Cancelling Stop Losses | Podcast Episode #184

0:07
Hey, I’m Ryan Mallory, and this is my Swing Trading the Stock Market. I’m here to teach you how to trade in a complex, ever changing world of finance. Learn what it means to trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

0:25
You can succeed at the stock market, and I’m ready to show you how. Hey everybody, this is Ryan Mallory with Swing Trading the Stock Market. In today’s episode we’re talking about canceling stop losses. That’s right. You place the stop loss after you get into a trade, when it almost gets hit, you get cold feet and realize, I don’t want to get stopped out yet.

0:45
I’m gonna get rid of my stop loss and that’s what you do, but then that only creates bigger losses down the road. So for this email today, I’m going to call this person Junebug because I don’t like to use people’s real name. And Junebug writes, Hi, Ryan, 3 years ago, I blew up my stock account to the tune of $25,000.

1:02
I only recently started trading again and was doing well with. The 5% gain on my portfolio. Three weeks ago, I researched and bought 3 stocks close to support. I’m a technical trader who buys near support and sells at resistance. I had stop losses set on all three trades just under support.

1:18
Then the inflation report comes out and the market tanked after hours. I woke up the next morning and all 3 stocks were past my stop losses in the pre-market. So I canceled the sell orders and now I’m bag holding. I worked so hard to trade differently. This time, and that 5% gain was hard earned following all my trading plans and rules.

1:38
I feel devastated that if I sell now, not only would I wipe out all my gains, but I would be in the hole about $1200. I fear that to sell would also negatively impact my trading going forward. Earnings are coming up and I’m not sure if I should hold or sell beforehand. One of my bags moved their earnings date forward, which, according to an article in the Wall Street Journal, is a good sign.

1:57
I’m currently down 17% average. On all three, and I have taken no trades since this happened, so about a month of no trading. Luckily, sell would not blow up my $15,000 account, but psychologically, it’s rough. One of the biggest losers has earnings coming out on the 29th of this month.

2:16
What to do? Many thanks. June bug. All right, and what am I drinking for this podcast episode? I am drinking, I’ve never even heard of this thing before. It’s called Iron Smoke Bourbon. It’s a Kentucky straight bourbon, 40% alcohol, 80 proof.

2:31
Look at it, it looks a little smoky. It doesn’t have like a real nice, clear color to it, a little bit of a dark brown color. So the nose, maybe like a butterscotch flavor, I don’t know. I’m not picking up on much. And for the taste, there’s a little bit of taste there.

2:47
There’s maybe like a hint of sweetness. I don’t know what that sweetness is coming from. It also tastes a little bit watered down. It just doesn’t have like a strong, satisfying flavor. And then you got like this light pepper on the finish, and it’s not really satisfying. It kind of lingers in a bad way.

3:04
Overall, I, I don’t necessarily think it’s a horrible bourbon. And even the finish, even though I say it lingers in a bad way, it’s not a horrible linger. It’s just not a very good one. I don’t know. I think I give this one like a 5.2. It’s definitely not an everyday sipper. You gotta be at least over a 6 to even be considered a sipper.

3:20
This is definitely not a sipper, so it, it’s not gonna crack 6. Best I can give this thing is a 5.2 out of 10 for my rating. Now, back to June bug, blows up his count 3 years ago to the tune of $25,000 started trading again just a few weeks ago.

3:36
Now he’s already down $1200 on a $15,000 account, didn’t follow the stop losses, had increased the value of his account by 5% prior to these three bad trades. So what do you do? Well, first of all, I mean, I can’t give financial advice, OK? So I’m gonna do that annoying disclaimer that everybody does, you know, I’m.

3:53
Not a financial adviser, seek a financial advisor if you need financial advice, which is not me, but I take these emails and I like to use them, you know, from a theoretical standpoint and to take these applications and to apply them to the broader knowledge of the listenership on this podcast.

4:09
So, my big question, and I see this happen, this isn’t something unique to June bug is why do people cancel their stop losses if you have no intention of ever following them. It just makes for bigger losses. I mean, there’s There’s no way around it. Yeah, you may get bailed out of it from time to time. It’s like, OK, it came back and it forgave me and there’s a lot of people right now that continue to buy the dip with no stop loss in mind.

4:28
And in many cases, the market has rewarded people for doing that. Not saying that that’s a good thing to do because here’s the problem with that. You don’t use stop losses when the market does actually have a big sell-off, it’s going to take everything that you have down with it. And you don’t want that. That’s what those stop losses are for.

