Ep. 310 Here’s Why Difficult Times In The Market Make Things Easier For Traders
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This IBD podcast is brought to you by Directions Daily Leveraged and Inverse ETFs. Whether you are a bull or a bear, you choose the direction. Visit direction.com.

Investing in the funds involves significant risk and should only be utilized by investors who understand the impact of leverage and actively monitor their portfolio. They are not designed to track the underlying index for more than a day. Before investing, carefully consider a fund's investment objectives, risks, charges, and expenses contained in the prospectus available at direction.com. Read carefully. Distributor, Alps Distributors, Inc.

Hello, and welcome to another episode of the Investing with IBD podcast. It's Justin Nielsen here, your host, and we're coming to you live at 5 p.m. Eastern, as we always do every Wednesday. It's March 5th, 2025 today, and we've got a lot to talk about, and we've got a great guest to do it with. Dan Fitzpatrick is coming back to the show. He is, of course, the founder of Stock Market Mentor. How long have you been doing that, Dan? Uh,

Since 2003. Okay. Basically, when I needed a mentor as opposed to when I could be one. Yes, exactly. So from mentee to mentor, better than being a manatee. This is true. Dan and I, we live pretty close to each other, but folks, I mean, the weather was just too bad for us to get together. I mean, it did drop down below 60 here. Yeah. And today. Yeah.

I can't see the sun. I mean, there's blue sky here and there, but the clouds are there too. So yeah, it's horrible. Yeah. Well, you know what? We're going to talk a little bit more than just the weather. We're going to actually get into the weather of the stock market. And one of the things that – there's a lot of –

kind of different methodologies and different acronyms, of course, that we all use in our lives to kind of help keep us on track. And Dan's going to share with us one of the ones that he's come up with. You've got a new e-book that's almost ready to go to press, I guess, in quotes. Almost, almost. I thought it was, and then I looked at it again and went, I think this kind of sucks. I better get back to it. Well, see, that's your problem. You've got to not look at it again. Yeah.

I will tell you, Bill O'Neill, okay, I was involved with the third and fourth edition, those revisions. And, you know, at a certain point, we just had to say, stop. I mean, he would be changing little words here and there. Oh, God. Yeah. We could have gone on forever. Yeah, I get that. At some point, you just literally have to say, it's good enough. Yeah. But –

So let's get into it a little bit. What you've come up with is, and I put this in my tweet as I was writing Get Smart. It kind of reminded me of the old Don Adams show that I loved as a kid. But using the acronym SMART can kind of help you go through like a little checklist of what you need in order to pick stocks. So walk us through it if you don't mind.

Yeah, sure. I'm so glad I was able to come up with that acronym, you know, S-M-A-R-T, because it's like, OK, trade smart. Can you imagine if it was like a D and a U and an M and a B or something like that? OK, so let me trade dumb. So, yeah, I mean, it was something that as I'm trying to craft my own strategy.

I realized that I absolutely needed a checklist. And I think a lot of people don't. You may have a stock list or something, but to have a checklist, basically like a pre-flight checklist that pilots use. Right. I think that's really, really important. I tend to be.

This is soda. It's not a beer. I tend to be an emotional... I'm an emotional person. I have high emotions sometimes. And I...

I needed rules in order to follow because if I don't have them, I'm going to lose all my money and everybody else's too. So the rules are kind of like the bumpers on the bowling lane that keep my ball in the middle. And so I just, as I learned more and more, I thought, okay, well, let me kind of boil this stuff down. And it all starts with the stock. You know, that's the S in smart. It's the stock. It's got to be stock specific.

And what I mean by that is, like, why are you – what is it about this stock that you want to – why is it that you like this? In other words, look for the stock, not for the trade, because –

We all – there's over 6,000 tickers in play here, and we all have this charting software. And you could just go –

You're going to find a trade just because, as I tell people, the longer you look at a monitor, the more apt you are to do something stupid. I actually use different language, but this is a family show. You know, so it really is important to have a structure going in. And so with respect to stocks.

What I look for, I keep scans and screens. I have this stock watch, actually a stock watch tool that I use for different lists. And it's just something that I had to create that works for me and for our members at Stock Market Mentor. But the idea is, what am I actually looking for in a stock? And most of the time, unless it's a day trade or something, I want to find stocks that are

are attractive to institutions. And by the way, market surge or market Smith, when I first started, that's awesome for finding these stocks that institutions are really looking for using fundamentals and all the things that people can learn at IBD. And then after that, I have to look and see what the chart looks like. And you can have the best fundamentals in the world, but if the chart isn't good, then

then that's not something that I can make money on unless I'm Warren Buffett and I want to buy the company. I have to see – I start with fundamentals and technicals, and then from that – at that point, I'll get a list –

That is possible. Like these are my possible stocks. These are the ones in the bucket that I can go through. Like this is something that everybody should be doing. They shouldn't they shouldn't just really even be looking at your list or my list or anybody else's. You've got to have your own methodology. And so that's really the S.

