Closing The Trade Early | Podcast Episode #316

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, 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 going down memory lane to a guy.

0:38
We used to call Bryce Harper. I can’t remember why we call him Bryce Harper but that was the name that I gave him. So we’ll stick to that particular name. And I was a little bit too lazy to go back in time and listen to the episode of figuring out why I called him Bryce Harper. But this guy emails me regularly usually provide some pretty good emails. I’ve done a couple episodes off of his emails.

0:55
He writes: Hello, Ryan. Bryce Harper here. So I have switched to live trading account recently after trading a paper account, for about six months. Very exciting. My question is this, if you put on a Read in the price immediately begins to move against you. Do you hold your ground? I could see that both the market in sector I was in was taken a turn for the worse but decided to hold my ground.

1:14
Instead on the trade, I thought of raising my stop loss to exit early, but thought that doing? That might be considered a failure of discipline. Is it undisciplined to do that? Is that consider panicking? I want to be a disciplined Trader but I also want to keep my losses as small as possible. How do you see a situation like this?

1:30
Thanks again, Bryce Harper. Now, what’s really interesting about this is that when he As paper trading, he probably didn’t worry too much about the trade going against him or considering getting out of the trade early. So this is actually a pretty good question. One that we’re going to spend some time on today.

1:46
But first, what am I drinking? I have got this stuff called Ray Ranch, never had it before. It’s bottled. In bond, is a straight rye whiskey, 50% alcohol, makes it a hundred proof. I’m just going to be sipping on this throughout the show and that the end of the show. I’ll be telling you my thoughts on the whiskey itself here.

2:02
So when you go from paper trading to Reading live. It creates a whole other set of emotions. I mean, it’s big time. I’ve always equated it to going from part-time, trading to full-time training, when your part-time trading. It’s not as bad as full-time training, because part-time trading doesn’t create as much emotion out of you as full-time touring with your full-time train.

2:21
That’s all you got. That’s also why I actually talked about having a side gig in your trading to, because you’re going full-time, swing trading. It’s going to be boring, a lot of times too where you’ll have plenty of time on your hands. Even outside the all of the research that you do to be able to To accomplish something else and maybe even monetize it.

2:38
But like I said, going from paper trading to live trading, where you’re trading your own money, your own capital is very similar to the same emotions, kind of like going from part-time to full-time trading, because with live trading, when you’re trading your own money, I don’t care what amount it is, it’s very, very different than anything that you have experienced to date.

2:58
It introduces a lot of new emotions. Like I said, I mean, you will have the fear and the greed because you don’t really experience fear and greed when you’re just playing with paper money, just like with Monopoly, right? When you’re playing Monopoly, do you really get hung up on those orange five hundred dollar bills? Maybe in the moment you want to win the game and everything.

3:13
But are you carrying it with you if you make a bad purchase of property on Monopoly? No, because you’re playing with paper money. It’s not even real money. But same thing with trading, you don’t really care as much when you’re taking on losses paper trading. Paper trading does have its place. It’s good for you to learn the mechanics of trading, to learn the ebbs and flows of trading before going right into live trading, where you’re trading your own capital and you’ve never done it before and you don’t know what the heck you’re doing.

3:34
How to get in, how to get out, why you should be getting in, why you should be getting out. So paper trading does have its place, but live trading is what really throws you out there and teaches you the rigors of real trading because for one, you’re playing for keeps. During the meme stock phenomenon

3:50
One of the craziest things was how many people that wanted refunds on their bad trades? Because they just jumped in there, they were probably taking money out of their credit card and getting a cash advance and putting it on GME at $400 and it comes straight back down. And they’re like, oh, I didn’t mean to make that.

4:05
I’m telling you, brokerages were filled with people calling up wanting refunds, wanting redos, saying they didn’t make the trade. They didn’t do that, they don’t care. It’s too bad. In the world of Gen Z, it’s GG’s. You don’t get that money back. And I only learned what GG was because my two boys, they say it all the time and it drives me nuts.

4:24
And I didn’t know what it meant. So I asked them, they told me it means good game. So, for us older folks that don’t know what that means, GG’s means good game. When you’re going from paper trading into live trading, there’s money attached to every decision that you’re making. That’s one of the reasons why I say don’t dollar watch your trades.

4:40
A lot of times people, instead of looking at the charts and watching the charts, even after they’ve planned out their trade, after they even know where the stop loss is, they start gauging the success of the trade by how much money they’re up or down. And the problem with that is you start personalizing that money.

