The Unplaceable Stop-Loss | Podcast Episode #149

0:00
Hey everybody, this is Ryan Mallory with Swing Trading the stock market, and today’s episode is the unplaceable stock losses. A good email from a listener of about the last 3 months here and We’re gonna call him Jimmy Tit. Jimmy Tate, my good Florida redneck name for this episode.

0:17
Jimmy Tate says, Dear Ryan. So first of all, thanks for all the input and priceless information that you have put, put out there via podcast in the YouTube channel. I’ve listened to about 2/3 of your podcasts and still going in about 3 months. The first podcast I listened to was on the penny stocks with an explanation of $1 a share at $1300 versus 13. dollars a share at $1.

0:37
And it’s worth talking about because so many people, especially new people to the show, are still hung up about how many shares they can buy of a stock, and they almost get turned off if they have to buy like a $1000 share with $1000 and they get more excited about the fact that they can buy 1000 shares at $1 of another stock that carries way more risk.

0:54
So don’t get hung up on the share prices. It has nothing to do with whether or not you’re going to be successful in the stock market. And if you can be good with a little bit of shares, you can gradually build up your account and you can be good with a lot of shares, but that takes time. And you can’t really camouflage the size of your portfolio by the number of shares that you buy.

1:12
So he said he’s thankful that he didn’t play any penny stocks and learned that lesson the cheap and easy way. Yes, the podcast is a much better way, if you follow some of the stuff that I’m saying here, it’s a much cheaper way to avoid some of the mistakes that I’ve made. Yeah, I’ve, I’ve played penny stocks in the past, not proud of it. It was a long time ago, and I’m glad I’m not doing it ever again.

1:29
He says, I started out with my bank account through USAA which pushed the investment side to Schwab, which was nice, but I looked into TD Ameritrade and like the platform much more so.

1:48
With the tools and charts. Well, plot twist, Charles Schwab now owns TD Ameritrade. He says no Robin Hood, but still have the new uneducated mindset of a lot of the Robin Hood bros out there.

2:05
Now, as for the whiskey that I’m drinking, not a bourbon this time. It is high west whiskey. It is a double rye, 46% alcohol, 92% proof, made out there in Park City, Utah, which is kind of like a more interesting place to get a whiskey from. That’s kind of notorious for skiing, not so much the whiskey side.

2:26
Let me tell you, when I, when I try it out. It’s not, not too bad. I’m not really into the whiskey rise as much as I am into just the bourbons, but this wasn’t too bad. It wasn’t on a scale of 1 to 10, I give it a 66. It has some strange flavors in it, but it’s not bad flavors. I can taste the subtle oak and dill flavors at first, and then it kind of gives you like this licorice, hot finish.

2:44
It’s just kind of a different taste, but it’s very unique in and of itself. So yeah, 66 on this high west double rye whiskey. So, continuing on with Jimmy Tate’s email. He says, I’m new to trading and I’ve read a few books for the past several years, but never jumped in really until May of 2020.

3:00
I rolled Rudder Black with $540 position on Disney. That’s DIS. He says, I got lucky with it and finally stopped out. At $175 a share. So back in May, it was trading like in the low 100s, around $105.

3:16
So he probably made it like 70% off of this trade around. I put a stop Austin after hearing you talk about it in some of your podcasts, I have since been listening to more podcasts along with some audiobooks to help me learn. More on the market along with good old Google for terminology that I’m unsure about.

3:33
So my big beef with him on Disney is that he held it through multiple earnings reports. I don’t want to throw cold water on his DIS trade. It was amazing. It was good. I would take it, you know, in terms of the profits that he got from it. But the manner and how he made those profits was very high risk, especially in this COVID environment.

3:53
I mean, at that time, who knew how this whole thing was going. To turn out, especially with the earnings reports. And so he did. He got lucky and that’s basically what I would say. He got lucky on the earnings reports and, and if anybody plays earnings reports, they’re getting lucky. If you’re just buying like long or short, or buying just a call or buying a put, and if you’re right, yeah, you’re lucky, you’re wrong, you kind of ask for it.

4:11
Because those earnings reports are almost impossible to predict. Even if you get the earnings numbers right down to the very penny and the 4. Cats and everything else. You can’t predict how the market’s going to react to it. I’ve seen so many, even this particular earnings season, blowout earnings, really good numbers, and the stock sells off significantly.

