How to Manage a Short Squeeze Trade | Podcast Episode #335

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 and in today’s episode, we’re going to talk about managing a short squeeze, what do you do?

0:37
When you’re on the right side of a short, squeeze not so much when you’re on the wrong side. Like if you’re short in the market, the market starts going against you or a stock starts going against, you were actually talking about how do you manage the profits when you’re in the middle of a short, squeeze for your benefit. And today’s episode, we’re going to call the guy who wrote this email to me.

0:55
We’re going to call his name, Troy because I don’t use their real names because I don’t want to reveal who that is that. Mail me and I feel like it’s just more of a privacy concern but nonetheless Troy rights, Ryan long time listener to the podcast first time caller. You kind of tell he’s old school and he’s saying first time caller because that goes back to like the the radio days.

1:13
He says I have been listening to your podcast for a while as I have transitioned from being a day trader to being a swing Trader. It has not been easy for me as when I am a day trader. I tend to enter and exit positions very quickly. This is a mindset that is very contrary to be in a swing Trader and has taken me a long time to adapt to I have started doing a much better job at hanging onto my positions and letting them play out.

1:35
But recently, I have had one of my positions, take off. And it is blowing through the resistance, and that seems to want to keep going higher. So, my first question is, this question number one, he bolts it for me. I am currently up 78% on a position and have taken some profits, and while my day trading, instincts, are to Take the Money and Run, I am trying to break this habit and let my profits run wild.

1:58
How will I know when it has been tamed and is it time to exit the position without leaving the significant profit on the table? If it keeps running question number two, do you have any advice for someone trying to transition from day, Traders Style Trading to a swing trading style?

2:15
This is much harder transition than what I was expecting, and it seems to be entirely psychological in nature rather than a technical one PS. This makes it onto your podcast or YouTube channel. I am a huge fan The show Swamp People and would like to be called Troy one of my favorite rednecks.

2:32
Thank you. I love your podcast, Troy, thank you Troy. Thank you for the email so lots to discuss their because every once in a while get caught into one of these short squeezes and it’s a good feeling. So there’s two things we’re going to talk about here one. It’s nice being caught in this short, squeeze, but there is some tricks to the trade that I like to employ when it comes to managing the risk on a stock that’s just rapidly, increasing in your favorite, and you’ve seen a lot of stocks like that of late, particularly with the big tech stocks you have Nvidia, you have Tesla Tesla went up like 13 straight days.

3:02
Before I finally had a red day, you have meta, you have Microsoft, you have Netflix. You just have a slew of stocks that are just ripping higher like nobody’s business, AMD. I mean, if you can just keep going on the list, you know, there’s just a ton of them out there, especially in the big Tech world where just stocks of just run with just incredible amounts of hype incredible amounts of mania.

3:25
So, first off, what we want to talk about, he’s in a trade, it’s About 78% on his position. If I had to guess, I’d probably say it’s Tesla, maybe it’s Shopify. Maybe it’s AMD, maybe. Nvidia, I don’t know exactly which one he doesn’t talk about it, but that’s really not the point here, the point is, is how do you manage a stocks?

3:44
Are going to first of all run with or without you, it doesn’t really matter whether you’re in the trade, it’s going to do what it wants and I think a lot of times we think that it’s just a supposed to Halt increasing in value as soon as we get out it’s not it’s going to go up or down with or without That’s the two things that it can do higher or lower where we start to take it personal those when we get out and it keeps going higher as if it’s not allowed to do that yet have that mindset to where the stock runs without you that you’re going to be bitter about it.

4:10
Because essentially most of the stocks that I’ve ever gotten out of for a profit have gone higher. I mean, at least all the ones that are still publicly traded when you can talk about sivb if I was still in that trade from a long time ago. Yeah. Okay. That won’t 20. But the stocks that there are still trading most of them are Training higher than where I got out of.

4:30
He take almost any trade from 2016, for instance, that I made probably most of those stocks 90% of them are trading higher than where I got out. Should I be bitter about that? No, but we always look at that as something like. Oh, I can’t believe I got out of that trade. Then you would never made all those trades because you would have been maxed out in your Capital.

