Managing Unexpected Gains | Podcast Episode #206

0:07
Hey, I’m Ryan Mallory, and this is my swing trading, the stock market podcast. 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 and I’ve got a good episode for you guys here today. We’re gonna call this guy Woody today for a Florida redneck name.

0:40
Woody Wrights. Hey, what’s a good strategy for when a stock gains a large amount of money in a few hours. For example, I’m in a trade and the stock pumps 20% on some good news in a few hours. Every time this happens, I seem to play it wrong. If I just hold the stock, it dumps and I lose out on a lot of gains that I could have had.

1:00
If I sell for a profit, the stock just keeps rallying a lot higher. Especially over the next couple of days, and I find it super stressful to watch a stock run that I was once in. I don’t know how to handle that kind of volatility. Thanks for the help, Woody. And what am I drinking tonight?

1:16
Drinking a sample of this brown sugar bourbon. It’s called BSB made by Heritage. I don’t know, I, I mean, I hope it has a good flavor to it. I’m assuming it’s gonna be a little bit like the brown sugar. I pour it nice looking color to it.

1:32
I smell it. It smells like fireball whiskey. And the taste? Oh boy, this is not a good one, guys. This isn’t good at all. I mean, it tastes like fireball whiskey, but without any kind of like kick to it, like fireball whiskey, and I’m not a fireball whiskey drinking kind of a guy.

1:49
I will put it in like some rum chowder or whatever, but this stuff, I just don’t even know what you could use it for. It’s fireball whiskey, well, any kind of like a cinnamon flavor to it. I don’t know, it’s like they substituted. Cinnamon for brown sugar. It just doesn’t taste good at all. I mean, zero taste of bourbon, and yet they call themselves a bourbon.

2:07
In fact, when I’m looking at this bottle here, it says it’s 60 proof, 30% alcohol, but bourbon has to be 40% in order for it to actually be a bourbon. So I don’t know how they get away with calling themselves a bourbon, and they’re not actually a bourbon. I mean, if it’s 30%, that doesn’t meet the 40% threshold.

2:23
I don’t know what’s going on here. But anyways, it sucks. And I, I tell you, I’m not gonna give it a high score. I’m giving it a 1.5. It’s basically somebody took a jug of water, took some brown sugar, poured the brown sugar into the jug of water, shook it really good and called it a bourbon.

2:40
That’s what it tastes like to me, and it stinks. But yeah, I’m giving this thing a 1.5 and they’re lucky I gave it that. Brown sugar bourbon. Uh. All right. Now back to Woody here, man. Woody has got some good gains here and he doesn’t know what to do with them.

2:55
And I’ve been in this situation before and I do have a game plan for how I tackle this kind of situation. You’re sitting around and all of a sudden there’s a rumor that comes out that one of your companies are gonna get bought or you have an FDA event that happens. Let’s say you’re in a biotech and this one drug that the company’s desperately needing to get approval for, gets the approval, it shoots through the roof, it’s up like 150%.

3:17
Let’s say there’s some kind of a headline event. That directly impacts it, whether it’s coming from Congress or from some other government entity, or just some kind of development out there that maybe they had like a big event day for the company and there was some really good news that came out.

3:35
Or maybe it’s headlines from another company or it’s leaked earnings. I’ve seen leaked earnings happen way too many times, more times than they should be happening, and it can affect the stock for better or for worse, and that’s usually why I don’t like to hold a stock right up into earnings. I usually like to get out the day before or early in the day, the day of earnings if they’re reporting after the bell.

3:53
Remember too, make sure to check out swingtradingthestockmarket.com. I know I’m putting a plug in here, but it’s what supports this podcast and make sure that I keep producing all of this good content. Go to swingtradingthestockmarket.com and you can get all of my stock market research that I provide each and every day there at swingtradingthestockmarket.com.

4:13
So you get shot headlines, they can create a lot of volatility. It’s kind of like when a company reports earnings. You’ll see them. Report earnings, they beat, and then all of a sudden the stock goes way up. And you’re thinking, all right, we beat earnings, the stocks lying, this is gonna be a great day tomorrow. And you like wake up in the morning and the stock’s down, or you’ll just see like 5 minutes after it spikes, it just takes a turn for the worst.

4:33
You’re like, oh crap, I’m down 10%. That’s what some of these headlines do because what happens is there’s like this initial emotional reaction and there’s a lot of algorithms that will all of a sudden react to it. And it’ll send the stock surging. There’s not enough supply out there to equal the sudden demand that was completely unexpected and it came from nowhere.

4:55
So you get these big massive runs on the stock. And Woody talks about it going up 20%. I’ve seen these things go up like 50% to 100%, even more so these days where there’s so much retail involvement that it’s not just algorithms that are overreacting to these things. You’ve got just hordes of people jumping in.

5:12
I mean, look at something like DWA that happened when Trump announced that he was gonna come up with his own social media company. DWAC went up like 1,500% or something crazy like that. And yeah, a lot of people were chasing it. After it had already gone up like 1000%, people were thinking, oh, now’s the time to get into DWAC.