4:41
So just because you have a good feel for the stock doesn’t necessarily mean that stock’s going to rally for earnings. So it is, it’s lucky. If I, if I try to trade earnings and I, and I get it right, it’s not because of my experience in the stock market or anything else. It’s because I got lucky. But again, I’m glad that You got lucky in that it paid off for you, that you’re able to get out $175 and towards the end there, you started using the stop losses, which was a smart move because the last thing you want to do is to see a winning trade or in a significantly profitable winning trade turn into a loser.

5:05
You also, and I would encourage a lot of you guys to do this because it’s such a great resource. I mean, 25 years ago, 30 years ago, there wasn’t as much information out there and the information that was out there, it wasn’t as Accessible on the internet and easy to find as that it is now through Google. With Google, I mean, if you have a question about something that I’m doing on this podcast, and it’s not really like strategy based, but it’s something, for instance, what’s Japanese candlesticks, right?

5:30
You can Google that, it’s gonna tell you all about it. So I would encourage you to use that, that function. I mean, it’ll give you an answer right away. Like you could probably ask Alexa or something at home and she’ll serenade you with what Japanese candlesticks are. All right, now in his final paragraph, he says, my main question is when you have a huge breakout on a stock, how do you know where to move your stock to protect your profits when it punches through any kind of resistance trend line?

5:49
I got into CLNE a very High risk play these days. He says he got into CLNE at $1003 a share. He got 50 of those shares, so he bought about $500 worth. The very next day it opened up huge. So I booked some profits at $1,252 per share, which was about 15 shares in total.

6:09
Good job. That’s, that’s a really good return, 25% overnight. Awesome. Now I was letting the rest ride as it was. climbing. I still hold 35 shares now, and right after the close this past Friday, Amazon announced that they were buying 1000 CNG trucks. So through the weekend, the aftermarket and pre-market has sent the stock soaring to nosebleed section.

6:24
I’m currently sitting at $16.29 a share. I plan to sell off 10 to 15 more shares, but how do I keep the last bit of the position running wild? Without any clear support or resistance anymore or my two news to see it and I’m just committing an operator error.

6:42
Thanks again for your time and energy in the podcast, and it is greatly appreciated and a ton of knowledge. Sincerely, Jimmy Tit. He says PS use any redneck name or just use my own name. I’m sure I was called much worse in the army, which made me want to see it, man, can I one up the army here with a, with a hideous name, but no, I’m not a mean guy.

7:00
But again, thank you for your service in the army. Appreciate it very much. So, let’s tackle this last question here. The stock breaks through resistance to new highs. One of the things that I’ve really tried to make sure I do on these podcasts is to not really get into a ton of numbers to where you need a, a chart in front of you to understand what I’m saying.

7:20
I know there’s a lot of podcasts out there that really confuses the heck out of people because they’re talking about a chart and they’re referencing a chart somebody’s sitting on a train or commuting to work. It’s not like they can pull up those charts and follow along, nor would it be really.

7:41
Easy to do that even if you could. But he, he gets in the CLNE and it’s one of these big Robin Hood bro stocks of late. The crazy thing is, is it really hasn’t sold off, like what you’ve seen with a number of pump and dumps. It’s gone as high as 1950 and it’s pulled back to about $16 a share. But he asked a good question. It breaks out, it goes to new all-time highs, and it’s like clear skies ahead. There’s no resistance to be concerned with and Support is nowhere near to be found.

7:58
Now, there’s things in trading that we call higher highs and higher lows. It’s when a stock goes from like, and I’m gonna make this as easy as possible, so I don’t scorch your ears too much with technical analysis. Let’s say you bought a stock at $100 and it goes up to $110 before pulling back to $105.

8:15
Well, that $110 is a higher high because it’s higher than what it was before on the existing move, right? And then it pulls back down to $105 and settles there and then starts to bounce again. Well, that $105 is a higher low. It means it didn’t go all the way back down to 100 or break 100.

8:30
Instead pulled back some but not all the way and then started rallying again and maybe it goes up. 115 this time. Well, that 105 becomes the higher low, 115 becomes a new higher high. And so the more higher highs and higher lows that you’re creating, the better it is as a trader in his trade.

8:49
But what you can also do oftentimes is connect a resistance line between the peaks of those and you can find a resistance level right there to maybe sell some of those shares that’s on an incredible run. And it’s also worth noting too that when a stock breaks through resistance, let’s say stocks trading at 95% and it has resistance at 100%, and that’s where you want to get long at.

