AAR13 - Discipline: The Investing Key with Brian Montes

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1:59Welcome back, everyone, to At Any Rate. My name is Evan Wright. And as always, we're here to help you make sustainable financial changes without breaking a sweat. And today we actually have a special guest, new face to the podcast. We've got somebody who works to, I would say, cut through the noise in the world often, with so much hype built in the world, especially in the finance world. And today we have with us Brian Montez. He's a swing trader, educator, and most of all, host of the podcast, Learn to Swing Trade, The Stock Market. He's built a following, to my understanding at least, by focusing on discipline, structure, and the practical tools, not just promises of overnight riches, which is by far my least favorite thing to see in the finance space.

2:34How are you doing today, Brian? Great, Evan. How are you doing? I am doing absolutely fabulously. As I mentioned to Brian, hopefully my audio isn't echoey or anything like that. We're in the process of moving, so it's kind of empty in here, but it seems to at least sound good on my end. Now, there's something that I love to ask everybody who comes on the podcast, biggest question to me is when was your financial awakening? My financial awakening, that's a great question, by the way. And I think everybody has a financial awakening, at least I hope they do. But my personal financial awakening was back when I was working for a Fortune 500 company.

3:09So I was in sales, I worked for a good company, I was making a good living, I wasn't making a great living. You know, things were had a nice steady paycheck, company car, company credit card. So you're making a good living and you're getting by, right? But then you start to take a step back and look at what does this look like in 20, 30 years? And yes, I anticipated my career would continue to grow, but I also realized if I didn't take a more direct approach to my financial freedom and the management of my creation of additional income and wealth management, that it wasn't going to happen, right?

3:45The path didn't look all that great 30 years from now if I stayed on the same track with the same employer and just got those three and a half, 4 % raises each year and the occasional promotion. That was the awakening. Yeah, that's really good to hear. It's pretty similar to mine, I would say, where I graduated college. I was in an industry, again, good job, good pay, all this sort of stuff. But if I look 30 years from now, it's not exactly where you want to be. So I guess that leads me into another question of mine, which is what are your whys for wanting to invest, wanting to grow your wealth, find side income, that sort of stuff.

4:20And would you say that feeds into that 30 years from now, I want to be in a drastically different situation than I would be if I just kept along and took 2%, 3 % raise a year or whatever? Yeah. And I think for me personally, it was driven by a couple of factors. One is a company I worked for publicly traded, but the stock that we had access to, and we were able to buy the discount, which was nice. But 10 years into my career there, and I'm looking at the stock, and it was the same price as the first day I started the company. There was no moving on the stock at all. So I'm like, okay, I guess I can keep compounding and buying more stock.

4:54That'll help the 401k. But as I started looking at my retirement plan, it wasn't growing as fast as I wanted it to. So I started taking a look at what other ways existed out there for me to be able to increase my compounds realistically, of course, but start to increase what I had versus what the 401k was doing. And at that point, I realized in order for that to happen, I needed to take more control and start learning more about the finance world itself. How do you invest in stocks? What other vehicles are there to leverage your portfolio and get it to start compounding at a little bit better rate than what you're currently getting if you just let it sit or if you just let it sit with the 401k broker slash manager?

5:34So that was really where I started taking a look at what are my educational resources out there to start educating myself? Because my background was operations, sales, all the business side of things, but it wasn't a finance background per se. And the nice thing is you don't need a finance background to learn how to start managing your own money in the stock market, but you do need to start learning how the mechanics of it work. How much would you say that you use that business background to help you understand stock market, make disciplined, well-evaluated decisions in the market? How much do you think that feeds into it, or do you feel that it's been unrelated now that you're on this side of it?

6:12If you are looking at, right, there's different levels of investing in trading, right? So my focus with Learn to Swing Trade, the stock market podcast is on swing trading, which is short-term positions, right? You're holding a position for either one trading session overnight, or you're holding up to maybe 90 days before that next round of earnings comes out. So that particular system and approach is very, it's systematized, right? So you're not necessarily taking a look at the fundamentals of the company, who's running it, what does the balance sheet look like? What, you know, is the stock undervalued?

6:45What is the PE ratio? So for swing trading, a little bit less on the business side, business understanding is still helpful, but not necessary. Now, if you were doing the long-term investing where you're looking for undervalued companies at the right price and the Warren Buffett type style investing. Business acumen definitely helps more on that side, in my opinion. Okay. Yeah, that's really interesting to hear. One kind of angle I want to take on this, especially since swing trading is definitely much more time intensive, effort intensive than a lot of the investing that we discuss here. We discuss more long-term investing, more even just index investing, just getting people involved in the stock market and understanding the basics of the stock market in one way or another.

