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Yahoo Finance Premium Webinars: Trading Stocks and Managing Risks in the COVID-19 Era

Plan your investment strategy with insights from financial experts in an interactive webinar series brought to you by Yahoo Finance Premium. Yahoo Finance reporter Jared Blikre and guest Brian Shannon, CMT & AlphaTrends Founder discuss how to better manage assets, assess risk, and invest during the recent stock market volatility caused by the COVID-19 pandemic. Recorded 7/1/2020. Not a subscriber? Start your free trial to join future webinars live!

Video Transcript

JARED BLIKRE: --very first Yahoo Finance Premium webinar, Trading Stocks and Managing Risks in the COVID-19 Era. We're coming off the best quarter in over two decades, and that's after falling into a bear market, the quickest in history. I don't think anybody saw this coming.

The explosion in volatility has presented challenges for retail and institutional investors alike. Even the pros are having a hard time with this, guys, and we're going to talk about how to navigate this very difficult environment.

To help us, we're soon going to be joined by Brian Shannon. He's a chartered market technician and also the founder of alphatrends.net. If you follow me on Twitter, you know his name because I retweet his stuff all the time. And we're going to be doing some Q&A with him that you can join in on.

And we're also going to be demonstrating some of the features of our premium service-- how you can use it to analyze your portfolio, fine tune it, and incorporate trade ideas for individual stocks that our premium service highlights every day.

Now some housekeeping notes. We want to let everyone here know that you can interact with us in real time, and here's how. We're using the BlueJeans secure-video-conferencing platform, which is now part of Verizon, and we're going to be running polls throughout the course of the event. Now, you can see these on the right-hand tab of your screen. And you can also chime in with questions, and you can put these in that very same right-hand tab. You can do them anonymously, or you can choose to use your name.

Also on the bottom-left-hand side of your window you have some viewing options. There's a slider where you can size the presenting screen as well as the video boxes for both me and Brian.

Now, let's get started. Now, let's do something interactive here because I want to know what you guys are about, so how long have you been trading? Is it less than one year? Is it one to three years? Is it 3 to 10 years or more than 10 years?

And as you guys are voting-- and again, that's on the right-hand tab of your screen. I want to bring in Brian Shannon. First, thank you for being here with us.

BRIAN SHANNON: Thank you. Good to be here on your first show. I'm honored.

JARED BLIKRE: You bet. This has been an incredible trading environment, the record volatility that we've been talking about. You've been around for a few these cycles-- the dotcom bust and boom, the real-estate bust and boom, Great Financial Crisis. How does this compare, and how have you adjusted your trading?

BRIAN SHANNON: I think that experience, it means a ton in this environment. I mean, the way that we came down so quickly was, I think, justified, but the way that we rallied back-- to try to get your head around what we read in the headlines versus what price action is saying, I think there's, for a lot of people, a real disconnect. And it shows the importance of being flexible and really listening to the price action, not fighting the market and saying, well, this doesn't make sense, so I'm going to short it. That has been a very costly endeavor for anyone who's tried it here recently as we're, you know, pretty much at all-time highs in the NASDAQ, and S&P 500 not too far behind.

JARED BLIKRE: Yeah, and it's pretty interesting. You know, a lot of the pros, like from Stanley Druckenmiller to Warren Buffett, kind of got the timing on a lot of this stuff dead wrong. And they've come clean, but it just goes to show you you have to have a plan where you can manage your risk. And could you talk about how you've developed one and what works for you and maybe what works for some of the beginning traders.

BRIAN SHANNON: Yeah, great question, and I think it boils down to time frame. You know, so Warren Buffett wasn't able to adjust because his time frame is so long term that the markets moved quicker than he was able to. And even Stanley Druckenmiller, who's, you know, somewhat notorious, I guess-- infamous, whatever you want to call him, for being an aggressive trader. Maybe the handwriting on the wall wasn't there for him either.

There's no shame in that. Every one of us underperforms at some time, whether it be a bad stock idea or, you know, just our general assessment of the market. The key is to not fight the market.

For me personally, my preferred time frame is what I think-- you know, which is why it's my time frame. It's the best one to have which is a swing trader. So, you know, two days to maybe two, three weeks is generally the maximum that I hold a stock, and I leave it up to the market to tell me. So I have a backup plan on each and every trade.

JARED BLIKRE: Yeah. I'm just looking at some of the polling results as they're coming in. So it looks like 42% of the respondents have less than one year. 16%, one to three years. 17%, 3 to 10 years, and then 25% more than 10 years. So it sounds like we've got some advanced traders in here and some people in the middle but a lot of people who have just been in this game a very short period of time, less than one year.

Not surprising because a lot of people just started trading because sports gambling went away, and there is that interesting parallel there. But the two styles are very different. So what do you tell people who are just getting into the game now to prepare them for not only a volatile market now but what could evolve into something hopefully much calmer in the future?