And then the next part really, which is, and all of these are important, but it has to start with the stock. But the next one is M measurable for M. And what I'm talking about there is you should be looking at any given chart and you should be, you should be saying like, okay, what's the personality of,

of this chart. Where are the resistance points? Where are the support points? And you should be able to measure, not bringing out your hope ruler, but just really be able to measure on a chart, where do I think this stock can go? And so on something like that, what I will use, one of the things that I use a lot, it really keeps me out of stupid trades is

is I will look at the 50-day moving average, and I'll go back in time, and I'll measure the excursions of the peaks. It's got to be an uptrending stock. If it's not an uptrending stock, I'm not looking at it. But in an uptrending stock, you're going to get the bouncy bounce.

So in the past, over the past year or six months, how far up above the 50-day moving average has the stock gone before it's rolled over or just tapered off sideways? It doesn't have to be a big correction, but basically before the up move is done. And you will find –

so many times that within two or three percentage points, it's the same. Like I forget which stock I was looking at the other day, but it was like, okay, it's, oh, 28%. Oh, 26%. Oh, 29%. Okay, well, that should tell you something. And so then if I'm looking at a stock now and I'm saying like, okay, well, this looks like a pretty good deal here. It's in a nice squeeze. Yeah, it's above the 50%.

And the price is within 23% above the 50-day moving average. Well, that's a stock that I got to stay away from because my measurement is what that top would be.

And so I don't know if I'm explaining it that well. No, no, no. That's really, really incredible because Chris Gastel, our chief content officer, once tasked one of our lead programmers who – it's great when you have a programmer that loves the market too. And he kind of created his own little tool saying, okay, for any given stock, look at that exact thing.

What does it do when it gets extended? How much – and he just kind of charted it along and gave an average to instances where the average was, and it really does give you a good sense. It's so hard sometimes because when a stock breaks out –

Well, what do you use? There's no resistance for you to look at. So you have to have something to kind of let you know, oh, this is – and it doesn't mean that you have to sell it when it gets up to that level. No, no. It certainly means start being cautious. Yeah, it means that – I mean –

It means that you're in a crowd of similarly situated people, many of whom are going to be happy to sell because that's what's happened before. And so, yeah, I just – I found that that's a – I would – I'd give credit to somebody else if there was credit to be given. But that's just something that I kind of came up with on my own as far as looking at the 50-day moving average. And that's – I paid –

And to your point, it also does give you a sense of that personality of the stock. What is its typical extension? And that gives you useful information. Yeah.

Yeah, it does. And especially, you know, if it's a real high flyer like Palantir comes to mind, that stock is – that was a real heartbreaker because I bought it. I made a lot of money on it, like way, way, way lower than it is now. It's one of those where, yeah, I bought it at – I made 50 percent on the trade and then it goes up like –

200% or something. But this is the kind of thing where as the stock moves higher, it gets further and further away from the 50. But at the same time, if you're not in the stock,

You're not thinking about that. You're thinking about how stupid you're feeling because you were in it at a lower price or maybe you weren't in it, but you go, oh man, I knew I should have bought that last week or two weeks ago or whatever the case may be. And then it finally keeps going up and up and you are totally not objective anymore. You've lost all objectivity. You're just looking at the price. And finally, you're

Back in December, you buy it. $84.80.

And then 37% above its 50 day moving average line. Yep. And you get stopped out at 63, 45. And then you bought it again a couple of weeks ago at one 25, 41, you know, the, the bottom line is, you know, you gotta have some way to measure what your, what's my potential reward. I mean, we always say risk first, but you should say risk first, but,

part of that assessment is like risk as opposed to what compared to what the reward is. And so you got to see a good, solid perspective.

potential for reward from right here from where you're buying. And then on the other side of the equation is the risk. What's the risk? And I look at, uh, I just think about where I set my stop is, uh, Oh crap, I'm wrong. Like that's, I see that's my, uh, OCIW, um, level. And, uh,

That can depend on what exactly you're doing. You know, sometimes that, oh, crap, I'm wrong level, just where you're going to set your stop, your max risk would be like just below the 50 day moving average or something. But sometimes depending on what the what the actual what the entry is, which is different than the trade, but depending on what the entry is, maybe your stop is.

Okay, I'm buying today. But if this falls below today's intraday low, you know, this wasn't the best entry, so I'm going to get out, you know. So you can define your risk that way, knowing that the tighter you set your stop, the more likely you are to get stopped out. Right. But that's just part of managing risk. You know, you can't ever really get this dialed in to where you've got this perfect

methodology for risk management or for exactly where you set your stop. Every chart is a little bit different. To that end, I just want to take a moment here and pause because

Um, there, there is something, especially for people that are just starting out or even worse, if you've been at it for a long time and you still can't accept when you're wrong, uh, you know, you plant your flag in the sand. And especially if you've done like a lot of work on something, you've done your research and you're like, it's, I, I, I've already invested too much to be wrong on this. So maybe talk about how comfortable you are to be wrong and move on.

