Stop what you're doing? Wait, wait, wait, cash is a position to rather you wanna believe it or not. You're if you're new, especially, don't worry about making money here. Worry about protecting your capital here because I know that you see cuz here's the thing. Young people just like me whenever I was young trading, you don't know how good you have it. You don't have all of these memories of 2000. You don't have all these memories of 2008. You didn't study 1987. You don't have these thoughts in your head. You don't remember how it used to work. So this market is great for the youth, but for the vast majority, it isn't those that made the money in 20 20, 20, 21.

So cash is a position. Protect your capital. Save that capital, have a working job, take that money, keep saving it, put it into the account. And when the market comes back around, that's when you wanna put it to work. But on the long term side, on the other hand, I love this. Bring it on in, pull it in. I started my long term operations in a very small select amount, anywhere from 10 to percent to 20% of what I want to buy and about nine big cap names yesterday. But I knew it was just a starter, made it very clear to everybody. I buy it on the selling and in November I got bearish first off when the fed said inflation was transitory. Yeah, they are the smartest people in the room. But are you kidding me? Yeah. When in history has inflation ever been transitory, can you find me one economy ever that inflation was ever transitory.

Oh right. Whenever they first initially. Right? So whenever they made that, I mean our chat rooms, there's search buttons. You can put search buttons and type in transitory. And look at the first time that I mentioned transitory, I was like, oh boy, they're wrong. There is no such thing as is strange story inflation. I've studied economics. I know my history around the world. There's never been a time when that's ever been the case. There's no way that can be the case. It's impossible. So then once they actually started a hike rate, I did a podcast in, in December, 2021. And it came out in January 12th, I believe 20, 22. And in that podcast I laid out everything. You're seeing happening to the T everything that's happening. And I made it known to everybody. Then I don't know if they, they kept in that podcast. But I said, I would start my long-term operations if spy ever got to 400. And once it got to 400 yesterday, I started

Because I expect much more downside short term, but at three 80, I'm going a little bit bigger. And if I can get a 50%, FIBI retracement in this market from the COVID lows, I'm going even a little bit bigger. And if the spy ever falls 50 to 55% from those highs at the end, December of 2021, I'm gonna buy 'em all of the big caps. I'll go all in, in my long term portfolios and Bitcoin Ethereum, if that happens because that's the floor, normally a 55% decline. And while most people panic. Yeah. Bring it

Yeah, absolutely. Well, yeah. The interview is short. I could go on about this market for another two hours. So to your listeners, I'm on social media. Joshua Hayes is my name. Big wave trading is my handle. I've been doing this on these platforms since about, I believe that I started my blog spot in 2003. So I have a long term track record.

Big wave trading. I believe on Twitter.

Stock tweets, linked stock TWIs, LinkedIn, Instagram, Facebook, big wave trading.com or Joshua Hayes. If you look up Joshua Hayes, I believe I have a beautiful Maui sunset from my backyard as the profile picture or big wave trading, it'll have me connected. You'll see that I post every time I take a day trade in my current toss account, I post the trade and trader boost statistics on these social media platforms, along with analysis of any end of day swing that's working and listen, we can talk about losers all day long, but I always cut losses. So there seems to be no point in me ever talking about, oh, well I lost 1% lost 2% lost 1%. Right? Cause there's never like, oh my God, I lost 50% on this position. My God, like it just never happened. And

Absolutely. It was a pleasure speaking with you.