BRIAN SHANNON: Well, I think that, you know, it actually surprises me that 41% are, you know, less than a year. We hear about the Robinhood and all that, but, you know, the good news is that those people are looking-- you know, reaching out, looking for education, looking for news. So I applaud them for that, number one, for being on this call, and hopefully we can provide some value for them to learn.

I'm going to go back to the point I made on the previous comment, which was, you know, know your time frame. You can't compare yourself to Warren Buffett if you're sitting there trying to day trade the stock of the day.

Also, if you're trying to day trade the stock of the day, keep in mind who you're up against. You're up against some of the sharpest minds on the planet, the best trade-- you know, programmed computers that are out there. And even, you know, Jim Simons of Renaissance, you know, their fund is down, and they are the ultimate short-term quant fund.

So, you know, cut your losses. Risk management truly is job number one. If you look back at the decline we saw in the first quarter of this year and you can't stomach something like that again, imagine yourself being in that position. What would you do differently now? How can you learn from that waterfall decline? I'm not saying we're going to have one again, but always be prepared for it and, you know, recognize what your preferred time frame is.

JARED BLIKRE: Well, we're looking at a chart of the SPDR S&P 500 ETF, the SPY, my favorite. It's in my Twitter handle. And let's just take a look and kind of break down what's happening right now.

BRIAN SHANNON: Well, obviously, you know, from the March 23 low we had an immediate rally, and then we showed a higher high with that higher low. So at that point, really at the beginning of April, about the 2nd-- you know, about the-- let's say about the 8th of April we had that higher higher with a higher low.

And now we're back above the 50-day moving average, which is rising. We're above the 200-day moving average. That's that longer, flatter one. And we just today are back above the volume-weighted average price anchored from the high of June. That's important because it tells us-- you know, the volume-weighted average price, it tells the average price from that peak has been declining. But now since that event, since that peak, the average long participant is now making money whereas the average short is losing money.

So a lot of people are, you know, looking to bet this stock is going to-- this market, rather, is going back down, but the evidence simply doesn't support it. The average price from the highest point this year-- or, I'm sorry, since the recovery is now in a winning position again. So the buyers are in control. To fight it is a foolish event.

I think that that 300-ish level-- let's say 295 to 300. If we get and hold below that, then we might have an issue. But for now, you know, the worst you can say is neutral. But, you know, longer term, I mean, we're still in an uptrend. So I just would suggest not to fight that.

JARED BLIKRE: All right, we're going to do a little bit of Q&A here. This comes from Alex Wallace, one of our senior leaders at Yahoo Finance and at Verizon Media. She's asking why the disconnect between the COVID news and the market in the last two weeks? We've seen all these headlines that have been so negative. They've gotten slightly more positive, and we did see the market sell off on some of them, but really just shrugging off a ton of bad news right now, Brian.

BRIAN SHANNON: It's a great question. I don't think there's anyone who can really answer it and have a great answer that makes complete sense. For me, it's about, you know, again, only price pays. So I look at the market and say, you know, the market is a discounting mechanism. It discounts what's already happened, and it anticipates where we're going to be with the economy 6 to 12 months down the road. So maybe the market is looking at some kind of recovery down the road.

A really fun little phrase that I heard-- I don't remember where I heard it first, but it is that if you trade off the headlines, you'll soon be delivering the news yourself, meaning, you know, newspaper route. You'll be broke delivering the newspapers because there's a lot of disconnect between the headline and price action. So, you know, look at price action, and if it doesn't make sense, at least just stand to the sidelines. Don't try to fight it. You'll get run over, and it'll be a very expensive lesson.

JARED BLIKRE: Yeah. I think a lot of portfolio managers who use strictly fundamentals could greatly improve their results simply by looking-- or learning technical analysis because in the current environment, nobody knows the fundamentals. Companies have withdrawn their guidance, and that's going to come back. But looking forward, all we have is the prices in the market that are in front of us right now.

And there is that huge disconnect, and we talk about this a lot at Yahoo Finance, that markets are forward looking. But I'd add to your great response that we have $8 trillion in fiscal stimulus globally, $10 trillion in central-bank stimulus. The old adage, don't fight the Fed. There is a lot of money being thrown at this problem, and it's possible that the markets will roll over.

And I don't see us going to test the lows, but I think it's going to be a very difficult and frustrating market to navigate for a lot of people. We're going to see a lot of chop, and we're in the summertime where there's low liquidity and low participation. This could be-- this could be dragged on over the next few months.

And then I think when we finally do return to normal and markets are somewhat more rational, people are still going to be skittish the same way they were in 2009 and 2010. They're not going to believe the bull market is here, just the same way a lot of people don't believe the current market is a bull market, and history will decide that.