5:29
And I apologize if you’re listening and you got into DWAC. Uh, I’m not trying to insult you or anything like that, but it’s crazy to get into a stock after it’s made a 1000% move. And Woody’s talking about these big moves that happen all of a sudden, he’s already in the stock and kudos to him because that’s what you want to have happen.

6:04
You want to be in the stock when the big news comes out. Yes, you can’t really anticipate those kinds of events, but they do happen and you’ll find yourself in the stock when they do at times. But don’t go chasing after him after it’s already happened. I mean, people who went after DWAC, the DWA, they literally got whacked.

6:23
So the shock headlines, they create a lot of volatility and it really makes you wonder, OK, do I get out now? I’m up 20%, I’m up 50% or I’m up 100%. Do I get out now? And it almost seems inevitable that whenever you decide to get out, it keeps on running. And if you let it keep on running, it all of a sudden reverses and you lose all those profits.

6:41
But the takeaway here is not whether it goes up higher or goes lower. The key is, is that you capture some of those gains that you don’t let this opportunity go to waste. And so no matter if it goes higher or goes lower, you wanna make sure that you’re taking some profits off the table.

6:41
And you’re gonna want to remember this too. There’s no perfect way to play a shock event perfectly. There’s no perfect way to play a shock event perfectly. I, I said it again. I’ve said this and also in a lot of other episodes, you want to get the meat and the potatoes of a move, OK? So in the shock event, it goes from where you got in at $100 and they have some great news and it goes up to $150 a share, you’re up 50%.

7:03
What do you do? You take some profits off the table. Why? Because you’re trying to make sure you come away with some of the meat and potatoes. It may keep going higher and that’s great if it does, but it also may go lower. It may get digest the news and all of a sudden everybody starts profit taking on that news. And it reverses course and you’re left holding the bag and you said to yourself, why did I not just take some profits when it went way up?

7:23
I mean, it’s not a shock event when you talk about AMD, but look what AMD’s done since the beginning of October. It’s gone from $100 a share all the way up to almost $160 a share. In some ways, it’s rallied like it was under the influence of a shock event, a big headline.

7:39
And yet there’s a lot of people that will not take profits on it yet and they’re going to be left holding the bag at some point in the future. Stocks go up, stocks go down. It doesn’t care if you’re in it or out of it. And that’s sometimes the thing that we have a hard time handling. We can’t handle the fact that we get out of a stock and the stock keeps rallying without us.

7:56
But guess what, the market doesn’t care whether or not you’re in it or you’re not in it. The stock market’s gonna do whatever it wants. And if you’re along for the ride, that’s great. And if you’re not, it’s not even gonna give you the decency to wave at you. But we take it personal, like, oh man, I knew it was going to rally as soon as I got out of it.

8:12
We all say that. I say it too, guys. I mean, I’m not immune to that kind of stuff. I say it’s like, man, I knew that thing was going to rally as soon as I got out of it, or if I try to manage the risk in a very conservative way, and then the next morning it’s got like 15 upgrades and everybody’s like doubling their price target and like, why did I get out of this thing?

8:28
So, it happens, guys, but you can’t take it personal and you can’t sit there and let They torture you. You gotta remember, you went into the trade with a plan, assuming that you went into the trade with the plan. And you worked that plan. So whether, you know, you get out of it and the stock keeps going up or keeps going down, it has to do one or the other.

8:45
When you get out of the stock, it’s not just gonna necessarily go down for all the eternity. It’s not gonna go bankrupt. There’s a good chance that it’s gonna go up, but you’re just trying to make consistently good trades. So, what is a good solid approach? I don’t want to just talk. Theory with you guys. I want to give you some good takeaways.

9:02
My best takeaway for dealing with shock events is to sell half your position. Look, if you have a stock that goes up from $100 to $150 you’ve made 50%. If you sell half, you still have 75% of your original position. That’s not bad. You’re really not trimming much.

9:17
You’re basically trimming a quarter of your original position off if you’re assuming there’s no gains. And remember, this is an unexpected headline. These are things that you’re not expecting to happen to the stock. This wasn’t part of your plan, but yes, sometimes we’re the beneficiaries of lucky events, and that’s good.

9:34
Take advantage of it though. Take half of it off. Let’s say the stock goes up 100% and you take half off the table, you still got your entire full position that you came into the trade with. Let’s say it doesn’t even go up 50% or 100%. Let’s say it goes up 20%, like what what he talked about in the email there.

9:49
OK. Stock goes from $100 to $120 a share. Then you still have 60% of your original position, that’s still more than half. Now you may say, well, Ryan, why not just take like 1/3 of a position or a quarter position? You can do that too. But if you’re sitting there with 2/3 of a position, it goes right back down, you’re gonna be like, man, why did I not sell more?

10:08
And so I’m specifically talking about shock events here because even in my own personal trading, I’ll take 13% off or I’ll take a 25% off, but I’m talking about more of like shock events where all of a sudden you’re the beneficiary of a lot of profits that you did not expect to see happen. And how many people like with GameStop this year or AMC or Hertz.

10:27
How many of them have seen their profits go up? 100, 200, 300%. Let’s say they had a stock that went up 3 or 400%, 400% to be exact. And they sell half their position, they still have 200% of their original position, guys.

