Trade Entries and Stop Losses | Podcast Episode #236

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 Trade in the stock market, and I have a good episode for you guys here today. We’re gonna talk about some stock losses. We’re gonna talk about the exact entry prices that you should strive towards.

0:43
I have an email here from a guy, we’re gonna call him Jed. We’re gonna continue with that Beverly Hillbillies theme from the previous podcast episode. Jed writes, Hey, Ryan, my name is Jed. I’m a poor mountaineer that could barely keep his family fed. No, I’m just kidding, he didn’t say that.

0:59
But if you’ve seen the show, you know, that’s the opening lyrics to the song. He, he goes on and says, thanks so much for all the podcasts and what you do? I started listening around January of this year, and they’ve helped tremendously with my trading in just that short time frame. I started with the most recent ones and I’m going back in time through them all.

1:18
After a small segment of trading back in 2012 with a small account that did not go well back then, I’ve gotten back into the stock market in December with an even smaller account, but I’m treating it as if you would say, like I’ve got a million dollars. I’ve also recently joined your Patreon account and it’s awesome to see your thoughts, insights, and patterns.

1:36
I love the objectivity that you put into trading with managing the risk and letting the winners run. With that, I have just a few questions for you. First, do you ever change your stop losses during the intraday trading, or do you wait until the day is done to look at a new one?

1:52
I try to be objective as possible, so I want to make sure I’m putting my stop losses where they need to go. Secondly, More so on the entry side, when you’re watching a stock for a breakout, is there a certain percentage that you wait outside of the breakout before you get into the stock, or is it directly after the breakout?

2:11
I know you said that you like to make profits on the meat and potatoes of a stock, so. Is there a certain percentage that you consider the appetizer? I think I tend to get in too early with some of my trades because I’m trying to get the most out of my profits, but a lot of them lately have not worked out.

2:27
Lastly, is there ever a time where you will get out of a trade with just a 1 to 2% profit? Some of the volatility lately has been taking my trades up 1 to 2% just to fall down to my 4 to 6% stop loss range again. Thank you so much for your time and what you do. I love bourbon and whiskey reviews, and if the email does make it on the podcast, I’ll leave it to you to come up with my Florida redneck name.

2:49
Thanks, Jed. All right, Jed, we’re gonna answer all that. Actually, some really good questions there. Gonna knock that out. First, make sure you check out swingtradingthestockmarket.com just like Jed mentioned, you’re gonna get all my stock market research each and every day, and what am I drinking?

3:05
I am drinking. Penhook, Kentucky straight bourbon whiskey, they call this. The bourbon heist, it’s 49% alcohol, 98% proof, so pretty solid. I mean, I always like it right at that 50 mark or a little bit higher, so 49%’s pretty much right there.

3:22
Now, it’s an interesting bottle. It’s got like orange wax all over it. It’s a little bit more of a debonair, high class looking bottle. I probably paid like 1015 bucks for it. It’s like 200 mL. It’s not that much. But any case. When you smell it, there’s a lot of like apricot smells that are popping up, so that’s kind of a cool pleasant smell, one of the You that I when I actually smell it, I smell a lot.

3:47
But now on the taste, holy cow. Guys, this thing just like hit me with like some massive coconuts. I’m not kidding you, man. It’s like they didn’t even bother to extract the coconuts out of it, man. It’s just like they wobble me over the head with a freaking coconut. This taste is so freaking strong.

4:04
On this bourbon, but on the 2nd taste though, on the 2nd sip. It kind of like mellows out a little bit. It doesn’t come in as strong as that first, that first taste belt knocked me flat on my back. Even with a third taste, it actually starts to taste better and better the more you sip on it.

4:21
It’s kind of strange. Finish is real spicy. I like that aspect of it. It definitely lets you know that it’s still, you know, hanging around there. I think it could be a sipper for the right person. I don’t know if I would necessarily make it a sipper for me, but I think a lot of people could make it a sipper, especially if they like that coconut flavor.

4:38
I mean, it has some uniqueness. It has, you know, some heat, it’s got a good proof on it. I’ll give it a 7.0. I was kind of thinking about going towards the sixes with it, but I think 7.0 is a fair score. Now about the entries and the stop losses, I got a lot to say here.

4:55
So, he talks about Trading back in 2012. 2012 was a pretty rough year for trading for a lot of people. There were some significant dips. If I remember correctly, and I can’t remember this perfectly offhand, but I think that was like the European financial crisis back in 2012. And that was a period where it really made you wonder if like the whole financial system was collapsing overseas, but It had a significant impact on the US markets as well.