Yeah, what do they call that? Sunk costs or something like that? Yeah, you just spend so much time and you just know. I don't have a problem. I used to have a problem being wrong. But frankly, that reluctance to be wrong was really just born out of fear. It's a typical thing. I was afraid of losing money. And so that meant that I would lose all of it because...

When you're afraid of losing money, it means that you're not going to sell for a loss because that would be losing money. And so then the stock goes down further and then you're really afraid of losing money, et cetera, et cetera. It goes all the way down. That.

I think that hit me. I was that way for a very, very short period of time. And then I realized I was lucky. I realized, well, wait a minute, for crying out loud, I know I'm not a stupid man, but I'm going to be wrong a lot in this game. I'm going to be wrong a lot. And so I better just, I better figure this out and also know, just know the math. If you lose 10% on a trade, you have to make 11% to make that up.

you could do that. Yeah, you could do that. But if you lose 20% on a trade, now you have to make 25% to make it up. If you if you lose 25% on a trade, you need to make what like 33% to make it up. I mean, the numbers are not in your favor. Yeah. And so a good friend of mine,

said he's been around forever. He said, I always tell my clients, if you want to be rich when you're older, just don't lose your money. Yeah. It's just that simple, right? I mean, that's the macro view of what we're talking about here. You know, if you want, if you want to be making money, yeah, just, just don't, just don't lose it. And it's, that's just the way it goes. And, and I actually, like, I, I like to start off

I'm a pretty tentative trader. When I first started, I was like the broker that I was using. Everybody there on the floor called me a gunslinger, which I always thought was a compliment. Then I lost all my money and I realized that being a gunslinger was not a good thing to be in trading.

But I tend to trade pretty cautiously at first. I'll start with a small, a pretty small position because I don't, I don't want to be wrong, but if I am wrong, I don't want to lose much money in being wrong. And so I'm willing to wait and, and have the stock pay me off. Basically have the stock say, yeah, yeah, yeah. You're right about me on this one. And then I'll start wanting to build my position. And, and,

So what's the timeframe for that? Well, if you're, I mean, I, people, if I'm teaching a day trading class, I'm

I'll say you may build a full position in 90 seconds or something because you're just trading that fast. But if you're really swing trading or trying to build a larger position, it may take you weeks or longer to build a full position because you're going with the ebb and flow. And this is where, like David Ryan said,

And he's a brilliant, brilliant guy, as you know. He's helped me out a lot. I just listen to everything he has to say. And he always talks about adding building position on kind of the next little pause. You know, you'll buy some on a breakout. You know what I'm talking about. Just trade the ebb and flow. And when the stock –

rests a little bit, it's in a nice uptrend, then maybe add a little more, and then when it breaks out, et cetera, et cetera. And the whole idea is, in my mind, you're always focusing on risk first. And what I try to do, and I learned this really from Mark Minervini, was this idea of financing your risk, where as soon as you can, as soon as the stock will let you,

You want to raise your stop to where you've taken risk out of the equation. Some things that I think people make a mistake on in that regard is they'll be too eager to raise their stop to break even. And then they wind up having a lot of break-even trades on what would have been monster trades.

This IBD podcast is brought to you by Directions Daily Leveraged and Inverse ETFs. Whether you are a bull or a bear, you choose the direction. Visit direction.com.

Investing in the funds involves significant risk and should only be utilized by investors who understand the impact of leverage and actively monitor their portfolio. They are not designed to track the underlying index for more than a day. Before investing, carefully consider a fund's investment objectives, risks, charges, and expenses contained in the prospectus available at direction.com. Read carefully. Distributor, Alps Distributors, Inc.

You know, one thing that you mentioned, I just want to kind of make sure I understand because you were talking about going with smaller position sizes. What is a small position size for you? What is a normal position size for you? Just so folks kind of understand where you're at. Well, I think like for whatever your account is, I want to ultimately I want to get to where I've got a 25, a position of like 25 percent in my in my account. Yeah. And that's a.

I've had bigger positions than that. I had a really big position in NVIDIA. It was a great best trade I made in a long time, possibly ever. But typically, I think the numbers are that if you can get four positions of 25%, you've got a really, really – you've got a good, strong account, and you're going to be really growing that. But I will tend to start out with about –

Maybe 10 percent. If I'm going to take a trade in initial position, it would be 10 percent, maybe even a little bit less. But if it's too much less than that, especially if you're using if you're managing your risk, it's not going to make much of a difference. You know, if you got to I know people go like, well, how many stocks do you have? Oh, I have 28 in my account.

Okay. What are you going to do with that? You know, you've built in mediocrity. That's for sure. So the, the idea for me is if I put in, if I have say a 10% position and then my risk tolerance is one and maybe one and a half percent, I even like to, if I can go a little bit less than that, but one and a half percent of my account value is,

That's something that I can manage. And you know that people get confused about this. Oh, you only risk 1.5%.