4:44
And we have a market that’s at all-time highs right now, but only 25% of the stocks are trading above their 40 day moving average. Have you ever heard of such a thing? I mean, I’ve been trading for decades now, and that’s something that I come across very rarely, to be honest. But even in the best of markets, stock loss are there to protect you because not all stocks always come back.

5:02
Look at what’s happening with these Chinese stocks right now, like Alibaba and Baidu and IQ. I mean, they are getting taken to the woodshed, but the overall market’s not necessarily being taken to the woodshed. You see what I’m saying? Those stop losses on individual trades can and will save you in the long run and look.

5:20
I know that stop losses being triggered is not fun. I don’t sit here and act like I enjoy it. Every time I get stopped out, I don’t want to be stopped out. I don’t enjoy it. I question my sanity sometimes for even having stop losses, but I know in the end, those stop losses are what keeps me in the game.

5:36
And so until you brace the fact that stop losses are basically like an insurance against your own stupidity, and I’m not saying this towards June bug or anybody specifically. I’m telling you that as being humans that are fallible and capable of making some really, really bad. Decisions until you embrace the fact that those stop losses, yes, they’re going to result in losses when they’re triggered, but they’re for your own good, and it’s gonna be hard to make it in this market.

5:59
And you really have to do it religiously. I mean, it’s like stop loss or else. I mean, there’s, there’s no caveats about the stop losses. And we oftentimes don’t follow our stop losses because we’re afraid that we’re gonna get stomped out and the stock is going to go straight back up. That’s gonna happen, man. Stop losses aren’t perfect, OK?

6:15
They’re not perfect, but they are a great vehicle at keeping you in the game. And if they were perfect, I’d say, hey, every trade you make go 100% on that trade. They’re not because there’s things that can happen like what Junebug talked about where you get a gap down below the stop loss and you get taken out for a bigger loss than what the stop loss says.

6:34
You can’t do anything. About that, if you’re a swing trader. That’s going to happen from time to time. That’s why it’s important to invest in more high quality stocks, stocks that don’t have a lot of headline risk. One of the reasons why I don’t like to trade Boeing anymore is because there’s so much headline risk to it. For a long time there, Tesla was like that.

6:51
But what do I do when a stock gaps below my stop loss in the morning? I still honored the stop loss. Now, here’s the thing, I put my stop losses in at the opening of every day, so sometimes I can take like a minute or 21 of the things that I do notice a lot of times when you have a large gap down and one that goes below your stop loss, oftentimes you’ll see some covering that comes in right at the open there.

7:13
These people, they’re benefiting from the big. Gap down and they’re like, OK, I’m gonna go ahead and cover my position at the open so I don’t risk it rallying against me all day long, like what we’ve seen a lot over the last 10 years. And when they do that, it kind of creates a little bit of a momentary like 1 to 2 minutes of where the stock actually rallies off of those lows before eventually selling back off again for the rest of the day.

7:34
So sometimes you have that. It’s not a guarantee that you’ll get it, but oftentimes it does happen. And you can get out closer to your stop loss. I’m not saying that that is going to be the right move for everybody to do, but oftentimes because I put my stop losses in at the open, I noticed that happening a lot. But yes, when my stocks open below my stop loss, I take, I take it and they suck more than anything cause you’re like, man, am I just getting like royally beat down for nothing only to watch this thing go right back up to green before the end of the day.

8:02
And sometimes that happens too. And Junebug talks about how, you know, if I get out of this right now, it’s gonna be psychologically damaging. Well, here’s the thing. If you hold on to it, you risk it being even more psychologically damaging. And I don’t even know what kind of stocks or the name of the stocks that June bug is holding.

8:18
For all I know, it could be Apple, or it could be Neo, it could be Alibaba, right? No clue here. But in theory, and that’s what we’re working with here, you risk additional psychological damage by holding it longer and there’s some things that are coming up here.

8:35
This person has an earnings report coming out in just a couple of days. We’ve seen even the best of earnings reports like Apple get sold off. We’ve seen that happen a few times with Tesla even. They have an earnings report, the stock sells off. So even if you know what the earnings are going to be, doesn’t necessarily mean you’re going to predict the market’s reaction to those earnings correctly because even a good earnings report can have a bad reaction to it.