But I want to move on to another question now, and this comes from one of our viewers. Do you hedge your positions in this market? As you said earlier, current market action is not logical. So if you're long the S&P 500, do you hedge against that? And finally, can you give me some color on Tesla's stock? It's more valuable than Toyota Motors, and that is a true statement.

So let's take the beginning of this. Do you hedge your portfolio if you're sitting on some-- let's say you're a long-term investor. It's summertime. You don't know what's going on. Do you hedge? How do you do it?

BRIAN SHANNON: Great question. You know, and honestly, Jared, it's not my area of expertise. My area of expertise is my hedge is my ability to get in and out quickly as a swing trader. So I feel like I would be leading someone astray if I-- I mean, I could recite a stuff a bunch of stuff I've read but I don't practice myself.

So my feeling is, you know, again, if you can't look at the market and see what happened in February and March and if you're comfortable holding through something like that again, don't hedge. But if you're nervous about it, figure out a way to hedge that makes sense for you personally.

JARED BLIKRE: Yeah, very good advice, and it's difficult to do. Some people-- the pros tend to hedge in the futures. You have to have futures accounts to do that. You could buy an inverse ETF to SPY. That comes with its own difficulties. You could buy options. So you really have to-- this could be an entirely new seminar, but I'm going to move on.

BRIAN SHANNON: There's [INAUDIBLE] options, too. I mean, there's tons of strategies out there. But I'm a strict pretty much directional bet. I prefer the upside trade. I find short selling is a lot more difficult, even in a bearish environment. So, you know, just know your time frame and seek out that qualified response from someone who can really shed more light upon it than me.

JARED BLIKRE: All right, Brian, thank you. We're going to bring you back in a little bit.

I want to move on now so that we can demonstrate our premium product, and I'm sharing my screen. There we go. Give me one second. And boom. You guys should be able to see this.

All right, so this is the dashboard. This is what you're going to see when you log into Yahoo Finance and you're a premium member. And my watch list is a portfolio that I just put together without too much thought last July, and it turns out that it's doing better than the S&P 500, which is the benchmark here. We could see the portfolio's up 15% versus down 4% for the S&P 500.

And you can get some different, I would say, metrics on your portfolio in terms of valuation, diversification, risk level. We'll take a look at that in a second. And just kind of-- I'm going to scroll down the page and go kind of quickly because I want to save time to get into and analyze some of the individual investment ideas in this seminar because that's my favorite part.

But here we have some of those investment ideas. You'll see those here. We have research reports on various stocks. We have an estimation of fair value using the Peter Lynch valuation method of stocks that we have in the portfolio and that I follow. That could be overvalued, fair, undervalued.

And then scrolling down a little bit more, we have company outlook based on some leading indicators. And these are dividends, innovation, hiring sustainability, insider sentiment, earnings. And these are different for each stock that we look at.

And then we have technical events. These are particularly useful if you're trying to get into a stock, out of the stock, and especially through the short- and medium-term traders. And we're going to be taking a longer look at those in just a little bit.

I want to now take a look at the diversification feature here because this is pretty interesting. It's going to show you how diversified your portfolio. So here is my portfolio, and here is the fair-value estimates that we were talking about before. And we can look at this in a heat map, and then we can group, for instance, by sector.

First I want to point out that I have huge positions-- theoretical positions-- in Alphabet, Apple, Amazon, so very much weighted to tech and the growth stocks. But if we float by sector here, we can see a lot of communication services. That's going to be Alphabet. Facebook might be in there. Consumer cyclical, that's probably the Amazon position.

And then just scrolling up again, this will show you your risk profile, and this is based on the notion of alpha and beta. Beta is how much your stock moves relative to a benchmark. So let's say the S&P 500 goes up 1% and Apple goes up 2%. It will have a higher beta than a stock that's not moving as much as the underlying index or benchmark.

We also have a measure of volatility, so you can track that in real time. And you can see the valuation of this portfolio-- or the volatility really shrunk into the turn of the year but then accelerated with all the COVID headlines, and it peaked right at the end of March, which was actually the bottom or just around the bottom in the stock market.

All right, so we're going to move on for a little bit here, and let's take another poll. And this one is going to be how do you select markets or stocks to trade? Is it based on technicals, fundamentals, advisory service? It could be paid, could be free-- and then social media. So that might be Twitter, might be some Reddit room. And you can select more than one of these, and we're going to come back to that in just a little bit.

So let's take some audience questions. And I'm just going to look at a couple of these, so give me a second, and then we'll bring Brian back in.

All right, here's one about Warren Buffett. I've seen Buffett recommend index funds, and you mentioned the SPY and S&P 500. Are there any other index funds that we should consider?

I'll just throw out there are lots of index funds. You want something with a lot of liquidity, a lot of volumes that you can get in and out if you want to. But there are ones by Vanguard that track the S&P 500 just about exactly the way SPY does, so I'm not tethered to SPY. It just happens to be one of the first here.