5:20
I remember plenty of times we were waking up like 12% lower on the day and. You would see it like day after day after day, and you would get a lot of volatility both to the upside and to the downside. So that was a tough time and it would have been easy, especially as a new trader to lose a lot of money. So I wouldn’t hold that against yourself too much.

5:36
But now he’s trading even a smaller amount, but he’s trying to treat it like a million dollars. And if you’ve listened to my podcast, I tell people it’s like, look, I don’t think paper trading teaches you a lot, so if you even get into trading, at least starting off with a little bit of money, treat it like it’s a million dollars. It’s hard to take serious paper trading because there’s no emotions involved in it because it’s not real money.

5:57
But even if it’s just a little bit of money, you’ll still feel like some of those emotions, it won’t be like a million dollars, but treat it like it’s a million dollars and manage your positions like it’s a million dollars. If you’re trading with like $1000 don’t say I’m just gonna go all in on every trade just because it’s only $1000.

6:12
If I lose it, it’s not the end of the world for me. Still treat it like it’s a million dollars because In trading, you’re not just trying to be successful from a profit loss standpoint because you can have a good trade here and a good trade there and you can think that you’re a good trader as a result of just hitting a couple of stocks.

6:29
Maybe they were lucky, maybe you actually did catch something and you benefited from it. There’s a lot of people that think they’re a good trader today after Elon Musk bought a 9.2% stake in Twitter and the stock went up 27%. All of a sudden, they think they’re a great trader. No. If it was me that got into it, or if it was anybody else, you’re just lucky.

6:49
You’re the beneficiary of a great news event, and that’s gonna happen in trading. There’s nothing to hang your head about. It’s good to be lucky in the stock market at times. I love it when I’m lucky. But I still got to manage the risk. I still got to handle the profits, and I gotta make sure that I don’t let a profit turn into a loss.

7:06
In essence, you have to be disciplined. And so whether or not you’re trading a $1000 account or a million dollars dollar account, treat it like it’s the latter, because in doing so, you’re instilling disciplinary characteristics in your trading. You’re making yourself more of a disciplined trader, yes.

7:23
That’ll mean that you don’t always YOLO on a certain trade that you wish you could have been in because your focus isn’t on just making tons of money. What you’re focused on is being disciplined with your money, because then, one, it’s going to keep you from blowing out your account like what most people will end up doing that are just trying to get rich off the stock market, and two, It’ll help you to become consistently profitable.

8:03
Discipline is the key ingredient because if you want to be the master of a lot, the manager of a lot of capital, you got to be able to be the master of a little bit. To be able to do well with just a little bit, because if you can’t do well with just a little bit, you’ll lose whatever you have down the road when it’s a lot.

8:21
He closed out his first paragraph with I love the objectivity that you put into trading with managing the risk and letting the winners run. The objectivity is pretty hard. I mean, one of the things that’s really helped me is to not get married to a certain stock or to a certain position. I treat them all pretty much now as just letters in the alphabet that I’m trading.

8:37
Four letter symbols, 5 letter symbols. I don’t really care the company behind it. I’m more interested in trading the chart patterns that I see, managing the risk to the downside, and trying to find the right entries, whether I’m getting long or short on that particular stock.

8:55
But one of the things I’ve learned is that objectivity has gone out the window in the stock market. I mean, I posted a video this past weekend on GameStop. And of course, if you’ve been following GameStop for any length of time going back to January of 2021. People are crazy about this stock.

9:11
They’re dumping their life savings into it. They’re not really making it about, you know, being disciplined and you’re trading. They’re coming up with fancy terms like diamond hands and aping into the stock, all of which basically implies being completely undisciplined and you’re trading, and it’s absolutely nuts to be doing that.

9:31
They think they’re trading for some cause to stick it to the man. They’re searching out for some boogeyman. I know there’s citadel out there and all these different. Groups that might be shorting the stock. But that’s their objective. They’re wanting to stick it to them. If I was to get into GameStop, and I’m not, I’m not short the stock either, so, you know, I have no dog in this fight.

9:47
But if I was to get into the stock, it would be about me and my trade. It wouldn’t be about me. And the world trading the stock with me, care less about all the other people. What I’m focused on is how am I going to manage this trade?

10:03
And that’s what you have to focus on. But these people, they’re like, you know, on the message boards like everybody stay strong. If you have the capital, throw another couple of shares at it, buy some more, we got to have diamond hands. We can’t let the big guy, the boogeyman, take our shares from us. We can’t panic sell.

10:25
And as someone who’s been training for like 30 years now. I cannot emphasize how stupid it sounds. I mean, absolutely nuts. So, I did the video on it and the comments were crazy because GME announced the stock split and they said it’s in the form of a dividend or whatever, and they think that somehow that makes it better for them.

