Hodgepodge of Trading Questions (Part 2) | Podcast Episode #247

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 it’s part two of the hodgepodge of trading questions. I took a break from the previous episode just to address the ongoing stock market crash of 2022.

0:45
When you got the NASDAQ as of this recording here, down 27% on the year and we’re just in the month of May. So, Yeah, I felt like it was kind of necessary to go out of my way and not talk so much general trading strategies with you guys, but to talk about directly to the stock market crash.

1:05
So, with that out of the way, let’s pick up on the hodgepodge of trading questions part two. And I won’t read the email again. The email comes from a guy we call Aggie, and we’ve already answered the 1st 3 questions. Now, the next questions that he wants me to ask is one, what percentage is too many percentages to let a trade come back on you once it is in the green?

1:27
Basically, what he’s asking is, how far are you willing to let a stock pull back once it’s in the green before you decide, OK, that’s too much. Second one is, what do you think is the max loss or percentage of account that should be on a normal trade? Number 3 is, do you let a trade bounce?

1:44
In and out of the red and green area, or what we like to call profit and loss, or once it is in the green, would you cut it if it slid back down to the entry? Likewise, say it’s in the red and pushes back above your entry, would you close it right away? Would you even ever make decisions like this based on intraday price action moves or wait until it close or open?

2:04
Also, he asks if I’m only a bourbon drinker or do I ever dibble dabble in the scotch department. I don’t really ever dibble dabble in the scotch department. It’s not something that I’m against. I really do enjoy bourbons and a lot of the rye whiskeys out there. So, primarily just focus on that.

2:21
Not saying that I won’t get into the scotch and maybe if I have a really good scotch one day, I would start focusing more on the scotches. But today, I really haven’t had any really good scotches. So, and that brings me to my next part of this podcast where before I start answering Augie’s questions, I address what I’m actually drinking.

2:39
So I went bourbon hunting and I was a little bit naive. I didn’t realize something I made a mistake and realized it right before I did this podcast. I went bourbon hunting the other evening and tried to find myself some good bourbons, right? Came across Buffalo tray for $23.

2:54
That was phenomenal. But I came across a couple of others like Knob Creek 15 year, which I’m gonna highlight in a future podcast, the Four Roses Small batch select, which I’ll also do it in another, but this one here is the Woodford Reserve Kentucky Derby 148.

3:12
Now, this is where I’m naive. I hardly ever watched the Kentucky Derby. It’s just not all that interesting to me. I think there’s a lot of people wearing big hats and everything, and a lot of times these sporting events that I never watch or if it’s a sport that I never watch, I don’t really care about the big sporting event that defines the actual sporting event.

3:30
In this case, horse racing would be the Kentucky Derby, though I will say I saw the rerun of it and that horse coming back from the hind leg, was it called Longshot? Yeah, like 80 to 1 odds. He comes like flying back from like almost last place to first place in the final stretch.

3:46
That was crazy. But Woodford Reserve makes a Kentucky Derby bourbon. Well, I thought it was like a unique bourbon, so I bought it and I was like, oh man, this will be kind of exciting. I’ve heard that they did it, but I never really looked too much into it and maybe it comes down to, I made a bad impulse buy.

4:02
Anyways, Woodford Reserve Kentucky Derby 148 is really just the same thing as Woodford Reserve. And I did a little research on I’m like, oh, this is kind of disappointing, but I’m gonna review it anyways just because they slap it in a fancy bottle with horses painted on there or drawn on there.

4:20
It’s a really cool bottle, but, you know, when I’m done with these bottles, I kind of throw them away. I don’t really keep them for anything, so, kind of annoyed by that. So who knows, maybe that’ll affect my score, but. I’ve actually done the regular Woodford reserve a long time ago. We’ll see how close my scores are this time around compared to when I did it probably like 100+ episodes ago.

4:40
Definitely has like a, a minty fruity smell to it at first and then the taste. You also pick up on some of those mint flavors. It’s not bad, but the spice kind of comes in too fast. You don’t get to enjoy it enough before the, the spiciness comes in, and it’s not a real like.