7:28How would you apply some of the learnings and points of view that you've found in swing trading to that more basic style of investing? Some things that maybe, since I've personally never done swing trading, so I'm really interested to hear some of those angles that I never would have been exposed to that you would have been. Sure. And it's a good question, which I get regularly is, hey, I work full time. How can I do this. And so swing trading is actually well designed for people who work full time. And it actually makes better sense. I don't encourage people to wake up one day and say, I want to be a full time trader in three months.

8:03That's a very dangerous mindset. In swing, you know, scalpers and day traders, that's a very intensive type of trading, a very different type of trading. And that is not something you can do and work full time, right? You can't sit at your desk at work and also try and manage charts intraday, a five-minute chart, and be successful. So the swing trading methodology is a methodology that allows you to be able to take advantage of short-term moves in the market without having to sit in front of your computer all day. And what I mean by that is a lot of what you want to do in swing trading is you're looking at your stock charts after the market is closed, right?

8:41When it's quiet, when there's no emotion running, right so you're looking at your stock charts and you're looking for very particular setups in those charts you're using support and resistance you're looking for specific patterns like a cup and handle or a bull flag pattern breakout so you're looking for patterns and you're identifying what's going on in your charts and once you've done that and just because you look at a chart doesn't mean that it is set up for an opportunity so a lot of it is looking at charts and saying okay if the stock breaks to this level that's my entry point so you're setting up that and looking at that chart putting on your watch list, setting up an alert, and once you've set that alert up, you step away from that chart.

9:20And until that alert hits, you don't have to worry about it. And so when that alert hits, then you have the opportunity to say, okay, I'm going to go ahead and take this trade. Because you've already set your trade thesis up ahead of time, right? Especially if you're following a top-down trading approach. So your trade thesis is set up. You're just waiting for that stock to trigger to hit that price. If it triggers and everything still looks good, you can take that trade if it doesn't trigger no harm no foul right that chart just drops off of your watch list and you can even automate it a little bit further if you wanted to you could set it up so that you did a buy order at that particular price level so that your portfolio would automatically buy 10 shares 20 shares whatever it is that you want on that particular whatever your allocation is if the stock were to hit that stock price so you can even automate it a little bit further if you don't think you could access your brokerage account while you're at work that particular time frame.

10:12Now, a lot of people that I do know that swing trade and work full time have designed such a way in their work environment that they're able to jump in, put their trade in, put their stop loss in and go back to work. A lot of the work that you do to set up your trade opportunities is done after hours. It's done when the market is quiet and we don't have that heavy emotion of the market running. So it's well designed for full time employees, especially because once you've put that trade in, you also automatically, once your trade is filled, we teach people to automatically put your stop loss in, right?

10:44So once the trade is in place, whatever your technical stop loss is, you put that in into your brokerage account right away. So it's done. It's automated. And you don't have to worry if you get called into a meeting and that stock does turn on you and hits that stop loss. You don't have to worry about trying to jump back in and exit that trade during the emotion of that the trade went against me. so yeah you're not having to run out of a meeting right cancel it would you mind explain giving a basic explanation for people who maybe are just getting used to the stock market of what a stop loss even is sure and how that helps protect them so you know so say you purchase a stock at a hundred dollars let's use some easy math you purchase that stock at a hundred dollars and your chart is telling you the opportunity for the next move for this stock is going to be 110 and that's done based on charting.

11:35You see resistance up there. That's probably where the stock may hit its head. So your opportunity is for the stock to go to 110 but you want to have a stop loss because there's no guarantee that stock's going to move to 110 or that it's even going to move up, right? That stock could pull back and this is where people get in trouble because they don't put those stop losses in and a stop loss is a safety mechanism. It is a point in time where that stock hits where you say, I'm cutting my losses, I'm out. And determining your stop loss, you don't determine that in the middle of a trade. You determine that ahead of time when you're preparing your trade thesis because you want to be able to establish your stop loss without emotion, right?

12:16We all have emotions. We have to manage those emotions. You can't, saying that you have to trade without emotion is impossible. When it comes to our money, there's always gonna be emotion tied to it. But when you go in with a plan and you look at your chart and go, okay, Okay, the stock's been honoring a five-day moving average at$97, or there's a support level at$97. If it breaks$97, the stock's probably going to continue falling down to its next point. So$97 becomes your technical stop loss. So at$96.50, I put a stop loss in. If it just breaks below support, I want out of the trade. It's going against me.