10:42
It doesn’t. It’s just a stock split, guys. They used the word dividend, but they’re not paying a dividend. And for most people, what they don’t realize is that when a stock pays a dividend, That amount is being subtracted from the share price. So, let’s say for instance, GME’s trading at $100 come split time, they’re doing a 2 for 1 split.

10:57
It’ll probably be more than that. But For simplicity’s sake, they’re doing a 2 for 1 stock split, and they give you an extra share. Now you have 2 shares instead of 1 share. The share price is going to come down by the amount that they’re splitting the stock.

11:14
Yes, it might be a dividend or whatever you want to call it, but it’s still a stock split. So a lot of these people are thinking that this is somehow different. It’s not a stock split. I can’t tell you how many times this past week and I’ve been told it’s not a stock split, Ryan, you don’t know what the heck you’re doing. No, it is a stock split. I can assure you it’s a stock split, any case.

11:39
My point being in all of that and bringing up GME is that more than ever before my training, I’ve never seen such undisciplined trading, and the cockiness behind it is absolutely astounding. The dot-com bubble, yes, people were cocky, people were quitting their jobs to become day traders and everything, but now like the internet and all the message boards with stock twits and with Twitter.

12:00
Got like this cult mentality among a lot of these meme stocks and it’s breathtakingly nuts. In any case, I’m not going to get completely sidetracked on this podcast episode with talking about GME, but I’ve had some of the most like filthy and vile comments sent my way that YouTube couldn’t even publish, but they actually let me look at it, but it was pretty bad.

12:18
All right, so we’ve talked about objectivity, trading with small accounts. The next question that he asked, he says, do you ever change your stop loss during the intraday trading, or do you wait until the day is done to look at a new one? I try to be objective as possible, and I want to make sure that I’m putting my stop losses where they need to go.

12:41
So, yes and no. Most of the time, I will wait till after the market closes to raise my stop loss. That’s usually the case. However, there’s times, OK, let’s say the stock’s going down and I can see the panic in the tape. I can see how hard the selling is coming online. And let’s say the stock is like 1520 cents away from my Stock loss and um it’s like a $20 stock, OK?

13:02
There’s times where I’ll just go ahead and close out the trade because I know almost with about a 90% certainty that I’m gonna get stopped out on that trade. So just from an odd standpoint, I’m probably gonna get stopped out at a lower price, so I’ll just go ahead and get out. Now, I have been burned on that a couple of times, so it’s not a perfect practice, but for the most part, I’m usually glad that I did.

13:19
But there’s also times where you’ll get this massive gap up on a stock. Let’s say it gets upgraded. And it doesn’t even have to be a massive stock. When I say massive stock, not like necessarily like a Twitter gap, but we can actually talk about that in a second. But a lot of times it’ll be like maybe a 4 or 5% gap.

13:41
They got upgraded by JP Morgan or Goldman Sachs or whatever, and they’re rallying as a result, but there’s often times too where they will gap in crap, meaning they will gap higher and then sell off the rest of the day, especially if the market has a bearish tilt to it. And so that can be frustrating too is you start the day off 5% higher and then you, you start to see yourself 2 or 3% lower on the day.

14:07
That’s quite a dramatic turn. So one of the things that I tend to do for the most part is, wait, I don’t know, like 30 minutes to an hour for the market to kind of settle in to see where, OK, does it want to hold these gains or not? And Usually within that 1st 30 minutes to an hour, it’ll establish at least a temporary low on the stock and then try to make another bounce back up, not every time, but usually it’ll try to do that.

14:26
And then I’ll make that my new low of the day. And if I hadn’t done so yet, let’s say I have a full position on and I’m like, like I said earlier, I’m up like 5 or 6% on the day up from a gap higher. Then I’ll probably take some profits off the table. Because that’s another form of reducing the risk on the trades by taking some of the profits off.

14:45
That means that it’s gonna be much harder for you to lose on the trade. It’s gonna have to go much further down for you to lose on the trade than if you had sold nothing at all because you’re extracting profits out of that stock. You’re taking shares off the table at a profit, so you have a smaller position size. And while doing that, like I said, I’ll also move up the stock loss if necessary.

15:02
But I also don’t mind waiting till the end of the day to do it, but in the case of gaps, it does help to raise the stop offs up just so that you don’t get into that gap-fill scenario where you start losing everything that you opened the trading session with. Now, if it just continues to move steadily higher.