4:56
You start thinking about, hey, I can go to the Piggly Wiggly and get double the groceries tonight if I just go ahead and close out now. I can go get prime meat instead of choice meat. And so you start personalizing that money, which the market doesn’t care what you think about that money or what that money means to you. It’ll take it in a heartbeat and it will give you in excess beyond what you can believe. But you got to be on the right side of the trade for that to happen.

5:13
So there’s a lot that goes into the transition from paper trading to live trading. And so I wanted to get that out of the way because that’s what Bryce Harper’s dealing with here. But now, he’s also dealing with what to do when the trade goes against you. And like I said just a few moments ago, you probably didn’t think about that as much in live trading. You know, if you bought into a stock at 100 and you had a stop loss at 95 and the stock dropped down to 97, you probably never thought, well, maybe I should get out of this now. Why? Because he didn’t really have any skin in the game. But now, once you have the skin in the game, you start to think, man, I could save some money if I just go ahead and get out now. And it’s not wrong to get out before your stop loss, but it needs to be under the right circumstances. One of the things that I see a lot of is breakout head fakes. You see that all the time.

5:55
Even in good trades, you’ll have head fakes where, and when I say head fake, what I mean there is a stock that breaks out of the pattern. Initially, everything looks like it’s going well and then either that same day or the days that follow it starts to pull back and goes back below the breakout level and you’re like crap. It’s not breaking out any longer. What should I do? And so a lot of the situations that I’m guessing Bryce Harper is dealing with here is the fact that, you know, this, by the way, just to make it clear, this isn’t the actual Bryce Harper baseball player that I’m speaking towards, but just wanted to make sure to get that out of the way. But these breakout head fakes, they can be very frustrating and there’s been plenty of times where a stock will break out and will have such a huge head fake

6:35
That I’ll just go ahead and close out the position there. It’ll usually be because it has a huge shadow from where it broke out initially above the breakout level. And then it has a huge body below the breakout level where it continued to sell off thereafter. Might not have hit the stop loss. But at that point, I’m asking myself, okay, with this new candle, with this new development that we’re looking at here, is there a reason for me to want to stay in this trade?

6:57
Is there a reason to be bullish about this trade when I had such a massive head fake? And if I answer no, there’s not a reason, then yes, I will go ahead and close it out because to what Bryce Harper said, yeah, it is keeping your loss smaller and that’s important. I’ve had plenty of times where a stock will head fake or I’ll get in and then immediately the stock pulls back on me.

7:15
And then I realize, hey, with this new candle, with this new development here, there’s really not a bullish scenario here because it failed to hold the breakout. And then the stock in the coming days will actually stop out and I saved the money. That’s great. But now on the flip side, what do you do when you go ahead and get out of the stock early and then the stock keeps going back up?

7:34
I’ve had this happen before, I’ve had it happen even recently. There has to be a plan in place for why you would get back in again. So it’s important to know if you go ahead and get out early, would this be a stock that you would get back into if it broke back out again? Because sometimes they will break back out again.

7:50
It’s not impossible and if there is a good reason to get back in it, if it breaks back out, you want to make sure that you’re watching that, that you’re ready for it, because it can drain a lot of mental capital if you get out of the trade and then it goes back and breaks out again and it leaves you behind. Yes, I’ve been on both sides of this trade before and it is, it’s very very frustrating and I know a lot of you guys and gals listening to me have experienced the same thing before and that’s, that’s okay.

8:15
You’re in good company. But it helps if you have a plan in place for why you’ll get back in. Because if it breaks back out again, there’s no shame in getting up. Let’s say you got into stock ABC at $100 a share and you had to stop loss at 95. It goes and breaks out, goes from 100 to 101, you’re feeling pretty good.

8:33
And then before the close it drops right back down and it’s getting ready to close at $97 on the day. It’s like, you know what, I’m going to go ahead and get out. It’s not worth staying in at this point because it has such a nasty head fake. That was a very bearish move. Then you wake up the next day and candles can reverse themselves, there can be a huge market event that sends it right back up again and then all of a sudden you see the stock go from 97 back up to the breakout level at 100.

8:58
So yes, you missed out on about a 3% swing there. Stinks. But it’s recoverable. It doesn’t mean that you can’t get back into the trade. If it hits 100, it looks like it’s a great breakout again. You can get back into it, that’s what I would do. And so if you get back into it, yes, you don’t get to recover the money from 97 to 100, but that doesn’t mean that the stock won’t go from 100 to 110. Instead of making ten percent overall between those two trades, you made seven percent. Still pretty good guys.