4:47
If you’re trading 10 to 12 percent position sizes, you’re only going to be able to have like 8 to 10 stocks in your portfolio before you, you know, if you’re never going to sell something, because you’re worried about it going higher after you get out. Out. So that is definitely not something that I would get worried about that.

5:02
You’re not going to be able to get or squeeze every last cent out of the trait. It’s just simply not going to happen in the end when you get into a trade setup, and when you get into a stock, you’re not trying to hit the bottom of it and trying to sell at the very top of it. I mean, really what you want, is the meat and potatoes, and you’ve probably heard me say this before, in other podcasts, you want the meat and potatoes of the trade, that means you’re not trying to necessarily capture the appetizers to desserts.

5:26
You want the meat and potatoes. You want the stuff that’s going. To fill you. Okay, that’s how I approach food. Yes, I like it. When I can get a little dessert. I like it when there’s an appetizer order, but what am I really going out to eat for? What am I really interested in dinner for the meat and potatoes? And it’s the same thing with a trait.

5:42
When we get into the trade, we really want the stuff that’s going to really make the difference in the portfolio. And that doesn’t necessarily include having to get in at the very bottom or get out of the very top. You want the middle section of that trade? You want the majority of the gains but you don’t have to have all of them because think about it.

5:58
Going back to food and I like food a lot. But let me tell you, I was on a cruise recently and it was the last night and I had the unlimited dining package and it really is unlimited. You can go all to these different restaurants and they will just stuff you full of food. And it’s incredible but midnight struck and it was like the last night, the cruise and I looked at my wife’s like let’s go to this Pub they have on the ship and go it was like 12:00 we were ordering buffalo wings.

6:24
We ordered a hamburger, we ordered french fries. We ordered some dessert. This is on top of the fact, we already had like a five course meal on the boat and now four hours later and my wife’s beautiful. I mean, she can really, you know, pack in the calories Main and look amazing.

6:39
But for me, I really can’t. I’m still, I’m still feeling the effects of this trip. But let me tell you, though, that night, I mean, I’m talking like acid reflux. I thought I was gonna puke and everything else. Why? Because I was a glutton. And sometimes it’s goes back to trading. We’re taking food and we’re relating it back to trading again here, but we can be a glutton for far too long to wear.

6:58
We’re so fearful of missing out on the trade that we stay in too long and it’s like eating you consume too much and then all of a sudden you’re puking all over your trade. You’re getting the acid reflux of Traders, because you stayed in too long, you’re seeing that stock trade, pull back, you’re seeing that stock Drake, go all the way against you and you’re thinking to my yourself, why did I not just tell earlier.

7:19
Why was I so greedy? And that’s why because you weren’t focused on the meat and potatoes, you were focused on everything else you are focused on getting second set desert and you turn into a glut and didn’t even realize. So what you want to do is when it comes to the short squeezes, don’t get caught up whether or not you get every last penny from the short.

7:37
If, if, if you’re up 78%, and you end up deciding. Hey, I’m going to book the games here and it goes up, another 50%. So be it, it went up another 50%, the trades that you make over the course of your career, is not going to be defined by one winning trade, but the That you make over the course of your lifetime can be defined by one losing trade because you didn’t manage the risk.

7:59
And so I remember looking back and this was when I first started trading, I got into this one stock and I came remember what the symbol was but I remember waking up the next day and it was up 60%. I’m like no I’m going to keep writing it higher I think I ended up selling the stock for a loss because I didn’t know what I was doing and I took an ugly loss on the track.

8:15
I think I lost 20 percent on that trade. It wasn’t a lot of money but to me at the time it was a lot of money. It was a couple hundred bucks. So I was a glut and I wanted more from it but you want to know what looking back. I wish I would have taken the 60% and so there’s things that you can do though to make sure that you’re not trying to get every last dime out of the trade and thus exposing yourself to really messing up on the trade and leaving too much on the table from a standpoint of you were up 78%.

8:39
Now you’re selling it for a twenty percent gain or a 30 percent gain because that can happen. And again I don’t know what stock it is but it could be a penny stock for all I know. And it was up 78% but one of the things that I do assuming that’s like a normal stock. Pick some partial profits, you know, one of the best things to do is get risk off the table.