And then here's another question. Can you give us some idea about swing trading? And I'll bring in Brian for this. What parameters do you commonly use for various technical indicators?

And, Brian, I know you were analyzing XLF and some other stocks, so we'll go through that as well, but I just want to get your firsthand reaction. What are the parameters that you're looking for in swing trading, Brian?

BRIAN SHANNON: Well, I think with swing trading, you want to be, you know, mainly technically driven. There's nothing wrong with knowing the fundamentals of a company, and sometimes it'll give you a little bit of confidence maybe to, you know, size up or something like that.

For me, I think that what you want to do [INAUDIBLE] using multiple time frames. And, you know, so, for instance, I'll look at a longer-term time frame to, one, identify a bigger-picture trend. So I'm looking at a bigger-picture uptrend, and then I want to see maybe a pullback in that.

And what I'll do with that point is look to maybe a 30-minute time frame, meaning each candle's constructed using 30 minutes of data. I'll typically go back about 20, 30 days on that, and that helps me decide my risk/reward. Where does it make sense to get involved in the stock once it makes a short-term higher high? And then if I'm wrong, where do I then put my stop to make sure if my-- you know, if the market doesn't agree with my assessment that any loss I have will be a small one?

Third, I look at a shorter-term time frame. Let's say 5- or 10-minute candles, and that will go back 5 to 10 days, basically. And that allows me to just kind of fine tune my entry. You know, I'm a full-time trader, so I'm sitting at my screens, and I have the ability to make quick decisions. But that's the way I do it is multiple time frames. Start with the bigger picture to identify the time frame. Second one to determine your risk/reward in the shortest time frame to fine tune the entry.

JARED BLIKRE: Got you. So let's look at a real-world example. I'm going to share my screen again, and we'll start with XLF. That's the S&P 500 financial sector ETF. And let's go back a little bit more. So we're going back basically a little bit less than a year. We got some moving averages on here. We got another anchored VWAP, and we'll get into an explanation of that in a second. So what are we looking at, and what are you looking at?

BRIAN SHANNON: Well, you know, the waterfall decline in March has not nearly come up as much as the rest of the markets. You know, we've got the semiconductors almost at all-time highs, the biotechs. But the financials, you know, we ran right up to that 200-day moving average. and that's why we have a 200-day moving average on our chart so we can see levels like that. It found supply there and dropped right down to the 50-day moving average, Jared. I mean, it's just textbook moving averages in here.

So right now we're sitting on that purple 50-day moving average, and then the blue line below that is the volume-weighted average price from the March 23 low. So what that signifies is the average price since the low is basically right here if you're about break even, if you've been dollar-cost averaging in since that low. That puts it in a really precarious position.

Now, I think we're likely to continue to stabilize in here and maybe drift higher, but if this market breaks down below 22 and 1/2 and stays below it, financials might be in bigger trouble than we realize. Clearly, you know, looking forward, as the market does, it's saying the banks might have more problems than technology or, you know, a stronger type of group.

JARED BLIKRE: Yeah, and that brings up an interesting point that-- I don't want to spend too much time on this, but it's important, so relative strength. You talked about financials being weaker than the broader market, which would be the S&P 500. Do you ever make trades in markets that have low relative strength that are not outperforming, or do you look for those that are outperforming like tech in this environment?

BRIAN SHANNON: Sure. I mean, so it's kind of a tricky question in that it depends on the timing, though we had a period there in mid-May till the end-- you know, to the beginning of June where the financials were really ripping higher. And during it-- you know, for a swing trader's perspective, during that time if I can catch a piece of that move, then I'm interested in them.

I'm not one of these guys who looks at, you know, a relative chart. You know, divide the XLF by the SPY to see which one's outperforming. I look at things on an absolute basis. If I can determine a low-risk, high-probability trade in a long direction, it might be that a group is, you know, starting to play catch up, and I'll go based on the action of the individual name rather than some kind of, you know, perceived relationship that may or may not always exist.

JARED BLIKRE: Got you. Well, I want to move on to another stock that is on your hit list, and this is Chegg. This is an education play. It's a COVID play. A lot of people migrating to online learning, distance learning now. What are you seeing in this stock?

BRIAN SHANNON: Well, here's a stock that--

[INTERPOSING VOICES]

JARED BLIKRE: --little bit.

BRIAN SHANNON: Yeah. I mean, we're up near all-time highs. It's starting to consolidate a little bit. So, you know, it's a perfect pattern of higher highs and higher lows, Jared.

And what I look for is, you know, four or five days ago we had pulled back and then started to consolidate sideways for a day or two, and now we're breaking higher once again.