9:06
It’s 100, you get long, it’s off to the races. Well, that resistance now becomes support, and just because it breaks through that resistance level doesn’t mean that that level isn’t significant anymore, exact opposite. It’s still significant, just as significant as it was before because you don’t want price to drop back below that breakout level.

9:23
So the other point worth noting is that once it hits that breakout level and it starts to move, let’s say the breakout level again is at $100 and it goes like $105. And I’m just giving you arbitrary numbers here, OK? There’s no like specifics behind these numbers, but trying to give you an example. You want to start moving up that stop loss.

10:00
I mean, if it comes back down and breaks below that breakout level in a significant way, maybe sometimes it’ll drop down below intraday and we’ll recover by the day’s end. That’s different than it comes crashing through that. Breakout level and finishes 2 or 3% below it. In that case, that, that’s a good area to have your next stop loss that.

10:16
You want to raise that stop loss to below that breakout level. Another note about CLNE too that I want to make, these are very volatile trades. I mean, it’s working out for him in this email and the stocks that he’s told me about, but holding through earnings, holding stocks like CLNE and playing these massive breakouts and trying to make these massive gains, they’re great, but they can turn on you in a heartbeat.

10:31
It’s very difficult to manage the. on these. So when I’m doing this podcast, I’m talking about more generalities, not stocks like CLNA per se, but how do you manage these stocks that have like a blue sky breakout where there’s no price barriers ahead and there’s not a lot of significant support underneath it.

10:47
Because trading stocks like CLNE will eventually get you in trouble. It just will. There’s very few people that can be successful trading these things. And honestly, I don’t know a lot of them that are. I think if you could trade them successfully, I think you’d see a lot more of the banks trading them. A lot of your hedge funds trading them, but they don’t.

11:06
They’re very easily manipulated too. And they lead to sloppy entries, which if you remember my previous podcast episode, I talked about sloppy entries leading to sloppy exits. And so you don’t want to chase after stocks just because they’re going up and something like CLNE, you start to get into it because you see how much it’s gone.

11:23
Up, you get caught up in the FOMO, you buy along, and then all of a sudden you got a sloppy entry likely to result in a sloppy exit. You know, if he’s still in this, he’s taking some profits along the way, and I think that’s huge because it’s going to help him quite a bit to one, keep the emotions under wraps and also to make, give him a better chance at getting out with a profit.

11:41
And I provide the stocks that I like to trade. If you go to swingtradingthestockmarket.com, which is the website associated with this podcast, hence the name. You have a patron account there and you can get all of my market research each and every week. Everything from my master watch lists, both bullish and bearish. I update them multiple times each week.

11:58
Also, I’m gonna be sending out daily trade setups each day. My list of stocks that I’m looking at trading, as well as some of the more interesting intriguing charts each and every day too, on top. Of that, you’re gonna get updates on all the stocks, that’s Facebook, Apple, Amazon, Netflix, Google, Microsoft, and Tesla. And I’m gonna give you multiple updates on the three main indices.

12:16
That’s the S&P 500, the NASDAQ 100, and the Russell 2000. And no, I do not count the Dow as a main index, even though the media does, because it is a price weighted index with only 30 stocks in it. So it’s very easily manipulated by a couple of stocks that might have a high share price, even though they don’t have the market capitalization that warrants them influencing the.

12:36
Index as much as it does. So check that out at swingtradingthestockmarket.com. Now, he talks about with CLNE. He’s already letting this trade run wild. He’s trimmed some of the profits off. I think when I get to where I’m letting a stock run wild, it’s usually when I’m down to like a 3, I’m at least at a half position.

13:01
Usually it’s more like a 3 or a quarter of a position where I really let the thing just run wild. Can I get 2030, 40% out of the trade? The 1st 2/3 of that trade to 75% of those shares on the trade, I’m trying to get, you know, about 5% here, 10% there, maybe a little bit more, maybe a little bit less, depending on how the chart’s looking.

13:24
But that last third, I really want to let that thing stretch its legs and see how far it can run. And I’ve had some of my best gainers that way. And it gives you, by using that strategy of taking partial profits along the way, it gives you the best opportunity to be in those trades when they do make those mega runs. And where do I start using some of my stock losses that when there’s really no stop losses nearby, let’s say that a stock has run 5 to 10% a day for the past week.