Those are really small positions. No, those are tight stops. You could have the biggest position that you want, but it's just the difference between where you buy, where you're going to get stopped out, multiplied by the number of shares. That number, I try to make sure it's not more than 1.5% of my account because you could be losing 10, 12 trades in a row

And you're still going to be OK if those losses are really tight. Does that make sense? Absolutely. You know what? I kind of derailed you. And I feel like we skipped ahead a little bit. We got into a lot of the R, the risk and reward. But I want to back up and go back to your A, which stands for actionable. Yeah, actionable. By the way, sorry about the cough. I had back surgery in this cold weather that we have.

Yeah, I know. I know. That's the thing. Like, you know, when you got to take your trash cans out, you know, the blizzard, you know, but I had back surgery about a month ago and I'm still my lungs are still not quite clear, you know, after all you're looking great. So if I'm coughing and you look taller.

I am actually tall. I know. I gained an inch, if you could believe that. So it's nice. Nice to be tall. Still can't dunk, though. So anyway, yeah, with respect to actionable, so I have a method for picking, for choosing the stock. Like, okay, I'm looking at this stock.

Now I'm looking at the chart trying to measure like is this – would this be a pretty good risk-reward or to begin with like would there be a good reward there so that I can say, okay, what am I going to do? And then that comes down to the actionable part where I all have three different lists where – and it all – you want to kind of see them progress through the three lists. And I just use a baseball –

analogy. Trading is a lot faster than baseball. What do I say? It's like watching paint dry in Boca Raton in August. It never dries. But I'll have stocks that are in the dugout, meaning, yeah, these fit the technical criteria, but they're not...

I just want to watch them. And then ones that are more – And that might also include stocks that are extended. Oh, absolutely. You want to get into because they're powerful, but you know it's not the right time now.

Yeah. Without you getting your head handed to you. So that's that's exactly right. And it can be like, well, like DoorDash was one of those where we had a couple of good trades on this as it was going up. But you you know, you could look at this stock in about a month ago or about three or four weeks ago. Yeah. We're peaked at 125. I will totally keep that on the list, even though when it was up at 215.

where somebody else would say, well, I don't want to buy that. I don't want to look at that stock. It's already gone up too much. And it has. But that doesn't mean that in a month from that time or two months from that time, it won't be at a really, really solid level. And so if you have an idea in your mind that,

what a stock has to look like in order for it to be actionable. Or as Dave Ryan says, does it have that look, that one look that he wants to see? If you know what that is, you can have a lot of stocks in the dugout and you're just banging through them every day. And then sooner or later, you're going to see one or two or three that are on that list of just stocks that could work out.

And you say like, wow, this looks like it could be ready to go. And so then you'll move those tickers into your second list, which I just call on deck, where those are stocks that they're not quite ready for prime time, so to speak, in the mix metaphors.

Whatever the phrase is for that. But they're starting to set up. So, hey, man, this could work. And there are several stocks that have been in that category lately. But then the last list is the best list, which is, okay, this stock is really, really setting up. This is at my batter up level.

or at-bat list, this is the short list of stocks that look like they could be ready to go. All I need is a high-volume day, or I need to have my alert triggered because I'll look at stocks and I'll set alerts all the time so that I get my attention called back to something that I've just lost track of. It's like having a trading assistant. Yeah, yeah.

Anyway, and so those are the three. And I guess, you know, to that at bat part, you know, maybe the next step, if there is one, is those alerts kind of tell you when when the pitches, you know, when the right pitch is coming, you know, it's off this line or what have you. And you're probably looking at the way in which it's crossing that alert and what else is going on.

No. Yeah, that's right. And I mean my favorite setup is a volatility squeeze where the stock's trading in a pretty tight range. I prefer Bollinger Bands to be squeezed like 5% or 6% within that width. I'd prefer them to be there. And if they're close to the 50-day moving average and drifting and they have kind of that look –

That's a setup that I really, really like. And so I'll see that. And then what I'll do is I won't – I'll set an alert at the breakout level to where if that alert's hit, I would say, okay, well, I want to buy that stock. I typically don't set alerts.

I don't set alerts that just like buy stops, you know, oh, if this alerts hit by the stock, that's I think I think I'd probably make more money if I did. But I think I'd probably lose more money, too, because a lot of times those triggers turn out to be fake outs. But what I'll say, but I will set an alert at that buy me right here level. But I'll also set at least one alert a little bit below that.