So after a period of consolidation, I'm looking to buy. A lot of people say, you know, buy the dip. I don't like to buy on the dip as it's pulling back because it exposes me to risk that I don't know if the dip is going to keep dipping. You know, so I want to wait until after it begins to stabilize and then moves higher again.

So I happen to be long a little bit at this, about $67.80. Here we are and I'm up $0.45, but it's a start. If I'm wrong, my stop right now is at-- it's under today's low, so about $66 per share.

JARED BLIKRE: All right, stick right there. I just want to go over these poll results, and this is how do you select markets or stocks to trade? Now, 29% of you guys out there said technicals. 43% said fundamentals. 18%, advisory service, and 10%, social media.

Brian, what's your reaction on this specifically in terms of selecting trades? Even if you use an advisory service, you've got to own your trade, and you have to be able to manage it. So how does that fit into your trading plan regardless of the method that you use to select these trades?

BRIAN SHANNON: Well, I think that that's, you know, probably about as expected. It's good to see that the lowest number is social media. There's nothing wrong with finding an idea there, but then go do the fundamental research. Then go do the technical research yourself. Never just, you know, look at a symbol that somebody put on there, and just because they're real enthusiastic doesn't mean that it's going to be a big trade. So I'm happy with those results.

Personally, again, from my time frame, I'm 95% technical, and then I'll look at some charts. The MarketSmith charts, for instance, do a great job of putting all that fundamental information, and Yahoo, of course, has tons of it that I haven't even explored on the premium yet.

So I think that, you know, know what you own. That's the Peter Lynch-type thing. So that doesn't surprise me. But make sure that, you know, you can blend fundamentals and technicals together. I think you're going to, you know, find that your results get a lot better than they may have been in the past.

JARED BLIKRE: Yeah, well, stick around. We're going to now take a look at some of the investment ideas that we generate through Yahoo Finance Premium in both the technical and fundamental arena.

So I'm going to share my screen again, and you will be on my landing page. Here's a dashboard once again. We're going to click on Investment Ideas, and this will lead us to some recent options.

So this for Micron and Shopify, these are going to be fundamental-based ideas based on the research of Argus Research. So if I click on this, it's going to say the outlook is bullish for Micron, has a long-term target of $65. You look at the current price, $49.88. So you have a 26% upside.

And then you have some notes. I'm not going to go through all of this, but based on the last earnings report-- Micron just reported a couple days ago. And I'll just add we're in between earnings seasons right now, so you're not going to get as many fundamental ideas. But as soon as the big banks kick off in a few weeks, you're going to get a ton of these. And in the meantime, we also have tons of technical ideas.

But you can go through these reports. And so the long-term target is $25. And I'll just pull this up in a chart by clicking View in Chart, and this brings us to our familiar interface here. And so our long-term target, $65. This is going to be above these highs here. And then you can blend the two styles of fundamental and technical analysis together to get in the trade.

Now all of these fundamental ideas, these are long-term trades that you might hold for a year or two, but it doesn't mean that you can't use these ideas in other ways. So if you're expecting this to go to $60, $65, you can take a look at some of the recent price action here. We've got two moving averages. We've got the 50 and the 200. This quicker one here is the 50. It looks like it's about to cross over the 200 if price cooperates in a little bit of time. That would be a golden cross. That's another technical event here. And you can see how these two styles blend.

So if I'm looking at it from a risk-management perspective and I want to put in a stop, I'm probably going to put it in somewhere around $46. That's underneath these recent prices, and I also have the protection of these two moving averages. And then I can calculate my reward-to-risk ratio, and we'll talk to Bryan about that in a little bit and why that's important.

But we want to have enough juice in the trade. We want to have enough space to the upside since this is a long trade that if we got stopped out to the downside, we're here to trade another day because if you keep your reward-to-risk ratio higher rather than lower, you're going to have a lot more attempts because not all of these investments or trading ideas always work out, as we know as traders. You don't even have to bet 50. You can bet 30, as they do in baseball, and that is good enough if you're consistent.

So let's take a look at our main screen again, and now we'll go through a technical idea. And for that, we're going to look at Viacom. And this happens to be a head-and-shoulders top formation. And they have a target of $17.89, roughly $18. It actually gives a range, $17.25 to $18.50. So that's a downside-- a potential profit of 29%.

So if we go to Viacom here, you can pull up the actual pattern by clicking on this Midterm Bullish and this little-- let me just reset this, in fact, and I'll show you exactly how this is made, if I can.

All right, so we have these technical events in a list here. We have this bearish head-and-shoulders top. When we click it, here's a pattern. Here's the left shoulder. Here's the head. Here's the right shoulder, and here is the neckline, and it's at a bit of an angle. A lot of times these patterns aren't picture perfect. That's just the nature of the game. We trade them anyway if they're good enough and the setup is good enough.