4:57
Flavorful spice, it’s more like a bland spice. Now, don’t get me wrong, I love Woodford Reserve Double Oaks, one of my favorite ones, but the regular one, it’s not bad, but it’s mediocre, in my opinion. I give it like a 65, 66, but because they kind of screwed me over on the artwork on there, I don’t want to pay extra for it.

5:16
I think I paid like a $20 premium for the freaking artwork on the bottle that I’m gonna ultimately throw away, knocking the sucker down to like 4 or 8. Way better deal just to go get a regular bottle of Woodford Reserve and spare yourself on buying a bottle that you’ll probably just throw away at the end.

5:33
So Woodford Reserve, Kentucky Derby, 148. What did I give it a 4.8? Yeah, 4.8, man. Woodford reserve Kentucky Derby 148, gets a 4.8. OK, so back to Aggie’s questions. He says, how many percentage points is too much to let a trade come back on you once it is in the green.

5:54
I would probably try to look at that question from a different angle. I would say, if you get to a point to where you get to a certain percentage of gains on a trade, and you find yourself saying to yourself, OK, I cannot let this go back into the red.

6:11
There’s just no way I’m gonna let that happen. Maybe that’s the point where you should start booking some profits, taking it off the table. So at least that you come away with that percentage gain on a portion of your trade. And if it does come back down, at least a portion of your trade came out at like, let’s say it’s 5%, you say to yourself, there’s no way I can let a stock that once I’m 5% in the green, go back into the red.

6:33
OK, maybe even once it gets to 5%, you take a quarter or you take a third or even a half depending on what kind of market you’re dealing with. Just so that you don’t have to deal with the psychological damage that comes with going from 5% up to being back in the red. Maybe that’s 10% or 8%.

6:51
For me personally, I don’t do that. I’m just trying to say it’s kind of an interesting question and it’s a psychological question that can get really a lot of people into a tizzy. So if that’s an issue for you. Then maybe just consider, OK, if once we get to that point to where 5% is like there’s no way I’m ever gonna let this thing go back down and turn red, and believe me, that can happen.

7:11
It can happen in a single trading session, as we’ve seen with plenty of stocks here of late. Then maybe just start taking some profit off the table. That way if it does, come back down and you get stopped out for like a 2% loss or something like that, at least you’re coming out moderately green, and you’re still able to give it enough wiggle room to see if whether or not it, it can.

7:31
Eventually turn the corner and go back up again without dramatically hurting you from a profitability standpoint. For me though, and I think it’s worth addressing how it works for me, I don’t have a percentage that I would consider too much to be up to let it go back into the red.

7:50
Usually what I like to do is, OK, if I’m using a 3 or a 4% stop loss. Where I want to ultimately start taking some profits at is maybe like 6% if I’m using a 3% stop loss, I want to start taking some profits off at 3% because at that point, I want to make sure that at least I’m getting a 2 to 1 return on a portion of my trade because yes, I could say the trade setup has a 2 to 1 or a 3 to 1 reward to risk ratio, but that doesn’t necessarily mean that if you’re profitable on the trade ultimately that that’s what you’re coming away with.

8:19
You’re looking for setups that offer that opportunity, not necessarily that guarantee. So, when I get into a trade, let’s say I get into a trade at $100 and I have my stock loss at $97 and the stock goes from $100 all the way up to $106. Well, then all of a sudden, I’m sitting on like 2 to 1 profits versus what I risk.

8:39
Good chance I’m gonna start taking like 1/3 off the table right there just because from a trading standpoint, I can secure 1/3 of my position at a 2 to 1 return for what I risked on that trade for that portion of the trades. So then, Maybe it goes up another, you know, 3%, and now I’m sitting at 3 to 1 return and maybe I take another 3 off right there.

9:01
And I say maybe loosely, but most of the time that’s what I’m using for my strategy. Now, maybe sometimes it doesn’t get all the way up to 109 and it starts lollygagging at 108 and starts breaking below a consolidation level that I don’t like, then OK, I’ll take another 13 off right there and then I’m down to a final third.