9:00
I also encourage those listening to check out swingtradingthestockmarket.com because with that membership to swingtradingthestockmarket.com, which supports this podcast, you’re going to get access to a lot of different charts that I’m putting out there each and every day that helps you understand where you can put stock losses at, where you can stage entry prices at, and it’s going to help you to become a better manager of risk while also getting my daily.

9:24
List of trade setups that I’m following each and every day. On top of that, you’re going to get updates each week on all the FA stocks and the S&P 500, Russell 2000, and the NASDAQ 100. Not to mention the fact that at the end of each week, you’re going to get my watchlist for the week ahead. So there’s a lot that you get with swingtradingthestockmarket.com.

9:43
Highly encourage you guys to check it out. It supports this podcast and allows me to continue to pump out this great content each and every week. So, now that I got that plug out of the way, we got to continue to dissect what June bug’s talking about here. I worry about Junebug honestly here.

9:59
I think that if it’s me, OK, I’m looking at a $15,000 account it’s like, OK, I’m down $1200. I made some mistakes. Now, if I decide not to close out those trades and move forward, it’s kind of like an admission that I don’t want to hold myself responsible. I got these trades.

10:14
I don’t know if they’re gonna go up. I don’t know if they’re gonna go down. Just hoping, I’m hoping earnings, those male lifeline. Maybe it does. But if it doesn’t and it gets worse, then it really makes that psychological impact even worse. Maybe it goes from like a $1200 loss to a $2000. But look, man, I can be stupid as a person.

10:30
I can do some stupid things, I can say some stupid things, ask my wife. We’ve only been married for a little while, but she’ll tell you that I can say some pretty stupid things. But you got to own up to it. And one of the things that I think is probably because of the stock market itself. I do a pretty good job of owning up to my mistakes. If I say something I shouldn’t say or act the way I shouldn’t act, I’ll apologize to my kids, I’ll apologize to my wife, whatever it may be.

10:52
And so like with trading, look, if you make some bad decisions, yeah, $1200 is a lot of money. But sometimes you got to just chalk it up. It’s like, I screwed up, man. I know now going forward not to do that again. It’s like, if I can’t control myself, then maybe the issue isn’t that I’m not disciplined at trading.

11:09
Maybe the issue is I’m undisciplined at trading certain dollar amounts because when you get to these dollar amounts that have a lot more emotional swings for you, like you’re not able to fully handle those kind of swings in your portfolio because you’re trading with too large a money, that’s when you do have a tendency to ignore stock losses because you’re not wanting to take that loss.

11:31
And if you’re not willing to take that loss, you’re probably always trading too big, so you need to start trimming down the trade sizes that you’re taking on. He made a point about the Wall Street Journal, there being an article that said anytime that somebody slides out their earnings out further than what they had originally scheduled it for that it tends to be bullish for the earnings report.

11:48
I don’t know about that. I’ve never heard about it until I saw him write about it here. That’s something completely new to me. To me, I would say even if it is a bullish earnings report, doesn’t necessarily mean that the stock is going to act bullishly. It may be a great earnings report like what we saw with Apple, but it sells off instead.

12:04
And there was one other comment. To that he says, look, I’m in all three of these positions. I haven’t traded in the last month or so. That tells me too is is that, man, this guy, he is so psychologically distraught over these things that he can’t even trade anymore, that he has to pin his hopes and his fate to these 3 stocks that are not even treating him good.

12:22
And that’s worrisome too because as traders, as swing traders, day traders, whatever it is, whatever kind of trader, you should be able to go from one trade to the next and really not have that much of an emotion. About it, whether it was a winner or a loser. Yes, there’s emotions and stocks, even though people tell you you have to trade emotionless.

12:38
You always have a, it irritates me every time I get stopped out. But after I get stopped out, I move on to the next trade. One way to keep being able to do that is by actually honoring your stock losses. But if you’re backwarding and you’re still playing with a lot of capital and you’re just kind of shutting down in the sense that like, I can’t do anything until these 3 stocks pan out, that’s also a good sign that you’re probably trading with too big of a position size, and you need To reduce the position sizes in order to trade with an amount that one, you’ll be willing to honor your stop losses, and two, you won’t shut down when the trade doesn’t go your way, and when you become undisciplined and don’t follow your stop losses.