And we can see that we're actually rallying back into the formation here. That's pretty common when you have one of these formations. But you don't want it to go too far.

So in this instance, as a potential stop area I think $30-- above $30, which is above this right shoulder, that would be pretty safe, but I may not want to even go that high. I might put something in the $27-- actually, the $28 area right here.

And just based on our target, again, that's about $18 to the downside. That's going to be in here. That looks fairly reasonable. But if part of my trading style is I take partial profits, I would be looking at this resistance, and you can see it's kind of clustering in here at $20. So as it gets to $20, I might take a little off and then let the rest ride and see if we can get to $18, $18 and change.

And, Brian, I'll just bring you back in here for a second. How are you looking at some of these trades? Anything you want to comment on on what you've seen here?

BRIAN SHANNON: Yeah, going back to Micron, I like that one a lot, Jared. As you said, it's got the 50-day moving average, the 200-day moving average just below it. And near your stop that you mentioned of $46-ish, that's also the volume-weighted average price from that March low. So I think that that's a level that's likely to be defended if it does pull back into that area.

JARED BLIKRE: Very nice. I'll just put it in that volume-weighted average price right now as we're doing this.

By the way, this is a free feature of Yahoo Finance on our platform. You don't need to have Premium to do this. We're going to go to the anchor date, which is March 18. I just looked that up here. And bam. And you can see, yeah, that's been really nicely capturing the lows. A little bit of penetration here, a little bit of porosity, but for the most part, it's been respecting this line. So interesting comment there.

All right, so let's see what time it is. I think we're going to do another poll. Yeah. So let's do this. The poll is, what's the number-one mistake traders make? Is it, A, having no trading plan; B, taking on too much risk; or three, impulsive trading?

And in the meantime, we're going to answer a few questions now from the audience, and I'm going to bring Brian back in here. First question is what is your strategy? When do you exit sell stocks? And any expected profit margin on them?

And then, Brian, I think this relates to what I was just talking about before, the reward-to-risk factor. So, again, what's your exit strategy? When do you exit sell? And what's your expected profit margin when you trade, Brian?

BRIAN SHANNON: Great question. So generally you want to look for-- the common accepted reward to risk is 3 to 1. In other words, if you buy a stock at $20 and you think you're going to risk $1, you'd like to see upside projection of $23 or so. Now that's all subjective to how you look at the chart, of course. It's garbage in, garbage out. But what we want to do is at least have an idea of what the market can do, whether it agrees-- the market agrees with us or not.

So for my exit strategy, the first thing I consider is where am I wrong? So if I see a stock breaks a higher high on a short-term time frame, I want to look at it and say what's the most recent relevant higher low? Because if it breaks back below that, then my definition of trend no longer exists. So that's where my initial protective stop would go.

If I buy the stock, let's say, again at $20 per share and that day I get it to run to $20.70 or something like that, I'll often take a third off. The reason I take that third off is because a lot of times, you know, stocks fail, and I have at least locked in a little bit of gain. So that allows me to deal from the stock in a position of strength on that 2/3 balance.

At that point, I'll typically raise my stop up right around to that $20 level. So even if I get stopped out of 2/3 of it at break even, I've taken $0.70 on 1/3 of it, and the overall position is profitable.

After that, I might look at the stock and say, OK, I'll take a third off at that $23 level. But then after that, you know, I'll look at and say what is the market capable of? None of us knows that, so I want to be able to hold my winners as best I can. So for the time frame that I'm engaged on, I'll trail my stop up underneath the higher highs-- underneath the higher lows, rather. As long as it continues to make higher lows on that time frame, then I'll hopefully be able to continue to hold it. You never get out at the top when you have a strategy like that, but it does allow you to maximize the time of the trend, at least.

JARED BLIKRE: All right, let's look at a real-world example here with Tesla. I promised I would get to this earlier in the program. It's at another record high today, and just based on what you were saying, the price action here, you know, I'm looking at some consolidation from $900 to $1,000. So where would you put your stops in here given whatever targets you may have, and what might those be?

BRIAN SHANNON: Well, so we're at all-time highs, and there's-- you know, there's not going to be a natural source of supply. There's no one out there looking to break even any longer in Tesla. So I think you have to look at, again, what's your time frame?

So if you're a longer-term investor, maybe you're going to put your stop underneath that 50-day moving average, and maybe not just below that but, you know, the most recent low next to it. So that might take you to the low from June 4th-ish, which is at about $858. So maybe you'd have your stop at $855.

If you want it a little bit tighter, I think that the low from last week is probably the place that I would put it, which would be-- you know, so that low last week was $937.15. I think you put it about $937. And, you know, that way you're not giving up so much gain.

The other thing to realize is, you know, as I mentioned on my exits, I like to do it in pieces. That way I can, you know, satisfy that urge to take some profit and remind myself how smart I am, Jared.