9:18
So, it’s very much a moving target at times. In a perfect environment, I would like to go ahead and take a third off at 2 to 1, another 1/3 off at 3 to 1, and then let the rest run wild. But sometimes you might be taking it off at twice the risk for that 1st 1/3, and then maybe you don’t ever get any higher than that.

9:39
And so then you’re closing up the rest of the position, you know, for a 2 to 1 return. And the reason why it’s hard to give a concrete answer on that is because every trade is different. Every trade has its own personality. You’re dealing with different market conditions, sector conditions, industry conditions, you’re dealing with different seasonalities, you’re dealing with different times of the year, so all that affects the stock.

9:59
We haven’t even talked about what moves the actual stock, right? So all these other external factors and then you have the personality of the stock itself, which can be a very volatile stock or be a very docile stock, like take UPST versus Walmart WMT.

10:20
So, I don’t have a set number for that. What I typically do is, if I have a like a stop loss of 5% on the trade, that’s usually going to equate to somewhere between 0.5% of my total account to about 0.75% of my total account, depending on the actual position size.

10:36
I’m not going to have a very huge impact to my overall portfolio. But here’s the thing, let’s say it’s a, a 0.5% that I’m dealing with as an impact to my portfolio and I have a good trade, and let’s say that my ultimate return on the account from that one trade is 3 to 1 for what I risked.

10:53
Well I risked about 0.5% of my portfolio on that trade, let’s say it’s a 5% stop loss and I’m using 10% of my portfolio on that trade, a 0.5%. And then the stock rallies and I make 15% on the trade. Well, then I added 1.5% to my portfolio.

11:09
But let’s say also I have like another 7 stocks in the portfolio that ran in tandem with it. Now, I’m not trying to say that all stocks do the exact same thing, but for just simplicity’s sake, let’s say I had 7 other stocks that went up in the portfolio, 10% position sizes for each trade, then, I’m looking at a 10.5% return on my portfolio out of those seven trades that netted me about 15% on each trade.

11:35
So I’m pretty sure my math is right on that, but you guys can double check me if you’d like. So it doesn’t sound like it’s a lot, but in the process, I’m keeping the risk pretty tight on the impact of one trade, if it’s ends up being a losing trade of what it does to my overall portfolio.

11:51
And one of the things that I like to do, and one of the reasons why you don’t see me using 10 and 15% stop losses on a single trade, is because when you’re wrong, it takes another big trade to just make that up during the month of April, really good month of trading for me, but I had a streak of 3 losing trades.

12:06
I think it was like 2%, 2%, and 3%. And then my next trade was like 16%. Well, guess what? That one trade just more than covered 3 losses in a row because I was keeping those stop losses so tight. Now, let’s say.

12:23
I had like 10% stop losses on all those trades, and I got stopped out of all of them. Well then, I just had 30% in total net losses, not 30% down on my portfolio, but just 30% worth of losing trades combined, and then I make 16% on one trade.

12:41
I’ve still got halfway to go. The one thing I don’t want to do is have to go through drawdowns, and if I do go through a drawdown, I want it like through a 3 losing trades in a row. I want it to be very, very mild and hardly noticeable to the portfolio.

12:59
And then when I have my next trade that is a winner, I want it to more than. Covered those losses from multiple trades. So the max loss really comes down to personal preference. The reason why I keep my stop losses so tight is because I don’t want a big drawdown.

13:16
To me, a bad drawdown in the overall portfolio would be like 2 or 3%, seriously. I mean, I don’t want big drawdowns. And his final question is, do you let a trade bounce between red and green? Or once it’s green, would you say that you would cut it if it slid back down to the entry?

13:34
OK, so let’s knock that one out, but first, make sure you support the podcast by going to swingtradingthestockmarket.com, where you can get all of my stock market research each and every day for a small fee. That’s going to include watch lists, that’s going to be my daily setups that I’m looking at each day, plus the most intriguing charts that I come across, my market thoughts.

