How To Know When To Raise The Stop – Loss Vs Taking Profits | Podcast Episode #27

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Learn to trade, stocks successfully, learn to profit consistently. I’m Ryan Mallory and on my weekly podcast, I’m going to teach you the in and out of a complex ever-changing stock market. You will learn to trade better trait, smarter and profit bigger.

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Now let’s go trade. Hey everybody, this is Ryan Mallory with Sarah planners swing trading podcast and I am glad to be doing number 26 with you guys here today. And let’s talk about raising the stop loss versus taking profits.

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It’s a question that allows Traders struggle with and really contemplate on their trades each and every day when they have profits should I just keep raising the stop loss? Or is the market going to tank? I’m going to wish that I would take in that small profit or a big profit and Go on ahead and exit it out, quietly out the side door.

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So that’s the big, big question here for Traders and it for me, is dictated by what kind of Market are we currently end and equally important it’s going to be dictated by the kind of trade that we’re in as well. So let’s look at the first point, trending markets, do you take profits in a trending Market or do you race?

1:24
The stop? Well, for, for the trending Market, you’re going to want to raise the stop-loss. You’re not going to want to Just go ahead and take it out. So if you’re in a trend like what we saw in the beginning of this year in 2018 January where the Mark was just going up and up and up each and every day.

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That’s a good solid trending Market. It may not be for the longest time because in February he completely gave it all back. But for the time being it was a solid trending market. So if you went ahead and took profits early in the month, you might have missed out on some really nice profits that you could have had later in the month, by just simply raising the stop loss along the way.

1:57
And so, the trending markets, they’re the most conducive to To just simply raising the stop loss and the places where you want to put your stop loss is an area just below an area of key support. So when it clears through resistance that resistance now becomes support for a stock and so you want to put your stop loss right below that key area.

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Now like I said, if you find yourself in a trending market and you’re getting like three and four percent profits and you’re just going ahead and booking your gains, Yeah, it might look nice on paper in the sense that you’re making a profitable trade but you’re not necessarily letting your winners run and that’s the big problem because in a trending Market in there, really nice when you’re in them is to let your stock have as much Liberty as possible to give you the most amount of gains as possible.

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Now in a choppy Market becomes, much less different and shopping market, you can be better off having a mixture of long and short positions in your portfolio or simply in this is What I do, a lot of times 2 is waiting to buy the dips on certain stocks that are getting over sold in our do for bounces and also timing that with the overall market conditions to.

3:07
So if you know that you’re in a choppy Market, you know that the market is only going to go so high before it starts to give back those those profits again and it’s going lower. It’s only going to go solo before it bounces back up so you plan your trades. Accordingly as a result with a choppy Market.

3:24
You want to be getting in at the lower end of the market and taking your profits at the higher end. Your long on the stock. And that’s the big difference is in when it comes to raising the stop loss, versus taking profits, is, it’s going to come down to whether or not you are in a trending Market or whether or not you are in a choppy Market.

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If you’re in the choppy Market, you’re going to want to keep booking profits when you have those profits in hands. So if you’re up for 5% and you know that the markets at the top end of a range, you’re not going to want to keep letting your winners run because there’s very good chance. That you’re going to hit a wall and you’re going to give back those gains quickly.

4:02
Instead of having like a five percent profit, you may only Come Away with a one percent profit or if your stop loss Management’s. Not that great. You may be taking a loss on it instead and that’s happened with a number of my traits recently not that I let them turn into losses but they started off they look like great trades.

4:18
If you go back to out a month ago when Netflix and earnings were reporting and they had some very dramatic reactions to their stock price and then went way down. I waited for them. To settle in a little bit and then I started building a position in them, so the market was pretty choppy.

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And what I did was, is I I let the stock run up for a little bit while the market was oversold. And it was trying to bounce higher and stock like Facebook, I went ahead and booked the prophets at 184 14, and that was a five point three percent profit, right, but if you look at it just a couple weeks later It’s way below my even even my entry price, I got in at 174 80 and it’s playing with 172 now and it doesn’t look like it’s going to get much help here anytime in the near future.

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You take Netflix I got in at 342 got out at 3:48, okay? It’s not that much. It was only like a 1.7 percent profit, but if you look at it and view of where the stock is at now where its trading down as low as 313, that’s not, that’s not a good thing to just keep holding on hoping that you’re going to be getting a bigger profit.

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Because the markets, not affording, those opportunities, taking profits and being aggressive with taking profits. Becomes very, very important. And that’s one of the things that I’m trying to hammer home with you that depending on the market. Whether it’s a trending Market or whether it’s a choppy Market is going to dictate whether or not you should be raising your stop loss, which is most appropriate in and a trending Market, or whether you should be taking profits which is most appropriate and a choppy market.

5:53
So the final Part of this podcast, I want to look at shorting stocks and, and it’s not just with shorting stocks, it can be if you’re short, the stock market with a bearish ETF, that you’re getting long on.

6:08
So the inverse ETFs like three, two, one, two, two, one, or even one to one. You want to apply these principles to as well? Because the underlying basis for the ETF is for the market to go down, so you can make profits so the market bottom after the big financial crisis back in 2008 and one of the biggest consistencies in this market has been by the by the dip.

6:32
And when you buy the dip, the market tends to get just keep going back hired, these sell-offs, they don’t last for a long time and there’s been a few periods where that’s not necessarily been the case yet 2011-2014. You have grease in 2015 and you had the big sell off here in 2018 in February where the market pulled back 10%.

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But even in all those cases you had a lot of v-shaped bottoms where it just goes way down and then it immediately bounces back up. And so So the reason why that’s important because if you’re shorting the stocks at the time where you get the V shape bounces and even saw that during the Trump election night, with the Futures, where the Futures were going down, something like 5%, they were limiting down and everything else.

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And then the by the morning time, the future says, if you are a Futures Trader, the stock had already pretty much made back all of those losses. And and, and was actually trending higher going forward and and made for one of the best, Riley’s at the end of 20 2016, So, and it continued into 2017.

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So, Here’s the thing shorting. The market you want to always be aggressive. You always want to be aggressive because the natural propensity of the stock market is to go higher. So if you have a trade where your three or five percent, yeah, that that’s there’s probably a good reason to go ahead and book the prophets, especially if the stock is already or the stock or the the market itself is already over sold.

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So, for instance, earlier this week, I Got long on SPX you. And that’s the bearish ETF on the S&P 500 4, 3, 2 1 and I got in at 3513 and sold it at 35 75 and I really didn’t want to sell it.

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I really like my position, I was kind of hoping that we would see more downside in the market, but if I was not aggressive in taking this profits, just a couple of days ago, guess what? I would be staring at a much bigger loss of about 2% and it because it’s trading at 3456.

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I had gone in at 5:13 book, my profits at 3575. So shorting the stock suspicious, especially in a market like this where we’re not in a bear Market, by any means requires that. If you’re going to take on a short trade, that you take the profits aggressively and and to do so vigilantly, and to do so with discipline.

8:50
So that’s going to be it for the podcast, a little shorter than usual. But I just wanted to reiterate some of these points about raising the stop loss versus taking the profits and how to know which one you should do. Take care and God bless.

9:09
Thanks for listening to this week’s podcast That Swing trading with Ryan Mallory. I’d like to encourage you to join me in the SharePlanner Trading Block where I navigate the financial markets every day with Traders from around the world. With your membership you’ll get a 7 day trial access to my trading room and text and email alerts.

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If you have any questions, please feel free to email me ryan@shareplanner.com all the best to you and God bless.