But the other point is that you still have some on the table, and you let the market tell you when to get out because none of us would have predicted-- maybe some of us, not me, that certainly the stock is up 18% this week. And that it be, you know, just 10 years since they came public yesterday that it would have this 5,400% whatever it is rally. So you have to-- again, time frames and definition of trend I think are the way you would want to handle this.

JARED BLIKRE: Yeah. Just looking at a max chart here, just an incredible run, especially over the last year or so for Tesla.

And I just want to add to that. I really appreciate your sharing your trading method. And anybody listening out there, especially beginners, there are so many different styles. You have to find your own. You have to have your own rules, your own plan. Ideally it's written and you have a trading journal. You review all this stuff, and we'll get into that in a second. But it's not cut and dry for everybody. People have different temperaments, so everybody's going to be a little bit different.

So just a couple more questions here, and I think I'm going to just take this one first. What pointers would you look at when investing in an IPO stock? First thing I would say is there is no rush because most of these guys, most of these new issues undercut their trading-- their first-trading-day lows within the first year. I don't have the exact statistics, but it's really, really high.

And I've talked to various IPO experts on trading from Investor's Business Daily, and one person in particular said you need to wait a minimum of three months, which seems to me to be a pretty good guideline. I don't trade these myself in as much as I don't trade individual stocks, just ETFs and futures. But what are your thoughts on this, Brian, in terms of IPOs?

BRIAN SHANNON: Yeah, IPOs are tricky. When they first come out, you know, it's incredibly difficult. I don't get involved, generally. If I do get involved, Jared, it's for-- it's a very short-term strategy to start out, and it really uses the anchored volume-weighted average price. So from-- you know, on the first day if the stock starts dropping below its volume-weighted average price, I don't want anything to do with it because it's telling me that the sellers are in control of the stock.

If you look at a couple of the recent IPOs, you know, you'll see-- and put a volume-weighted average price from the IPO date, you'll see that it tends to really attract buyers. So pullbacks towards that volume-weighted average price are often a good place.

And there you have Zoom. You can see how critical that red volume-weighted average price was where it dropped below it in September, and then the buyers regained control in February, and it's been up and away since then.

JARED BLIKRE: Yeah, if you bought in February, you'd be pretty happy right now.

BRIAN SHANNON: Yeah.

JARED BLIKRE: Here's another question. I'll take this one off the top. How much of the-- how much of the market rally is Fed driven? And I'm just going to say substantially.

I've followed the Fed for a long time here, and I watched in 2009 with disbelief that what was happening-- unfolding in the markets then. The Fed really-- the Fed really launched bazooka QE1 in March of that year, and we had an incredible rally off of that.

Coincidentally, we have the lows in March off this year after the Fed doubled down, tripled down, quadrupled down on its QE measures and above and beyond that. So there are a lot of not only the parallels between the macro situation between these times and 2009 but also in the chart. The charts from 2009 are eerily similar.

So I'd use that as kind of a guide post, and that's why I wouldn't be surprised to see the market rally substantially at different parts in this year. Not to say that it's going to be identical and that it's not going to be fraught with difficulties, but overall, there are a lot of parallels here that I think we need to listen to and be open to.

As many reasons as there are to be bearish fundamentally right now, I think we really need to keep an open mind. And with the $10 trillion in central-bank stimulus, $8 trillion in monetary-- excuse me, fiscal stimulus, there's a lot of being thrown at the wall right now, and that helps explain a bit of the disconnect between the real world and the economy and then the stock market, which has just basically been doing gangbusters.

So let's review the results of our last poll, and this was what is the number-one trading-- mistake traders make? No trading plan, that's about a third of you. Taking on too much risk, 15%. And then impulsive trading, 51%.

And I think we've all done a little bit of impulsive trading. It can manifest itself in different forms. What do you-- what are your thoughts on any of these, not just impulse trading but too much risk, no trading plan? What are your thoughts, Brian?

BRIAN SHANNON: Impulsive trading. I mean, realistically that's why I was happy to see that only 10% of the poll of attendees today said that they find ideas from social media because people can really get manipulative and try to get you excited about buying a stock.

So, you know, always ask yourself, I say, two questions. Where does the stock come from, and where does it have the potential to go?

One of the biggest mistakes I see personally, Jared, when people ask me, you know, to look at a stock is they'll want me to look at a stock, and I'd look at it, and it's up 20%, 30% in the previous two days. Those are not normal types of moves, and that's chasing. That's FOMO, right? And FOMO is what drives a lot of these poll, you know, answers that you have here.

So have a plan. Stick to your plan, and have that backup plan. And just, you know, kind of put the blinders on. If you have a plan, you'll miss some trades, but in the long run it's going to work out best for you.