13:52
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14:09
So, I don’t care if a stock goes between red and green. That doesn’t really bother me. Really, what I’m looking for is, did the trade break out and has it made an assertive move higher? OK, if it has, then I’m gonna start looking at areas where I can move up my stock loss because ultimately what I’d prefer to do.

14:36
Is not try to get out at the very top of the trade, not try to get in at the very bottom of the tray, but try to get the meat and potatoes of a trade, right? We don’t want the appetizer, we don’t want the dessert, we want the meat and potatoes. We want the entree and the side dishes.

14:56
And so, you know, if the stock bounces off of a key support level at 100 and I get in at around 103, and it rallies up to 120, and then it starts to pull back again and I get out at 115, I’m happy with that. I didn’t get in there at the bottom. I didn’t get out at the top, but I got the middle chunk of that trade.

15:12
And so what I want to do along the way is keep raising my stop losses to key support levels as well as taking profits along the way. It’s two essential ways to be able to manage the risk and keep tightening it so that you can maximize your profitability on the trade.

15:31
Yeah, I don’t mind it. I mean, let’s say you’re playing a trade that if it breaks the declining trend line. I’ll get long on it, OK? It breaks the declining trend line. You get in as soon as it starts to break through it. And it breaks at 100 and it goes up to 105, you have a stop loss, let’s say at 94.

15:51
You get in at 100, goes up to 105, and then it starts to pull back some, and that declined trend lines going lower and lower and lower each passing day. So it pulls back to like, let’s say 99 or 98 because that’s still gonna be a support level. It’s a breakout support level, it’s just a little bit lower than where you got in at, and then it bounces.

16:10
Well, that just went from green to red and back to green. I’m OK with that. And I’ve had plenty of trades that go back to its entry price, but one of the things that helps me out a lot, and I’ve had this happen a few times this year, where I’ll get into a stock, and again, I’m using the getting in at 100 just because it’s easier to visualize and do the math.

16:28
I get in at 100, it goes up to 105 and I take some profits off the table, the market reverses and it goes back to 100 or 99 or 98. I get out at a loss for the final 2/3 of a trade, or maybe it’s just 1/3 of a trade, but when I do, I still come away with a profit.

16:44
So I’m OK with that happening. What I want to do is give the stock a chance to do what I expect it to do based off of the trade setup that I went into it and to stay in that trade setup until it proves this trade setup is not going to work. If that means I have to let it go from green to red to green to red to green to red, so be it, as long as it doesn’t violate the thesis of the trade setup.

17:07
And I’d never make trades based off of the opening price. I mean, I’ve been stopped out of a trade at the opening price, but I don’t really make any trade decisions off of the opening price outside of whether or not my stop loss might get triggered. But I will make decisions off of the closing price.

17:23
So sometimes I’ll have a stock that’s trending higher really nicely, and then I’ll say to myself, OK, it’s been bouncing off of this 5 day moving average. Sometimes it’ll go below the 5 day moving average, but by the close, it usually recovers. And holds that 5 day moving average into the close.

17:38
So that’s the most important part. Does it hold these trend lines? Does it hold these support levels, moving averages, whatever it is that you’re tracking into the close? And if it doesn’t and it closes or it looks like it’s gonna close below that key level for you, then I’ll get out.

18:06
So, to wrap things up here, don’t forget about swingtradingthestockmarket.com, but also, we talked about taking partial profits and what percentage amount is too much to let a stock pull back once you’re already in the green. We talked about what is the max percentage loss that I would take on a normal trade and do I get shaken out of a trade when it’s going back and forth between green and red.

18:23
And I’ll continue to keep answering your questions in future podcast episodes, so make sure to continue sending me your questions, ryan@shareplanner.com, and leave me a 5-star review on Apple, Spotify, Amazon, whatever platform you’re listening to me on, make sure to leave me a review.

18:40
It provides me with some encouragement and also I enjoy seeing 5 stars as well. Thank you guys. 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.

18:58
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19:19
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.