9:24
And you know what else is pretty good? swingtradingthestockmarket.com. You knew it was coming. I say it all the time in these episodes but it supports this podcast. So I encourage you guys to check it out, you’re going to get all my stock market research each and every day, that’s going to include updates on the big tech stocks, it’s going to include updates on the overall market.

9:41
The S&P 500 and NASDAQ, and the Russell 2000 along with that. You’re also going to get my weekly master watch list updates, plus my daily watch list at the stock that I’m looking at each and every day and some other videos of pretty cool trading scenarios and stuff that I want to bring to your attention. So check that out.

9:56
swingtradingthestockmarket.com. Now let’s just say that you’re going to be a principled person who’s like, no matter what, I’m going to adhere to the original stop-loss. That’s fine too. I mean, but at a certain point it’s okay to get out early. Even then if the trade doesn’t work out, let’s just say that you get into a stock and for the next two weeks it trades sideways and it goes nowhere, and it’s showing no prospects for really breaking out to the upside.

10:17
It’s not bullish, there’s nothing going on there, might it be appropriate to go ahead and get out? Sure, because then there’s the opportunity cost of that you’re just tying up your capital for no reason. Here’s the thing. Sometimes it’s not even so much the stock. Yes, the stock will reverse on you and you’ll have a really nasty head fake, but it might not just be because of the stock itself, it could be the whole market’s reversing.

10:35
I mean, you can have huge market 180s that even in the best-looking breakout plays, that reverses the price action of that particular stock along with, you know, the thousands of other stocks that are trading in the stock market that day. And getting out, that doesn’t make you a bad trader, you just dealt with a market 180. I mean today is probably a perfect example of it.

10:52
We had the PPI report come out, the market initially sold off and then it spent pretty much the next five and a half hours rallying off the lows non-stop, just rallying minute after minute, half hour after half hour, hour after hour. It just wouldn’t stop rallying back to the upside.

11:07
A lot of people bought the dip, a lot of people said hey, this is going back up, just like it did the day before with the retail sales report, just like it did the day before with the CPI report, the same scenario playing out again. And so you get into the stock that you’re saying, okay, this is a great bounce play. This is looking really good, so it bounces and then the market

11:26
And this is exactly what happened today, market took a huge, huge nose dive. The S&P 500 dropped over it dropped 50 points off of the highs of the day. And so it took down a lot of stocks with it. Tesla, for instance, had been trading in the green, reversed lower, it’s down over 5.7%.

11:44
So do you just keep holding it? When you see a clear market reversal with a lot of volume, with a lot of strength, something that you haven’t seen in days in terms of volume and in terms of aggressiveness and momentum to the downside, I don’t think it’s bad. You don’t have to wait for your stop-loss on that because if you’re seeing a change in the conditions, by all means, I mean preserve the risk.

12:02
There is a new variable that’s been introduced and it’s worth getting out. That doesn’t mean you want to be hyperactive. If the trade you get into a trade and immediately it goes from like 100 to 100.50 and then it goes down to 99.50 or to 99 or 98.50

12:17
And you’re like, okay, I’m down one and a half percent, there’s not really anything changing in regards to the stock, I wouldn’t get out for that. The main reason for that is because there’s nothing really changed. You’re just dealing with some noise here. See how it closes out, see how it opens up the next day. But I mean if you have something groundbreaking, you have a strong bearish candle, you have a market 180 or a sector 180 or there’s some negative news that comes out

12:37
I’m probably going ahead and closing out the trade right then and there. But if it’s just noise because the market’s vacillating, I mean the market doesn’t care where you got in at, it doesn’t know where you got in at. So it’s going to move around and it’s going to go above and below your position at times. Rarely do I get into a stock and it just goes as soon as I get into it, it goes straight up and never pulls back or even goes below my entry.

12:56
Most of the time it does have some vacillation where it’ll pull below my entry price and then it’ll take off or it’ll just keep going lower and take me out of my trade. But what you want to remember is that things can change in your trade. If there’s no longer a rationale for staying in, then I move on to the next trade. But if it’s noise, which says okay, stock hasn’t quite traded higher yet sometimes I’ll get into a trade and it will start consolidating after the breakout immediately around that breakout level, that’s not necessarily a bad thing.