JARED BLIKRE: Yeah. [COUGHS] Excuse me. Also kind of highlights the importance of filtering out the noise. I love Twitter as a news service, and I get a lot of ideas off of it, but you've always got to shape them and put them within your own framework because if you take somebody else's trade, you don't know all the parameters. A lot of times you're not going to get any kind of risk management.

And I just want to kind of riff off that with the way the Robinhooders have come to the market now. And personally, I think it's a great thing that we have new people coming into the market, especially during a difficult time. It's seemed, you know, a lot of the most popular trades on Robinhood have been some of the best performers. It's unlikely to last.

So what happens when the market regime changes, as it tends to do maybe every six months to two years? What then, Brian?

BRIAN SHANNON: You know, new participants are always a great thing for the market. And I see this debate that I don't understand about, you know, it's going to end badly and, oh, they're taking all this risk they don't need to take. That's how you learn. That's how I learned. I couldn't imagine being in high school and having a cell phone and being able to buy $50 worth of a stock or whatever it is that you're able to start at today. It's an amazing resource, amazing tool.

And people have to let other people make their own decisions in the market. Take the risks. The market is about taking a risk, but get yourself educated. And, you know, whenever I see an idea is I like to say, you know, make the trade your own. It's OK to see an idea on the Robinhood top-hundred board or on social media and say, hey, that looks interesting to me. I'm not going to jump in and be impulsive, though. I'm going to make the trade my own by doing a little bit of research and figuring out where my stop is if it goes wrong because some of these stocks that run up, you know, 500% in a couple of days, they come down even faster.

JARED BLIKRE: Yeah, we definitely saw that with Hertz. So we're going to take two more questions before we wrap up here. First is-- and I'll take this off the top and get your thoughts, Brian. This is from Ram from Atlanta. What is your opinion regarding three-times-leveraged ETFs?

And I'm going to tell you, you've got to be careful with these guys. Anytime you're getting into an ETF, especially a leveraged one, you have to know what you're trading. You have to know how it's structured because some of them, like the USO oil trust, that's structured as a commodity pool, so you have tax consequences that may surprise you.

But in terms of the triple-leveraged ETFs, it's possible for whatever it's representing. Let's say it's the price of crude oil. It's possible that the price of crude oil rises over time and that you lose money on your investment because it's recalibrated to three times whatever the daily movement is that day. And I don't have to get into all the particulars here, but just you have to know what you're trading. Brian, your thoughts?

BRIAN SHANNON: Agreed 100%. I mean, I think a lot of people don't understand what it is that they're getting involved in. I saw today that, you know, TVIX, double-long volatility index, is going to be delisted, yet they're still trading it, and it's just going to poof, you know, go away.

So I think there's a lot of risks that people are taking that they don't understand. Know what you're trading, and realize also that you can't chart these things the way you do traditionally, not over the long term at least because they have that declining asset value, and they do lose value. If you look at any longer-term chart of these triple leveraged, you know, even the long S&P ones, they don't end up going up at that triple rate due to that daily compounding that isn't present there.

JARED BLIKRE: Yeah. The people I know-- professional traders I've known who have done well with those, they tend to be over very short swing time-- swing-trader time frames.

Moving on here, so the last question. It seems so many of the major stocks trading these days are amazingly overpriced like Amazon, Wayfair, Tesla. Do you see these stocks holding their value and not crashing down anytime soon?

I'm going to answer. I'm going to take this first. And, you know, fair value is an interesting concept, but prices can deviate from it for long, long periods of time. And it's kind of like the adage the markets can remain irrational longer than you or I can remain solvent. So you can look at that as it trends over time, but as for shorter-term time frames, it's not going to be as relevant, fair value, because it's not going to affect the stock price over the coming days or the coming week. So it depends on your time frame. Last [INAUDIBLE], Brian.

BRIAN SHANNON: I've got to, you know, agree with what you said, Jared. I mean, who are we to say that it's overvalued or undervalued when there's a bid right there you can sell it to at $1,100 for Tesla? Perception is reality in the market, and if there's enough people buying it, then that's fine.

But our job isn't to predict what's going to happen next but it's to anticipate the potential scenarios. If you're holding Tesla and you're concerned it's about to come crashing down, do what we spoke about 10 minutes ago. Understand where your stop is going to be. You're not going to sell it at the high. Only liars sell it at the high.

Instead, understand where am I comfortable getting out? because the trend might be breaking, and lock in your profits and don't have to worry about it after that.

JARED BLIKRE: Yeah, only liars sell at the high. There might be a few of those on Twitter.

Brian, thank you for joining us, and thank you all of our viewers so much for joining us for our first inaugural webinar on Yahoo Finance Premium. I'm Jared Blikre along with Brian Shannon, who you just met. We will be offering these regularly, and we look forward to having you join us again soon. So send us your questions, and let us know what topics you'd like us to discuss in the next webinar.

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