13:40
And so you’re looking at maybe 40 or 50% in profits, and it’s just one candle piling on top of each other, maybe it’s gaps, each and every day higher, but Nonetheless, there’s no consolidation anymore on the charts, and you’re sure as heck not going to let that thing come all the way back down and lose a 50% or a 40% gain simply because the nearest support level underneath that was obvious to the eye was before the rally ever took off.

13:57
No, you can’t do that. Your goal is to maximize the profits that you make on each trade. But there are some things that I do that I like to use. One is a 5 day moving average or a 10 day moving average. It’s really about what is the stock responding to it. If you have a big run, that 5 day moving average is going to be trailing it at a, in a pretty steep fashion.

14:18
So one of the things you can look for is, OK, if this thing pulls back and closes below the 5 day moving average, I’m gonna go ahead and get out of the trade because usually these big runs, they don’t usually close below that 5 day moving average. And if they do, Or it has a history of showing that it can, then maybe you use the 10 day moving average, but you want to find that moving average.

14:35
I wouldn’t try to like form fit it perfectly by saying, OK, like a 7 day moving average or 11 day moving average and try to game the system, use some of the more standard ones. I use the 5, 10, and the 20 are probably the best ones to use in that regard. And again, if you haven’t taken any profits on this huge run, when you’re up 40 or 50%, that might be a good time to at least start taking some profits off the table at that point.

14:55
In my opinion, I think you should have already done it at least a couple of times. If you take some of the really big pump and dumps of late, like GME, well, GME goes from like $20 a share in a matter of a couple of weeks, all the way up to $480 a share. Was there really a key support level underneath?

15:13
No, not really. When you’re going that big and that strong, what you want to start looking out for is a massive reversal candle that starts to unfold. And you got one with GME when it hit $483 a share, I think is what it was. There was a massive reversal scale that took the stock below $200 a share by the end of the day.

15:33
Guys, if it has $483 a share and it’s now trading below $350 or $380 a share, might be a good time to consider start taking a little bit of those profits off the table. And that was a warning sign. Yeah, it popped back up the next day and went back up over $400 but guess where it’s at today?

15:50
$49 a share. Big reversal candles, regardless if it even breaks the 5-day moving average. What’s crazy. GameStop, it closes one day at around $350 a share, shoots all the way up to $483 a share, closes the day at $193 a share, and it still was trading above the 5 day moving average.

16:05
So while the 5 day moving average can be helpful when it gets this parabolic and this crazy and, and you happen to be in it, look for the obvious signs of a massive reversal candle and don’t have a stock that’s at $483 go all the way back down to $193 a share before you realize, you know what?

16:21
I think the sellers are coming on strong here. No, it should be like kind of obvious around the 300s, OK? The same thing with Tilray. The thing goes from $20 at the beginning of the month all the way up to $66 a share, and then you get a gap down to like $55 and it closes at $30 something dollars a share.

16:37
In the 40s, you should be like saying, OK, I’ve made a pretty good run off of this thing and maybe time to go ahead and book the gains on it and just see where it wants to settle down at because this is a massive candle. I mean, it goes all the way up to beyond $66 and at $40 a share, it’s still trading above the 5-day moving average.

16:55
So, you got to recognize when a stock is reversing. And these big red candles, I mean, it’s about as obvious of a reversal candles as you can possibly get. When you get the big red candles and they’re really reversing hard and they’re doing it on the obscene volume levels, that’s your sign.

17:17
Momentum trades eventually die. And when you see the momentum dies, you don’t want to still stay in it. That’s where the back orderer term comes from. You’re trying to hold out hope that this momentum’s gonna return and it never does, and you’re sitting all of a sudden at a huge loss because you wanted to put your faith in a stock rather than in your trading abilities and what the charts were showing you.

17:32
All right guys, that’s gonna do it for today. If you wanna ask me anything, and I pretty much take any question about the stock market, feel free to shoot me an email, ryan@shareplanner.com. No questions too simple or too basic or too much for a beginner. There’s a lot of beginning traders that are listening to this show, and there’s a lot of traders that need to hear some of these beginning episodes to reinforce what they’ve already learned. I, it helps me to do it too because it helps me reinforce what I already know. So make sure to shoot me that email also, if you can go on the podcast platform of your choice. Leave a review if it gives you that opportunity to do so. I know on Apple Podcasts, they definitely let you do that. Amazon lets you do that, Spotify, um, you can subscribe, all that stuff helps me make sure to, to continue to support this podcast. I thank you guys very much for listening and also check out swingtradingthestockmarket.com. Thank you guys, and God bless.