12:56It's probably going to keep coming down. and so I have a little over a 3 % draw down there. And this all ties into the two to one reward to risk ratio scenario as well. But that stop loss is designed to protect you from blowing up your portfolio. It's designed to help drive the reward to risk ratio which every trade should have. And by putting that stop loss in and preparing your trade thesis ahead of time, that is how you manage the emotion of a trade going against you. and you have to honor that stop loss. And the worst thing you can do is say, I'll just, my mental stop loss is$97. Because what'll happen is when that trade goes against you, you will talk yourself out of it.

13:37I'll give it another dollar. It'll come back, right? And so for every time that it does come back, 10 times it doesn't come back and it continues falling. And instead of a 3 % loss on that trade, you now take a 9 % loss. So the stop loss is designed to, the biggest, one of the biggest things you have to learn as a swing trader, or even an investor, anything when it comes to putting your money into the market, is your primary job is capital preservation and risk management. It's not about the trade. It's capital preservation and risk management of those trades. August is National Wellness Month, but most health trends equal things like buying random gadgets and guessing at what actually works based on whatever's trendy at the time.

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16:47Maybe you have an influx of cash coming in. You have less cash coming in. Trying to make variable decisions based on all of those on the fly is just always going to lead to you making worse decisions. Agreed. A question for you. As people who are looking maybe like me from the outside with a more passive, conservative approach to the stock market, if somebody were to come to you and say, I'm looking to get started in the market, I want to earn some extra income, I have a full-time job, but I have some time on the side that I could do something if I wanted, are you of the point of view that you would 100 % recommend them to swing trading over anything else?

17:24or are there some factors that kind of lead to a decision one way or the other for you between maybe that or more passive investing or even more active investing? Or do you think swing trading is just perfect balance? No, it's not for everybody because it depends on how much time you want to put into learning, right? So the approach of just buying VOO or buying ETFs, you know, every Friday, you just 100 bucks or whatever it is, right? You just set it up so that every week your portfolio is grabbing a share of VOO or another ETF doesn't require a tremendous amount of personal investment, right?

17:59You take a look at some ETFs, you look at what you're interested in, you look at the basket that it's tied to, and you make some of those decisions. In order to become a consistently profitable swing trader, you've got to put the time and energy into it. It's got to be something you want to learn, right? So if you come to me and say, I really don't want to learn anything new, but I do want swing trade. Well, if you don't want to put the time and energy into learning how to chart, how to read patterns, how to start learning about price action, and be able to put an hour or two, a few hours a week into learning, probably not going to be for you.

18:33But for those that really want to learn something new, learn a new skill set, and learn about a different way of being in the market, swing trading is great for them. Okay. Yeah, that's really interesting to hear. and I think I would agree with that point of view. I'm somebody who has decided to prioritize my time in a certain way and so something like swing trading has generally not appealed to me as much only because of, like you said, the time investment. I know it would require more learning, it would require more effort to put into that and there were simply other places that I wanted to put my time.

19:05But in the future you never know where you're going to end up and having good resources to go to to learn that kind of stuff is always fantastic. One thing that I loved is I looked at your free tool for the checklist for people if they're looking to get into a swing trade or something. What kind of going through a set number of steps to make sure that they're properly evaluating trade, looking at it from different angles and sort of grading it to see where it's ending up essentially. And there was one specific bullet point in there that I thought was really interesting. And a lot of it definitely touches on the mentality with investments like you do a lot over just what are the exact stats or what's the exact candlestick pattern and everything.

19:40but one I thought was interesting is can you clearly describe the pattern or setup in one sentence would you mind giving a few examples of what that might look like and what led you to add that bullet point in there so the reason I added that bullet point in is because if you can't articulate to yourself why the setup what the setup is then it probably doesn't exist because charts can be subjective to some degree right I can chart something and Felix can chart something and we could come up with a different outlook on that chart. A lot of times we'll come up with the same analysis on it. But there are times where two people will look at a chart and they come away with a different perspective on that chart.