15:27
It can be hard to find that balance between, OK, what is the right stop loss to use if it continues to march higher all day long because there’s really no support that you can find even on an intraday basis or on a daily basis. So what I’ll do a lot of times is start using like a 5 or a 10 day moving average, especially if it hasn’t violated any of those and say, OK, if it starts to break below it and close below it, I’ll go ahead and get out of the stock.

15:43
If there’s a hard break below it, then I’ll get out of it intraday. He asks for his last question on the entry side, when you’re watching a stock for a breakout, is there a certain percentage that you wait for outside of the breakout before you’ll get into the stock, or is it directly after the breakout? Usually it’s right after the breakout.

16:05
That’s how it usually goes. Now, if I’ve seen where in the past it’s broken out but it head fakes intraday and closes back below the breakout level, then that’s something that you really want to pay close attention to. But if it hasn’t done that yet, I’ll get right in at the breakout level. I, I don’t mind doing that because in also doing that, That’s usually where I’m going to have the tightest stop loss possible.

16:35
So if I wait 2 or 3% for it to get running, well, I might go from like a 4% stop loss. To a 7% stop loss. And that’s almost like twice the amount of risk versus just getting right in at that breakout level. And if you do see where in the past it has broken out and fallen back down intraday below the breakout level, then what you’ll probably want to do is wait for it to clear the head fakes, like get above where the previous head fakes topped out at, and then get along right at that level.

16:54
So that’s another way to, to do that because yes, there’s nothing worse to get stuck in a head fake unnecessarily and if there’s a history there, you want to respect that history of head fakes. But for me, my entries always come down to The relationship between the entry price and the risk, there’s plenty of times where a stock will break out.

17:10
And it’ll run really hard in the morning and most of the time, I will never take a trade in the 1st 30 minutes of trading because it’s just a very unreliable period of trading in the stock market. There’s times where the stock will break out of that 1st 30 minutes and it sucks because that’s my entry price that’s getting messed up.

17:27
But what I’ll do is I’ll wait for a break of the highs of the, that 1st 30 minutes of trading to actually get into that stock. So, to make sure you guys are understanding cause I know I’m getting into a lot of technicals on a podcast, and I try to avoid doing that. Essentially, I avoid getting into a stock in the 1st 30 minutes of trading.

17:44
After the 1st 30 minutes of trading, I will look at what was the high of the day. If it doesn’t mess up my reward to risk ratio at all, and I can still keep at least a 2 to 1, I will play my entry price on that breakout play on a break above the 30 minute highs of the trading session.

18:05
So whatever the high price was between 9:30 a.m. Eastern and 10 o’clock Eastern time. That high price, I will go 1 penny above it and play the breakout there. Remember, when you’re seeing a lot of problems with the volatility in your trading where you’re having a breakout, you get up 1 or 2% and then all of a sudden you’re taking a 4 to 6% stop loss.

18:23
One always evaluate where you’re putting your stop losses or you put them below key support levels, and if you are, then consider the market that you’re trading in. The market peaked at the beginning of January and it has steadily been falling ever since until March 14th, which the market went on this epic three-week rally, at least so far, it’s been a three-week rally.

18:39
And between January and that March 14th date, you could have been playing a lot of breakouts to the upside that saw those 1 to 2% gains quickly get vanquished and destroyed and you’re sitting at a 4 to 6% stop loss. See, that’s why it’s important that you’re trading in the direction of the market as well.

18:56
And I don’t mind taking 1 to 2% profits on my trade. That’s not what I seek out to do. I seek out to maybe take some profits along the way, maybe it’s like 4 or 5%. And then continue to push the stock higher, take a little bit more profits, maybe at 10 or 12% and let the rest ride.

19:12
But if I have to take it at 1 or 2%, I’ve done it plenty of times, I’ll do it. Sometimes it means that maybe I took some profits at 3%, then I took some more at like 7 or 8%, and then it came back down to like 1 or 2%, and that’s where I got out at. And that’s OK too.

19:28
I mean, there’s always a lot of unpredictability with that final 1/3 position size because it can go way up there or it can come back and take back some of those profits, which in case you end up having to get out of the trade at maybe a smaller profit than your first or second lots that you took profits on.

19:46
All right, guys. If you enjoy this podcast, make sure that you’re still sending me your questions, ryan@shareplanner.com. I do read them all. I have a special Dear Ryan folder that I put them all in, and I keep knocking one out at a time. Also make sure to check out swingtradingthestockmarket.com where you can get all my stock market research each and every day.

20:02
Make sure to leave a 5-star review and 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.

20:24
With your membership, you will get a seven-day trial and access to my trading room, including alerts via text, email. 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.

20:24 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.