10:43
That’s why I don’t get it. It’s like, dude, take something off the table here. If it goes up, goes from $100 to $300 a share and you take a third of your position off, and I was just telling you just a moment ago, you know, 3 can leave you with some regrets, but in this case, let’s say you take a third off, you just actually took all of your original position off the table.

11:03
That’s kind of cool, right? And then at that point, you’re just letting your profits ride and you’re trading with 200% of your original position. Now I know I’m talking about some extremes and most of us won’t get to see too many opportunities where we’re up 100% or 200% on a trade instantaneously and they do very rarely happen though.

11:19
It does seem like this year it’s happened quite a bit. But yeah, if you sell half of your position and the stock goes down, you’re gonna say, hey, At least I got out half of my position with those big gains, and if you sell half your position and it goes up after you get out of half of your position, you’re still able to say, hey, I still have half my position, which is actually more depending on how much of a shock event it was.

11:40
I’ll give you a few examples here. There’s an ETF, it’s a cannabis ETF, MJ. I wouldn’t necessarily call it a shock event, but around January of this year, the stock went from like $14 per share, all the way up to $30 something dollars.

11:56
At that point, you gotta take half off the table, because now it’s back to $14. Another one I remember from 2020 was SPCE. I was actually in on this one. And I wanna say I got in like around like $12 a share, and this thing cranked up to $40.

12:13
And I was able to get out at the high 20s and I made a profit by scaling out. But where’s it at now? It’s back at 19. A lot of times these shock events, they don’t last. They may last for the day or it may last for a couple of days thereafter, but you want to make sure that you’re taking some profits off the table. And even after you take that initial profit, start looking to where you’re gonna say, OK.

12:30
I’ve gone from 100% of a position down to 50% of a position. Where am I going to take out my next 25% of a position? So, you want to start asking yourself that, you want to start drawing those lines in the sand, and, and I give a lot of details in other podcast episodes that are definitely worth. Listening to.

12:46
And if you’ve been following me, you probably already know what I’m talking about. Look at some moving averages. Look for some breaks and closes below key moving averages that it’s found support at in times past. We talked about DWAC, but let’s talk about crypto here. Look at Shiba. I mean, we know that thing’s all full of crap. It doesn’t mean that you can’t make money on it.

13:03
Hey guys, seriously, this thing goes from 0.00001 cents per share. And it goes all the way up to 0.00008 cents a share. How are you not taking a half or 2/3 of your position off the table?

13:19
You gotta do it. You know that thing’s gonna come right back down and it’s trading at, you know, 0.000054. You should still be taking something off the table. You don’t want to be risking that or leaving that to chance. If you got in early, yeah, get some of those profits off the table. But so often we get into a trade and we think that we’re instantly supposed to become a billionaire or, or a mega-millionaire off of it, guys, just try to make a good trade.

13:42
Don’t worry about what life after the trade’s gonna be like. Worry about what life’s gonna be like after the trade if you don’t come away with some of the profits. You’re gonna have a lot of regret and hate for yourself. There was a stock when I first started trading. And I got into it and it wasn’t a ton of money.

13:59
It was maybe like a few $100. I mean, this was back in 2003, 2004, and I got into it and the next morning the stock went up like 60%. I had an FDA approval. I didn’t know what the heck I was doing, but it had an FDA approval that I didn’t even know about and it sent the stock up 60%.

14:20
But I said, no, I’m a long-term investor. I believe in the long-term growth of this stock. I ended up selling that stock a couple of years later for a loss. Now, how embarrassing is that when you’re up 60% and you try to tell yourself, no, I’m a long-term investor, and you see the gains all melt away. Gains that you are hoping just to achieve in like 3 or 4 years.

14:38
If you get 3 or 4 years’ worth of gains that you were hoping to get from a trade or from an investment, it’s good to probably go ahead and take some of those gains now. So the takeaway from here, you have a good shock event. Do you take some profits off the table? Yes. You always take some profits off the table, especially if it’s an event that you’re not expecting or not part of your trading plan.

14:58
This is a trade that you were hoping, OK, maybe I’ll get 5 or 10% off of it, and it’s up 20%, dude, take some profits off the table. Personally, for me, I think taking half off the table is a good way. That’ll give you the most amount of satisfaction and the least amount of regrets. All in one trade.

15:14
And that’s the takeaway. Don’t be stubborn, don’t think that your life is going to change off of one trade. Maybe it does, but don’t make that the basis of your decision. Look at what is being given to you and make some good risk management choices. If you enjoyed this podcast episode, please leave me a 5 star review on Apple, Amazon or whatever platform, maybe it’s Spotify.

15:35
Leave me a good review and make sure to subscribe so you get alerted every time I do one of these podcasts. I aim to. Do about 2 of them a week and I take all of your emails, I read them all. Make sure to send them to me ryan@shareplanner.com. I appreciate all the efforts that you guys do to contribute to this show and make sure to check out swingtradingthestockmarket.com.

15:53
Thank you guys 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. With your membership, you will get a 7 day trial and access to my trading room, including alerts via text, email.

16:12
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16:29
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.