So that I'm kind of – I kind of get an early warning like, hey, man, look at me. You might be ready to go. And so, yeah, I really like those. I really, really like to set alerts in that way because –

It keeps me in the game when in a particular stock when I should be. But then at the same time, it allows me not to be so preoccupied by having this big old long list of stocks. And I'm always afraid I'm going to miss something. Yeah. Like if I'm setting my alerts correctly, I'm going to miss something.

then I have a trading assistant who never goes on a break. He's always telling me. And part of that kind of comes back down to the stock selection. You've got so many stocks to choose from, you've got to do something to say which ones are going to earn that coveted spot in my portfolio. Right. Well, and one thing I think that some people, maybe a lot of people don't talk about is

A lot of times if you're going to buy a stock, you probably need to be selling something too unless you have cash. I always like to have cash on hand just so I don't have to be making choices. But –

Yeah, you have to know, okay, well, if I'm going to buy this stock, well, what am I going to buy it with? And maybe that creates more of a tendency to really look at your trading account, at the positions in your account, with a little more of a critical eye, which can be good or bad. And what I mean by that is, you know, you kind of want to give your stocks room to breathe. They're like kids, you know. Give them room to breathe.

to relax a little bit and make mistakes and break, break support and then regain support, maybe consolidate for a while and then move higher. Like Nvidia, like we were joking about earlier where, you know, that's that stupid stock, you know, it bore you to tears for three months and then blast off and, and everybody's getting rich off of it. And so, yeah,

you know, the idea is you always want to be

You always want to be looking at your trading account with a critical eye, always wanting to make sure that you're optimizing it, but at the same time, not over trading, not just getting rid of stuff because, oh, it looks bad today. Because a lot of times, especially in the kind of uncertain environment that we're in now, with respect to geopolitics, and I'm not talking about Ukraine, but just all the tariffs and all this other stuff. Right. You know, we could get one bad headline in the whole market.

Well, your particular stock that broke support on a broad market sell-off, there's like nothing wrong with your stock because the next day it's right back up. So you want to be able to look and really get a sense of why –

your position, whatever it is, is doing what it's doing. I don't know if that makes sense. No, no, no. Yeah, absolutely. This IBD podcast is brought to you by Directions Daily Leveraged and Inverse ETFs. Whether you are a bull or a bear, you choose the direction. Visit direction.com. Investing in the funds involves significant risk and should only be utilized by investors who understand the impact of leverage and actively monitor their portfolio. They are not designed to track the underlying index for more than a day.

Before investing carefully, consider a fund's investment objectives, risks, charges, and expenses contained in the prospectus available at direction.com. Read carefully distributor Alps distributors, Inc. Let's hold that thought because we're going to get into the market next, but I want to let you kind of finish. I don't want you to leave off at SMAR. Um,

So let's get to the T, the time element. And you kind of already alluded to this a little bit. What is that time element for the T in your smart tracker? Well, the time element, yeah, I just say it has to be time efficient. I also...

I could actually have a separate T on the end of that, which is track, you know, because you want to track your trades, too. But the point is, with respect to time efficient, that really has to do with the entry and exactly where you're buying, because you'll there's stocks that look good. They look really good.

But do they look good to buy right now? And if they're going to be buyable right now, it means that they have to have a mature base. And I'm not talking about a big multi-month or multi-year base like Robinhood had a while ago. That was unbelievable. But I'm talking about like just in a regular swing trade type of strategy, you're going to want to see the stock –

You look at that last, what was it, a year ago, almost a year ago, that thing started breaking out above $12 or $13, and the rest is history. That's one of those I sold too soon stocks, I have to say. I'll acknowledge that. But the point is it takes a while for a stock that ultimately is a good buy

to create a good left side of a base, a nice left downsloping side of a base. And then the bottom of the base, really kind of the bottom of the cup, whatever, and then climb up the right side a bit.

All of that takes a lot of time. And so if you're buying a stock too early, you're kind of – the way I look at it is the longer I'm sitting at break-even, the greater risk I'm incurring because it could go either way. And also, if I'm – the only reason I'm buying a stock now is because I think it's going to go up now. It may not be today, but in the next few days. Otherwise, what's the point? Yeah.

Just wait a few days.

Because if I'm buying too early, I'm not making money. If I'm buying too late, I'm probably incurring too much risk relative to the reward. Well, to that end, maybe we can kind of switch over to the market right now because I feel like there is an element to that where –

timing with the market you know there are times where it's better to be sitting on your hands because yes it might be going up you know right now but when you're in a choppy market it could be doing a lot of back and forth and do you want to give yourself that heartache so maybe we can start by looking at you prefer looking at the nasdaq or the s&p 500 for your uh

market analysis? You know, I would start with the S&P, but keep it on the NASDAQ, though, because the NASDAQ, well, you could look at the difference. Okay, the NASDAQ has fallen below. It's really kind of knifing through that 200, where the S&P is really bouncing off of it in a little more convincing manner. I would just my take on the market. I personally don't think

these levels are going to hold. I think they're going to hold for a while. However, I'm reasoning this out. Well, I don't really think the markets, these levels are going to hold. I do feel like the S&P is going to fall below the 200. I don't really get a vote in

in that. And so if the S&P stays above there, I'm not going to sit there and be, you know, by golly, I know I'm right on this because I may very well be wrong. But what I'm really looking at, just to go back to what we were talking about before, is so what's if I'm really bullish on this market right now, what's my potential reward?