8:56
You’re up a lot on the trade, let’s say you’re up. 78%, if you haven’t taken profits yet, maybe take a third off the table and just see. Okay, let’s see what these next two thirds want to do. And if it starts to pull back, maybe take some more off the table there. But at least you’re incrementally getting out. And if you get down to that last third, or last quarter of a trade, then you can really let that stock build wild and see.

9:15
Okay, how far doesn’t want to go? You, maybe you set up a stop loss of 20 or 30 percent, and you can do that at that point because you already have a ton of It’s and you’ve already captured a lot of those profits, so it’s not such a hair-raising idea to maybe have a wider stop loss. And another thing that Traders can do is set multiple stop losses.

9:33
And this idea actually comes from a person who wrote me in the past and actually proposed the idea. And something I never really thought about incorporating into my trading, but setting multiple stop losses is actually not a bad idea. You can say to yourself, hey, I’ve got two thirds of my trade left already, taken profits on the third and at 100, it’s all the way up to $8 a share.

9:53
I’ve got 78 percent return already on the tray. At this point, I’m going to keep us tight stop loss on one of the third’s. Let’s say I put it at 72 so $73. Okay, then you’re setting the other stop loss may be at $160 and so you have a tight.

10:10
Stop, Austin. Did you have a little bit wider of a stop loss? So that if it does come back down, you’re out of that second third. And then you’re letting that last one third run a little bit more wild. Another tactic that I like to use is using short term. Moving averages, whether it be the 5 or the 10-day or the 20-day moving average.

10:25
Those are the three that I like to focus on most when I’m using it for a stop loss per se. So, what I try to do is I look at the course of that. 78% run. Where did it find the most support at? Which moving average was it? The five was at the ten was the 20 and if there is a consistent bounce off of one of those moving averages, then I’m looking for a close below.

10:44
That moving average to get me out of it. So it may intraday break below it and then recaptured into the clothes. That’s fine. But if it closes, Low that moving average then that would be a sign of Me, Okay? The nature of this trade is changed a little bit. It’s time for me to go ahead and move on to the next trade.

10:59
Go ahead and book my game. 78% amazing. It’s great. And by the way, you know what else is amazing? swingtradingthestockmarket.com, you can join it either via the patron service by going to swingtradingthestockmarket.com, or if you’re watching it on YouTube, you can just click down below and click the join button and you can get all of my stock market research that I do each and every day that’s going to include watchlist.

11:19
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11:40
Now, I’ll tell you one thing, one of the things that has really benefited me over the years is taking partial profits along the way. You usually don’t like taking partial profits, I usually hate taking them in the moment. Hate it. But over the long term, boy, I’m sure glad I’ve taken partial profits because there’s been a lot of Trades where had I had, just done All or Nothing.

11:58
Basically. Meaning I get all in and then I get all out and I don’t take partial profits along the way, there are so many trades that would have gone from green to red. And then I would come out with a complete loss. At least, you know, if I was taking 3% and 4% and there was like this, say, there’s a nasty downgrade, and now I’m down – 1% on the trade.

12:15
I’m still coming away with a profit. And that’s where partial profits are so important because it allows you to increase your win rate. And allows you to capture more profits along the way. And not only that, but it also helps you detain. The emotions of the trait. It’s far easier to manage winning trade when you’re down to that final third because you have a little bit more leeway because so much risk has been taken off the table and oftentimes because you take the risk off the table along the way, you’re able to capture more of the prophets, like what choice talking about.

12:42
And this particular podcast episode where he’s worried about leaving something on the table. But he’s also worried about the downside risk, but when you take profits along the way, you’re taking the, Risk off the table and giving yourself ample room for that final, third of the trade, to move higher. And then his second question because we have an answer that one yet is going from day, trading to swing trade.

13:00
It’s hard. And it’s probably not something. I’ve really focused too much. On this podcast, probably should have, but I have often talked about how it’s very difficult going from part-time trading to full-time trading, because all of a sudden, everything’s on the line. When it regards your well-being, when you don’t have a paycheck coming in from Corporate America to backstop your losses.

