In four consecutive US Investing Championships, Sean Ryan (David Ryan’s son) returned 52% in 2019, 128% in 2020, 18% in 2021 and 132% in 2022. Compounded, that’s a 949% return in four years — pretty impressive, especially for someone still in their 20s.
However, the year that really stands out to me is the 132% return in 2022, which is widely regarded as a tough year, especially for breakout traders. So I read the Business Insider article on him with interest.
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Today’s notes cover my key takeaways from this article. I hope you find them useful.
Trade in line with your personality
Famously, as William O’Neil’s protégé, David Ryan pays attention to certain fundamentals in companies. However, his son Sean doesn’t, since he has found that knowing a company’s story can cloud his judgement, and only pays attention to the chart now.
“[Sean] admits that he learned a lot from his dad, but the biggest takeaway wasn’t about a particular strategy. Rather, it was how his dad approaches the market: it’s a personality trait, [Sean] said.
“There’s a humility in [David Ryan’s] ways that allows him to remain flexible. If he enters a position and the stock turns against him, he’s able to accept he was wrong and exit the position. It’s not something you can learn from a book, [Sean] noted.”
If there can be such differences even within one family, where the son directly learned from the father, I think it pretty unrealistic to believe you can emulate an indirect mentor you probably don’t know personally. Sure, learn from others, but ultimately you must adapt their methods to suit your own personality.
As I’ve already said multiple times, I’m a huge believer in journaling. Your numbers tell your truth. It’s up to you whether you listen to them. Lance Beggs offers a good method for consistently improving by reviewing your numbers every weekend.
(Incidentally, setting concrete, achievable targets for yourself every week and hitting them will do wonders for your mental health, too — another aspect Sean highlights as important for traders. More on that later.)
Define clear rules that make sense to you
Recently, I’ve been writing quite a few posts on how Dr. Mansi trades. What really stands out to me is how she has such simple, logical rules, even for topics generally considered hard for traders.
The Business Insider interview with Sean makes clear that he too has certain very clear rules he sticks to. They also come across as very simple and logical:
Never risk more than 1% of your total account.
Once you’re up 10% on a trade, move your stop to breakeven.
Avoid highly volatile stocks. (Not defined, unfortunately.)
Focus on the second leg up. (More on that below.)
All these rules appear very sensible for a low-risk trader, and obviously reflect what Sean found to work for him.
Although I’m a Qullamaggie follower and have learned a great deal from him, like Sean, I personally do better with less volatile stocks. It took me a while to figure out why exactly, but I believe it’s because I can control my risk significantly better on those. I’m just much better at getting good entries and risk-to-reward ratios on them. But I only figured this out by analysing my journal.
Again: learn from your teachers, but ultimately find your own truth, and base your rules on what works for you. In my opinion, that is the best way to develop logical rules that you have conviction in, so you’ll be able to stick to them even when things get tough. And keep them as simple as possible!
Learn how stocks move
This is something I’ve already discussed at length in context of my Qullamaggie notes, especially in my notes on his Chat With Traders interview, but it’s nice to see this come up with other traders too. To quote the Business Insider article:
“Something [Sean] has observed from his dad’s teachings was that the market seems to move in waves of threes, either up or down. Whether it’s three large moves over the span of a month, or three smaller moves within a day, the pattern repeats itself relative to the timeframe. While Ryan doesn’t have historical data to back this observation, he has also noticed this pattern. He refers to it as the market’s rhythm.
“If you think about a stock’s pattern in this way, there’s a first move, a second move, which is the most risk free, and then a third move that you could possibly trade, but the risk increases. There could even be a fourth and a fifth rally, but risk increases even more, he noted.”
Because of this, Sean focuses on the “middle section”, as he calls it, or the ‘second leg up’, as I referred to it earlier. Here’s $TSLA from 2020 as an example:
I drew white lines to show the various big moves (‘legs up’) $TSLA made, and added a blue rectangle around the middle section/second leg up. If you study many charts for yourself, you’ll see that this is how stocks tend to move: in stairsteps. If you follow Stockbee, you might call them ‘momentum bursts’. Whatever you call them, make sure you understand the concept and verify it for yourself to develop conviction.