Okay, well, I don't see a lot of reward because this thing has fallen so hard that I think there's a lot of –

I want my money back sentiment. And so it's going to have a hard time climbing uphill. So easy to anchor, right? I was at this level. I want to be back at that level again. How do I get there in the fastest way possible? Especially if you've taken a 10% drawdown or more in this. And look, you've got to remember that the indexes

way that they came down, you know, it really didn't start getting ugly until this, you know, this Friday. But before that, we were seeing, you know, I mean, Axon, you know, just as an example, that

That was before the Friday, just tanking. And so there was a lot of damage being done before the indexes even showed it. And when we had our prep call, we were talking about how great financials looked. Even old Warren Buffett's stock was looking really strong. And then they kind of come after everything a lot of times. MasterCard, Fiserv, the list goes on of just...

I think at some point it becomes evident that this is not so much a stock-specific market where just the bad stuff is being sold.

But it's more just kind of a risk-off, I don't know what's going to happen market, where then just kind of everything's weak, even stuff that maybe in a stronger market wouldn't be. But one thing I noticed is one of the lists that I keep is I call it for whatever reason, well, I know what reason, is the FITS Fund Tech Select list.

And it's a list where the criteria is a combination of really, really solid – like really, really strong technicals and really sound fundamentals. A lot of it's based on Bill's nine-by-nine – at least that's what I call it – his criteria on market surge.

And so I'll keep this list and I look through it. And about a week or so before the S&P started breaking down, maybe a little bit, maybe a little bit more than that. I'm looking through my list and all of those great looking stocks, they just all started to tank like one after the other. And I'm going like, what is going on here? The S&P looks so solid. And then.

Lo and behold, pretty soon the wheels come off the wagon. So I really I think that the stocks will give you a much better the stocks will give you a much better indication of the health of the market than just really, truly looking at the indexes. But the index is a great place to start.

You know, it's a really good place to start. Well, and to that end, maybe we could take a look at a few stocks. And I just want to I'm looking in the in the YouTube comments and some people were thinking that we skipped the R. We kind of, you know, did a little bit of the R early. That was risk and reward for the R. So just to kind of go over smart acronym stock selection is the S.

Measurable is the M. Actionable is the A. Risk-reward is the R. And then the time or tracking, as you said, element kind of wraps things up. So on the actionable side, one of the stocks that you brought up was something that you have kind of, I guess, maybe on deck is this A10 Networks. Okay. So maybe talk a little bit about that.

you know, how, how this went through your process. Okay. Uh, yeah, that's a good, that's a good one. And I can go, I can apply a little bit of the risk reward, um, uh, to this, to this chart. I think it works. So, um, if I'm looking at, uh, look at the fundamentals on, on a 10 and they're, they're pretty solid. Um, not awesome, but they're pretty solid. They're, um,

I don't have a lot of things to pick it apart. If we were just going to talk about this, I'm sure I would. But the thing that I really like about it is the chart looks really, really solid. Nice bouncing right along the 50-day moving average. And so what we were talking about early as far as from the time-efficient perspective,

part of trading. Like you can see where from the peak at 21.89 back on in the middle of February. So that stock's pulled back

um not a not a big high magnitude um pullback 6.6 percent uh right now i guess a little bit lower when it was at its lows yeah i think it was a little over 10 percent when it was at its lows but so i would say that that um that left side of the cup is

that left side of the base is pretty much formed. And now it's starting to trickle along the 50-day moving average, just kind of starting. But if you look at this right now at 2046, can you envision a chart where from this particular look, the stocks just started to blast off higher? I would look at that and say, okay, well,

Yeah, I've seen charts like that, but for the most part...

The outcome that I see of a chart like this is it's just going to grind around sideways for a while longer. It's going to needs more needs to, quote, do more work to form the exactly to form the bottom of the base and then start to come up that right side. And so I would look at this and say, you know, it's not a real it doesn't pass the time efficient aspect of the approach, because I think that the stock over the next week or more,

The stock can be down at 20. It might be up at 21. But I'm not going to make a lot of money buying the stock at 2046 and selling it at 21. You know, I want to see more of a completed base so that it's a real strong foundation from which to spring.

And, but if we want to go into, if you want to, does that make sense? So I'm looking at this like, yeah, man, this, I think this stock, I think this stock goes higher. And it doesn't need much time to look right. You know, it really doesn't. You know, it could do it in a week or so. Yeah. You know, just to kind of get that symmetry there. Right.

There is an element of symmetry that often happens with these patterns. Right. Yeah. There should be an element of symmetry. Now what we see is the possibility of an element of symmetry. So it's kind of like it's not really quite mature. And if you look at this and compare it, say, to where it was last October, where it was forming that handle, that –

is a great setup. Okay, well, this is not that. What's happening now is a different kind of setup, and I do think this could run really nicely, but it's just not quite there. And one of the things, if you want to go... Yeah, exactly. But, like, if you want to go to the weekly chart, Justin, this is my favorite thing that you guys just put on, and that's that earnings line. Mm-hmm.