13:19
Like so many Traders are To do because they’re part-time Traders. Same thing goes from Trading with paper, money, going to real money. When you actually have real money on the line, it’s very much different. And this case, this is actually a pretty good question here because we haven’t talked about it going from day trading to swing trading.

13:36
I think sometimes day trading can be very frustrating because it oftentimes leads to over trading as swing Traders. We got to be very patient with those entries. Sometimes you might go a week or two and not even make a trade and you got to be okay with that. Whereas day-trading you’re Looking to trade every single day and it is many times as you possibly can and you’re looking to trade as much as the Marco allow you to, and one of the biggest differences when it comes to that day, trading to swing trading transition is the fact that one you’re now all of a sudden holding trades overnight to you’re taking on the overnight risk.

14:07
In the headline risk of potential, downgrades in the morning before the market, even opens or a bad economic report that sinks stocks across the board. You’re also using wider stop losses in general with swing trading because you are holding it over night and there’s a little bit Fluctuation than what you might see on a day-to-day basis.

14:23
And then finally, your profit targets are going to be a little bit higher. And so you, that means you’re staying in the trade for a little bit longer. Where is day trading your opening and closing the same day, you’re doing a round trip. So I think a lot of those are very difficult to come by especially when you’re used to taking profits within a six and a half hour time frame because the markets only open up for six and a half hours this time, you’re letting it ride, you’re letting it hang over night and sometimes you may come back and you may see the day’s profits from the the Other day or the day prior are now all of a sudden gone and you’re having to wait it out a little bit longer but your stop losses and getting hit your targets not getting hit and so it takes more time for these trades to oftentimes play out.

15:02
I’ve been in, for instance, iwm to the long side since June 5th. We’re talking about a little bit over a week and for a day trader that can feel like an eternity. So it’s going to be very difficult but let’s say you get into a trade in the first couple of days, it’s very profitable. Maybe then start taking a little bit off the table to be.

15:20
All to compensate for the psychological effects of now, all of a sudden hold these stocks much longer at least, then you feel like you’re taking a little bit off the table and reducing your risk. It kind of goes back to trying to maximize the amount of money that you get on a short squeeze that you’re involved with in a positive manner and the same way that you’re trying to manage the emotions there by taking risk off the table.

15:41
You’re also trying to do that with managing the emotions as you’re struggling to transition from day, trading to swing trading and also with day trading one event, One move to the downside and many times, you’re out of the trade because the window for opportunity is so short. And so narrow, whereas, with swing trading, yeah, you might get a downgrade.

15:59
It doesn’t necessarily knock you out of the stock, but it then goes back up the next day and keeps marching higher. And so, you have to sometimes trade through some of these shock events, or downgrades or bad economic news reports are just sector news or earnings news from another stock that impacts your stock negatively in order to finally realize this profit.

16:16
So there’s more into endured, there’s a little bit more, not torture per se, but Bit more stress to the job. Now, do I think it’s better strategy for most Traders than day trading? Yes, because over time, where does all the profits from the market? Tend to come from it tends to come from holding, a stock overnight, from the gaps higher, the next day.

16:36
Not So Much from the regular trading hours. In fact, the gains over the years from holding a stock just during the day is very much limited. Whereas Holding stock overnight over the years will give you a much bigger return. And in fact, there’s been even some strategies that people will tell You to do is like, by the S&P 500, right at the clothes, sell it right at the open each day and don’t even hold it during regular trading hours, you’re just looking to play the gaps each night and I’m not saying that that’s a great trading strategy for everybody but some people do it.

17:05
So keep that in mind, when you’re trading, when you’re trying to make that transition from a part-time to a full-time Trader, it can be difficult, but I think you can do it. If you enjoyed this episode on YouTube, make sure to click that like And subscribe and all the other podcast platforms whether Spotify or apple leave a five-star review.

17:23
I really do appreciate it. When you guys take the time to go ahead and do. That means the world to me, keep sending me your emails. ryan@shareplanner.com, I do read them all, and I try to make an episode out of each and every one of them and check out swingtradingthestockmarket.com, thank you guys, and God bless.

17:39
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17:57
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18:13
Please feel free to email me at ryan@shareplanner.com all the best to you and I look forward to chatting with you soon.