In the Business Insider article, Sean mentioned that he’s normally out after the start of the third move, so probably in the area where I added the red arrow in the screenshot above.
In the case of the chart above, you can see that it did actually have a fourth leg up in November 2020 (and even a fifth leg in 2021). But trading is about stacking the odds in your favour. Sean focuses on the second leg up because it’s “the most risk free”. As a matter of fact, this corresponds to how Dr. Mansi trades too (for position trades) — she sells half after the stock has a third leg up for the same reason.
Use of the RSI indicator
Probably the most interesting takeaway for me was that Sean uses the relative strength index (RSI). This indicator shows, on a 0–100 scale, whether a stock is overbought or oversold.
I’ve personally not used the RSI in years (not since my first few months of trading), because I’ve found that overbought stocks can easily still go higher and overbought stocks can easily still go lower, but then I’ve never used it in the way Sean does:
“‘I’ve seen stocks grind higher, the price continues to go up, but the RSI is dropping, and that is like the best way to get out early before the stock actually starts dropping,’ [Sean] said.
“For example, on February 11, Direxion Daily Gold Miners Index Bull 2X Shares (NUGT) rallied to the upside for the second time after a two-year downtrend. The trading volume also increased as the RSI strengthened. [Sean] began to gradually scale in starting with 2,800 shares. Over the next few months, he held a core position while shaving off some profits and buying more. By April, a decreasing RSI tipped him off that the movement had started losing momentum. That month he sold off about 6,000 shares, according to his brokerage statement viewed by Insider.”
Below is a chart of $NUGT at the time; I’ve added an arrow to 11 February 2022, when it started its rally. I added the RSI above the chart (not normally on my screen), and a line to where the RSI was declining while the price was rallying. As I understand it, this was a signal to Sean that $NUGT was topping.
It’s unlikely I’m going to start adding indicators to my screen after going through the typical journey of a trader to figure out that less is more, and clean up my charts over time. However, I really do find it interesting to learn about a way breakout traders can use this indicator that I don’t hear much about within my trading community — and let’s not forget, Sean did manage to finish 2022 as a triple-digit year, so he must be doing something right!
Is using the RSI in this way the key to getting such a good return in a market like 2022? Perhaps. Or perhaps it’s the key to Sean and his personality. Of course, it’s also possible that the key wasn’t covered in the interview to begin with. But using the RSI at all definitely struck me as the most unexpected part of the interview.
Always continue to seek self-improvement
“Trading is the most psychologically taxing job you could have, [Sean] said. Dealing with the market cycles and the wins and losses that come with it is something [Sean] says he’s still working on improving. The key is to not tie your emotions to market movements.”
It’s always great to see someone who’s doing well point at some area they feel they need to work on — in this case, their mental health. Virtually every successful person I can think of has this mentality: no matter how good they get, they’re always seeking further self-improvement.
A little while ago, I wrote up notes on The Art of Learning: An Inner Journey to Optimal Performance by chess and tai chi champion Josh Waitzkin, who also sent out a very strong message about continual self-improvement if you want to reach the top of your field. Josh Waitzkin also makes a strong point about investing in loss — something Sean made clear too:
“[Sean] doesn’t recommend trying to mimic anyone else’s strategy because each person operates in a different way. Instead, start trading and let yourself learn from your mistakes, he said. The market will teach you how to make money on your own. And when you lose money, you’ll learn key lessons. You’ll also realize that trading is constantly morphing you as a person, he added.”
Remember: you’re paying for every trade. So make sure you get something back from it — if not a profit, then at least a valuable lesson.
Feedback
I hope you enjoyed reading about a different trader for a change, and found my notes helpful! If so, please do give this post a like and share it with other traders.
I’m also always looking to get better, both as a trader and as a writer, so do let me know if you have any constructive feedback in the comments below. Alternatively, you can message me on Twitter or email me at kayklingson@yahoo.com.
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