Yeah. So the earnings line is this green line. For those of you that aren't looking at the video, it basically just tracks what the trailing four quarters of earnings have looked like. And, you know, you plot that along and it gives you a sense. OK, is the is the trailing four quarters going up, you know, or is it going down? Are the fundamentals improving? And you can also get a sense of.

how stable it is. Uh, is it something that's kind of all over the place? Um, or is it something that, you know, has a more stable earnings line? Right. Yeah. And this is starting to trickle, you know, it's just continuing to drift up. Um, but I don't want to beat the dead horse, but, um,

So I think we're a little immature in actually buying. But if you want to go to the daily chart, though, now let's get back to this risk versus reward thing. Maybe zoom in a little bit so that those that are watching at home can see what I'm talking about. But so if I'm buying the stock right here at 2046, where's my potential reward?

It could go up to 22. That would be the high on February 18th. So this thing could go up to 22. But then, of course, it'd have to climb through all manner of resistance back at like 2085 or so to kind of come through this little consolidation. But this could go up.

Like to 22 bucks. If I'm expecting it to go up higher than that, I'm engaging in magical thinking. And there's no place for that in trading.

So I have a potential, um, seven and a half percent reward. Now where's my, Oh crap, I'm wrong about this level. Okay. That would be, I would have to say what a little bit below the 50 day moving average. Uh, it should, because that's where the stock rebounded yesterday. So just below the 50 day moving average, you want to put it, I don't know, 1945, something like that. Um,

So that's what? That's 5%. So I have a – and you have to assume that prior resistance is going to hold. So I have a maximum potential reward of 7.5%, and I have a loss, a maximum – or I guess you could say – yeah, I'll say it, a maximum risk of 5%.

Well, I don't want to risk 5% in order to make 7.5%. And theoretically, that's the high. What are the chances of me making that? Not anytime soon. So that's where I look at the risk versus the reward. And what I want to see at a bare minimum is two for one. I want to have a potential to make two bucks to risk one, but...

So that's really on the low side. I mean, you should ideally you want to get like three bucks for every dollar that you risk. And if you can be if and because you're not going to be make you're going to lose a lot of dollars. You're going to lose take a lot of lot of losses. Yeah, you're gonna be wrong. That's just yeah. But if you're doing a if you've got a three to one reward versus risk, you're

you can have a really, really low batting average and still do really, really well. And so that's really what I'm talking about is look and see –

objectively, like just be realistic. What's the potential reward that you can look at this trade and say, yeah, I think it can get up to that level. And you need to be logical and you need to be reasonable. Don't be optimistic. Be realistic. So what's that potential reward? Yeah, I think it can get up there. Okay, how much do I risk in order to get in this trade? And that also has to be logical. I know I think...

Doesn't Jim use a 3, a 5, and a 7% stop loss? Yeah, Jim Ruppel. Yeah, which makes a lot of sense to me. He breaks his positions into thirds. And to be honest, and I saw Bill do this too, that's kind of like your minimum. A lot of times if something just doesn't look right, well, why wait for the 7%? Why wait for the max loss?

You can just say, hey, this isn't working. Something changed in my assessment. I identified something that's not right. I'm out. Yeah, yeah, you shouldn't have to – you shouldn't say, well, I set the stop there, so I'll just wait to see. I'll wait until I lose the maximum amount of money. Yeah, exactly. You should be –

I think you should be entering the market, depending on how active you are. I think some people do just fine by just looking at closing prices at the end of the week or something for longer-term stuff. But –

In my mind, you should be showing up every morning and looking at your positions and taking a reasset, making a reassessment saying, am I still right on this? Do I still feel good about this? And if you do, then, you know, stick with it. But if you don't, then maybe you need to take some action, you know, reduce, reduce the position size. Yeah. So, you know what, here's, here's another stock that you were talking a little bit

about being maybe closer to being at bat. So maybe kind of walk through the difference on this one. Yeah. So, yeah, I love this IPO. And this is Waystar Holding, W-A-Y. Waystar, yeah, W-A-Y. Yeah, I wasn't even tracking this stock, and one of my members asked me about it the other day, and I'm going, wow. Yeah.

Where have you been? Yeah, look at that. And again, it's kind of like what correction in the market? Yeah, and isn't it funny? The IPOs, a lot of them do just ignore the market. They're like the petulant kid. Yeah, I'm going to do my own thing. I don't care. Right. Yeah, but so you look at this, and today's move was 4.3%.

So if I'm buying, I have a position in this full disclosure, but it's, I bought it a couple of days ago. It's a little bit lower. I'm up 3% on it or something. But like if you're buying the stock now, you have to look and look and see the volume, like the trading volume, just based on the last 20 days. I don't know what your volume average is. It's about half.

the normal trading volume over the past 20 days. But you can see there's been a lot more activity over the last month or so. Yeah, right around that earnings really spiked. But you had a number of spikes in here. Again, not sure why. Well, yeah, and you know, it's interesting. So the stock went, you know, all up and down and all around on that earnings. And then it corrected back to almost 40%

But it's held. And so this was a case where I think there was so much pent up selling, potential selling, like sell into strength. I forget. I wasn't really tracking the stock, so I don't know. Yeah, I guess the earnings were great.