13:13
And it’s obvious too because he’s like, I can’t take this $1200 loss. So you’re seeing the psychological impact of I can’t take this $1200 loss. I don’t know, maybe it’s Significant other is not going to like the fact that he’s taking another big loss and that’s going to. I don’t know what it is, but whatever it is, he’s got to plan his trades out with all of these different factors that are weighing on him right now so that in the future, these emotions and these pains that this person’s. about these losses are not going to impact his trading decisions.

13:45
We talked about reducing trade sizes. I would also say that he has to make sure that he follows these stop losses. If you get a gap down, that needs to be a hard written rule that no matter what happens, I’m honoring the stop losses. And like I said, I hate doing it myself, but I do it anyways because I know if I want to stay in this another 2030 years, I don’t know how long I’m gonna do it, and maybe I’ll do it until I’m in the grave.

14:07
I know if I’m gonna do it, I have to be disciplined and I have to follow these stop losses because one trade is not going to make or break you, OK? If you remain disciplined. But if you remain undisciplined, one trade can break you. He made one interesting comment on this too, that I’m having a hard time getting passed.

14:22
He says, I fear that if I sell right now, it would negatively impact my trading going forward. Well, not selling could also very much impact your. Trading going forward, especially if that earnings report that you’re thinking about holding through for two of the stocks, if those come out really bad, I mean, that’s really going to impact your trading going forward.

14:40
The psychological impact, yeah, that can be bad, but you can work on that. You can say, OK, maybe I need to find a different approach to trading. Maybe I haven’t considered the position sizes. Maybe I haven’t considered how wide of a stop loss that I’m using. I think it’s also important for this person to understand too as much as stocks will bounce off of support and be rejected at resistance, they also break those things on a regular basis.

15:03
I play the brake of support and resistance all the time. Technical analysis doesn’t mean that these support and resistance levels will always hold. It’s actually the exact opposite. It means that it gives you good opportunities to get long when a resistance level is broken and a good opportunity to get short when a support level is broken.

15:19
So you can’t just say, OK, I’m gonna play support and resistance and expect that it’s gonna hold all the time because sometimes it’s more like the exact opposite’s true. Support levels were meant to be broken. Resistance levels are meant to be broken. You take the inverse head and shoulders pattern. When that neckline breaks, that pattern is confirmed.

15:36
And how does it confirm? By breaking resistance. Remember this June bug, best plans don’t mean they’re going to be successful right out of the gate. A lot of people think that if they just have a plan, that they’ll be fine. But the fact is, is that trading takes a lot of time and a lot of years and a lot of perseverance, and that means that this trading plan that you come up with, the rules that you follow, they’re going to require some fine tuning because you’re going to learn more and more and gain more experience over the years.

16:00
And it’s like, you know what, I need to do this a little bit better. I need to trim up on how big of a position that I’m taking, or I need to scale back how big of a target price I’m putting on some of these swings. Trades. I had to do that all the time with my own trading. I’m always looking for ways to fine tune my trading plan. So just because you have a trading plan, just because you have rules doesn’t necessarily exempt you from dealing with struggles as a trader.

16:21
You will have struggles, but things like the stop losses and planning your position sizes, they will keep you in the game long term. And going forward, don’t cancel those stop losses, man, just own up to them. You’ll feel so much better and you can move right on to the next trade. That’s gonna do it for today’s episode. If you have any questions, feel free to send me an email, ryan@shareplanner.com.

16:40
I love getting your emails and putting them on the air and making episodes out of them, so keep sending them. Also, make sure to leave a 5 star review if you can, whether it’s on Apple, Spotify, or Amazon or any other platform, Android, and if they don’t let you do it, then make sure you subscribe at the very least.

16:55
That way you’ll get notified and that way I can continue to grow my audience. You guys are awesome, man. I really appreciate it. Don’t forget to keep sending me those emails and God bless. Thanks for listening to my podcast Swing Trading the stock market. I’d like to encourage you to join me in the SharePlanner trading block where I navigate the stock market each day with traders from around the world.

17:14
With your membership, you will get a 7-day trial and access to my trading room, including alerts via text, And WhatsApp. So go ahead, sign up by going to shareplanner.com/tradingblock. That’s www.shareplanner.com/trading-block, and follow me on SharePlanner’s Twitter, Instagram, and Facebook where I provide unique market and trading information every day.

17:36
If you have any questions, please feel free to email me at ryan@shareplanner.com. All the best to you and I look forward to trading with you soon.