13:22
But it might have a couple percentage points where the price is vacillating inside of and that’s just noise. So I’ll stay in. The other thing too raising your stop-loss isn’t a bad thing. Even if you’re not profitable on the trade, each day you have new candles to look at. Each day, the stock is evolving.

13:39
The charts are evolving, things are changing, the market’s changing, the sector and industries are changing, and with it, we’ve got to be willing to evolve our trade too. So if there’s a new support level after being in it for a week and it’s like, man, I can raise this stop-loss, keep the risk a little bit tighter yet it hasn’t really done much yet but look, there’s a good support level right underneath price that I would be wiser to put my stop-loss below.

13:55
And instead of taking a potential X percent loss on the trade, I’m only taking a 3% loss on the trade. And that’s good too. Because in the end, keeping the risk tight is really ideal, especially by being able to justify it. You don’t want to just say, hey, I can’t take it anymore, I’m just going to raise my stop-loss up to, you know, -2% max, if there’s no real clear support level for moving it up to that point.

14:11
The other thing that you can do too, if somehow you want to reduce the risk on the trade and you’ve been in it for a couple weeks or a week or whatever, and it’s just not doing much for you, it’s okay to book some profits, take a little bit off the table, reduce the risk that way as well. Because maybe you have like a percentage gain or something like that, you know and say hey you know what, I’ll take that one percent gain that I’ve got on about a third of my trade, keep the other two-thirds in, that greatly reduces the risk on the trade. Not a bad approach either. But in all, hoping for Bryce Harper, I’m a fan of his, I want him to do

14:48
Well, I want him to be able to realize his dreams of being a successful trader. Remember, paper trading versus live trading two different animals completely. Paper trading, it’s hard to take it serious but it’s going to teach you the mechanics of trading to some degree. Once you go live though and you’ve got your own cash on the line

15:05
You’re going to deal with a lot of emotions, a lot of feelings. And if the trade goes against you immediately, you get a breakout that head fakes and you get this huge red candle to the downside, you’re like, man, you know what, I don’t really want to be in this trade anymore. Well, first off, before you decide that, ask yourself: is there a rationale for getting out of this trade?

15:20
At this point, it may be that, hey, the trade did a big head fake. It broke below the previous day’s lows and it just doesn’t make sense to hold on to it any longer. I’ll wait for it to re-break out again before considering a long position. That’s fine. And remember too that things can change in the market, in the sector, and in the industries that can affect that stock that you have to take into consideration each day and consider raising your stop-losses if there’s opportunities to do

15:41
So in your existing trade, find the spot on the chart where it’s like, okay, if it breaks below this support level, I no longer want to be in it. It may be at a place that’s higher than your current stop-loss. So take advantage of that. If you enjoyed this episode, I would encourage you to leave me a five-star review. Those really do mean a lot to me and they really do help the show.

15:57
So if you’ve been listening to any length of time, come on man, help me out and do a five-star review for me. Also, make sure to check out swingtradingthestockmarket.com and keep sending me your questions, ryan@shareplanner.com. I want to hear from you guys, want to hear what you guys have to say, and I want to hear about your trading, your stories, man.

16:13
Give me the stories, man. Give me your backgrounds, tell me where you’re coming from on all this stuff. I want to hear about it and I want to be able to make a podcast episode out of it. So thank you guys. And oh man, I do this almost every time. Every time, I almost I do this. What did I think of this bourbon? I didn’t drink too much of it but it’s got some like, really strong wood and

16:33
Rye flavors to it. It grew on me a little bit throughout the course of the episode. Very strong pepper flavor. On a scale of zero to ten, giving Frey Ranch I don’t know. It’s got a little bit more of an intriguing profile than when I initially took the sip of it. I’m going to probably say 6.6 for Frey Ranch. Not too bad. Very spicy.

16:52
I like the fact that it’s a bottled-in-bond straight rye whiskey. 100 proof. Frey Ranch: 6.6. Thank you guys and God bless. Thanks for listening to my podcast Swing Trading the Stock Market. I like to encourage you to join me in the SharePlanner Trading Block where I navigate the stock market

17:10
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 and WhatsApp. So go ahead, sign up by going to shareplanner.com/tradingblock. That’s www.shareplanner.com/trading-block.

17:28
And follow me on SharePlanner’s Twitter, Instagram and Facebook where I provide unique market and trading information every day. 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.