What, up 164%? Not too shabby. That's not off of necessarily like a penny. That was $0.11 to $0.29. So you've got some real numbers there in the sales. 18% growth off of $200 million, it looks like.

So, yeah, to turn in 44 million. So not bad. I mean, not not bad at all. And there there's everything to like about that. They they beat the surprise by one hundred and ten percent. So this thing really is the same goes surprise to the upside. So what happens? Traders are going like, great, this is my opportunity to sell into strength. I got just what I was looking for. But so now since that time, I mean, the stock's back almost 100%.

to where it was. So this is, to me, this is a real key tell when a stock really kind of blows off a little bit

has a pretty meaningful correction after earnings, but then it stops. Then it just starts finding, starts forming another base. Then I look at this as a stock that there's every reason, if you just look at what the earnings numbers were, there's every reason to think that this stock's just going to continue to run. And you look at the chart, you look at the fundamentals, you

I like this. But then to look at this from a risk reward standpoint,

Where am I going to put my stop on this? I probably got to look at the 50-day moving average, and that's about almost 9% below where this is here. And so then for me to – I look at it and say, okay, well, what was that last high? Maybe 10% higher from where it is now. So now I'm on a one-for-one average.

risk reward from the very high there is what I'm talking about not a closing print and that's not a real good risk reward for me but does that mean that you just say okay well forget it I'm not gonna I can't buy that stock there are reasons not to buy it such as do I think the stocks gonna move tomorrow or is it probably gonna sit here so from a time efficiency standpoint

I probably didn't need to buy this stock because I think it's probably going to sit around for a bit. But from a risk reward standpoint, I can say, well, I don't want to, I don't need the stock. It's like what you were talking about just a bit ago, Justin, um,

I don't need the stock to fall down to the 50-day moving average to tell me I'm wrong. I can have it fall below today's intraday low of $41.73. Okay, well, now I've cut my risk down to below 5% on this. So the point is on this, know your why. Why are you buying this stock right here, right now? And I would not say...

I'm buying this stock now because I think it's going to hold above the 50-day moving average. Okay, well, of course it's going to hold above the 50-day moving average. It's been doing that forever. But rather, I'm buying this stock right now because I think today is kind of a key breakout day, and I want to be in this stock. And the only way that I'll have to reassess is if today –

It turns out not to be a breakout day, and today's intraday low is violated. So then I'd put my stop just a little bit below there. To be clear, though, I don't think today's a breakout day. The volume's too low. I think it needs more time to –

I think it just needs more time to kind of calm down and tighten up a little bit more. But does that kind of explain it more on as far as risk reward? I think so. I think it's great. Again, you went through your process, your checklist. I like that you used the pilots as an example because that was something that Bill loved to do. Pilots have their checklist because you don't have your checklist, and guess what? You missed that one thing, and –

you know, and you're down, you know, so you gotta have your checklist so you can survive in trading. Um, and I appreciate that you walked us through a couple of examples to see exactly how you, uh, get that risk reward. So thank you so much for coming on. And, uh, for folks that want to, you know, follow you on, uh, on X, you're, uh,

Fitzpatrick, and then also to go to stockmarketmentor.com, right? Yeah, you can go to stockmarketmentor.com. Yeah, my X handle is really complicated. It's Dan Fitzpatrick. But yeah, if you go over to stockmarketmentor, if you're not on my email list, it's free. You can get on there and you'll get a chart video every day. But

I'm going to be switching that into distributing an e-book that I'm writing. I'm just about done with it, and it really covers a lot of the things that, well, this and a lot more. And so I don't spam anybody. I'm too busy for that stuff. But if you want to get, like, first crack at that e-book when I'm done with it, it'll only be another week or two. Then go ahead and get over there and

Have at her, baby. Right. Well, thank you so much for being on the show, Dan. Glad to see that your recovery is doing so well. And maybe one of these times when the weather improves, we can get together. Love it, baby. We'll go skiing down the street. All right, man. I'll see you, Justin. Thanks for having me. Thanks for being on. All right.

That's going to wrap up our show today. Thank you so much for joining us, especially those that joined us live on YouTube. Again, we're on every Wednesday, 5 p.m. Eastern time on Wednesdays. And please join us next week. We're going to bring back the hat man, David Chung, our deputy markets editor. Always a great time chatting with him. And he's one of our hosts on IBD Live and has a lot of great information that he's going to share. So we'll kick the tires on that next week.

and go through what's happening in the market. Hope you join us. Thanks for watching. Bye-bye now. This IBD podcast is brought to you by Directions Daily Leveraged and Inverse ETFs. Whether you are a bull or a bear, you choose the direction. Visit direction.com.

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