20:22Now, that's not a rising channel, it's this. So there is a little bit of subjectivity into it. And so the reason for that question is because what you want to be able to do is get to the point where you're not trying to talk yourself into a trade. you're not trying to see something that isn't there and so that question forces you to step back and say okay am I really seeing this pattern is this truly a bull flag pattern and it is a is it a bull flag pattern that is confirmed or am I trying to make something out of this that isn't there so that's the reason for the question is to really challenge your what you're seeing and make sure that you are seeing it with a clear lens yeah I really like that that's that's a very interesting point of view to take on it because you can explain away a lot of stuff you can look at something and be like i think this stuff we're pretty good at that as humans we can rationalize a lot out of our heads when it's something as uh if we want it bad enough as non-tangible as stock say it again if we want it bad enough we find a way to talk ourselves if we want it bad enough yeah and if we start involving money and you start saying i could make you know thousands of dollars if this is going one direction i think it's probably going in that direction is not a good place.

21:34So that's a very interesting bullet point to me. What are some ideas or tools? Well, I shouldn't say tools. What are some misconceptions that you feel that there are towards swing trading from people who aren't in the activity? So one of the biggest misconceptions is the ability to replace your mortgage payment or some big bill in 30 days or less. That is just a massive misconception. And a lot of good companies out there teaching people how to swing trade. But one of the biggest problems I see, and coming from the industry, because I was in the industry on the education side, one of the biggest things I see is telling somebody that they should start trading options right away.

22:21Options are a leveraged product. There are a lot of moving parts to an option, such as intrinsic value and time decay and all kinds of Greeks associated with it. So to take somebody who has never done anything in the stock market before and have them start trading options immediately, it puts them up for risk. So that's one of the biggest misconceptions is that you can jump into options right away and start making$1 ,000 a month. So the focus for any new swing trader needs to be, in my opinion, learning how to trade equities or ETFs, right? You trade that asset and learning how to chart because the options are a vehicle.

23:04There is a place for options, but the options are a vehicle. And until you learn how to trade well, until you can learn how to chart, do your support and resistance, figure out your patterns and trade equities, I don't believe you should touch options. not until then and a lot of companies jump into options because they're sexy right at the end of the day you know when you trade an equity so if you trade nvidia and it moves five dollars great right that's a one-to-one it's gonna be a one-to-one move but if you trade a call option and nvidia and you get a which is a leveraged product you're gonna get a you could get a 20 30 40 50 move and that's you know that's sexy to a lot of people but in the same token if it goes against you, you're going to go down 30, 40, 50%.

23:45Your drawdown is going to be huge. And I've watched so many people starting out, trying to learn how to swing trade, jumping into options, throwing a couple thousand dollars into an account and blowing it up on a couple of trades and not understanding why. So that, in my opinion, is the biggest misconception in the industry is new swing traders jumping into options, being told they can kill it the next month. Yeah, that is extremely scary and I can say from experience that when I was first getting into the market and I was watching YouTube videos on it reading some articles blah blah blah a lot of people were pointing towards options like you said it's sexy you do see people who turn their lives around because of it are able to afford some crazy expense or purchase solely because of a couple trades that they make or they'll be like here's my two-hour work day and I sit down and I make a couple trades and boom now I've made 30k and I walk away for the day that sounds insane that sounds like a baller way to live, but that's just not how it works out for 99 % of people, 99 % of the time.

24:46Exactly. And when you see those stories, it gives you false hope. And the worst thing that can happen, especially when you first start swing trading is that you get lucky, right? That you get a big win under your belt and it's just basically the stars lined up, right? You got lucky, you got that big bag trade, and now you get overconfident. So that's also the worst thing that can happen to you is just getting lucky out the door because and your confidence, falsely, is much higher than it ever should be. And the market will eventually remind you who's in charge. It's not us. It's the market. 100%.

25:18Yeah, it'd almost be better if you took a few failures initially, tried to learn from it. A little humbling. Count some other. Yeah. Yeah, a little humbling, a little bit of hindsight. 2020 would really help you be able to look forward. You talk about this 30 days being unrealistic. Ballpark, what kind of time frame do you think is more realistic for somebody to go and not be able to necessarily replace their mortgage payment or anything like that, like you said, but be able to steadily understand what they're doing, make educated trades and start to see positive traction. Yeah. If you put the time and energy into it and the focus, you can start to really get a handle on getting good swing trades going in 90 days, six months.

26:00So the aspect to learning how to swing trade well, it's not just about the education and coaching. That helps. But it's also time in the seat, right? It's time in the seat and watching what's going on in the market and going through certain market experiences, right? Until you live through a bear market, you can read about it all day long. But until you've actually lived through the bear market, what is academic is not the same as what is happening in a real bear market. So living through the different market cycles is the key component, one of the key components. So it's time. Really, if you put the energy in and you have the right community that you're working with and you're reading the right educational materials and you put the work in, I've seen people get very successful in three months, four months, six months.