Don’t Let Your Losing Trades Run Wild | Podcast Episode #340

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.

0:31
Mallory with Swing Trading the Stock Market And today’s episode, we’re going to talk Talk about the problem of cutting your winner short, letting your losers run wild. Now, you’ve heard me talk a lot about in the past, about the key to trading outside of a course, managing risk, which I preached on all the time, is to let your winners run wild and cut your losers short.

0:51
Don’t let your losers run wild but you let your winners run while you let your winners maximize their profits but you take losses quickly. But oftentimes what Traders will find themselves in the in the situation of is letting their losers just Wheatley demolish their portfolio.

1:07
Sure. They have, they have some winning trades. They have some really good trait, but they also have these losing traits that just completely overshadow, any kind of good thing that they are doing and their portfolio. They might have had a trade that made them twenty or thirty percent at one point, or another one that made him 15 and 18 percent.

1:26
But they got this losing trade out there or a couple losing trades that they’re down, 70 or 80% on, because they never took a loss, when it was like that – five percent, so, Days. Email comes from a guy, we’re going to call him Duke for the good. Florida redneck name so I don’t give out his identity Duke rights.

1:42
Hey Ryan, I was listening to last night’s podcast on your episode about stop loss strategy and my trading experience. I don’t ride winners long enough but when I lose in the stocks turn against me, it is always an avalanche because the stock seem to always go down much faster than they go up.

2:00
Usually, some bad news earnings or Market implosion. So I’m wondering how do you Navigate these huge draw Downs with stop losses because the trend is, is they happen overnight and you get opening prices, that might be down 15 to 20 percent under that scenario, which I find myself and many times.

2:16
I end up staying in the stock and not wanting to take the 20% loss which could balloon further down. Thank you for your Insight best Duke. Okay, there’s a lot to unpack here because I think do casually mentions some categories of losses that he’s experiencing.

2:32
He talks about bad news earnings mark. It implosion. Those are three huge sources of Market losses. And really, they pretty much cover. Most of the problems that Traders will have, when it comes to navigating the stock market profitably. And there’s the old saying about them stock market, it takes the elevator down the stairs up.

2:52
I actually feel like it’s been kind of the opposite this year. If you feel like that when you do get a sell-off, it’s been the staircase. Down the elevator up because some of these runs that we’ve seen over the past year, have been just incredible at least off of the October lows.

3:13
But it’s terrifically, the market tends to have these panic moments that are much greater than anything you see to the upside. That’s why they say, the market takes the stairs, up the elevator down. Some people will say the escalator down, but escalator, doesn’t really illustrate the gravity of what the market can do, when things start to really unravel.

3:32
But we got to get to the point in our trading, where we’re not letting the winners destroys, we have a badger a year where our profits are not where they need to be. We can’t let it be because we let winners run. Run hard against us. It just needs to be because the strategy didn’t work that specific year. And yeah there’s going to be times where your strategy doesn’t work as well as you’d want it to. And that’s okay. That’s going to happen in different years. Every year it’s different.

3:47
You can have different returns so you don’t get the same returns every year but you don’t want your losses or the results that you get from one year. To the next be defined by a handful of losing trades that took you out with 30 or 40 or 50 percent losses or more.

4:05
We can’t afford to let that happen as Traders, if we want to make it in the stock market. So again, he talks about usually some bad news earnings Market implosion. Let’s tackle all of those one by one first off. Usually, he has lost because of bad news.

4:21
My first question would be what are the quality of stocks that you’re trading? Are you trading stocks that have a history of hatred towards them in the stock market? Do you, are you trading stocks with a history of bad news? There’s some stocks that I just won’t trade like f SL y that. The stock has had a lot of bad news in the past at times, where it can just really come out of left field and burn you.

4:40
That’s a stock that I’m going to avoid Boeing is another one that I avoid. A lot of people like to trade Boeing and that’s great. I’m telling you every time I trade Boeing bad news happens. So I don’t trade Boeing especially a few years back when they had some really bad news that was coming out about their planes. Every time I was in one of those traits, some news would hit and I would take a bigger than expected loss on the trade.

5:00
It wasn’t a bad one in terms of like 20 or 30 percent but I would get stopped out typically in that kind of unpredictability about a stock beard me away from it. You take some of these Chinese stocks like Baba and BIDU I’ve avoided those a lot because some of the Chinese stocks have become very toxic of late and I don’t want anything to do with them.

5:20
I don’t want to wake up and they’re down, you know, 10 15 %, some of your small cap biotechs. Them a lot of your large cap biotechs. I want nothing to do with because of the potential for an FDA announcement to come out. I don’t want to have to track all the FDA decisions. I want to trade, based off a technical analysis.

5:35
I don’t feel that biotech stocks really allowed me to do that with confidence. Because there’s always these news events that can just completely crush or completely make the company, depending on how the FDA, which side of the ruling that the FDA comes down on some research that they’re doing or some kind of new product, they’re getting ready to launch, you take Regional Banks right now, I’ve traded be Little Banks plenty of times in the past plenty and a lot of times I prefer them over the large Banks because there is a little bit more volatility.

6:01
But when you start talking about bank failures and you start seeing some of these Bank, stocks go up in Flames, heck, no, I’ll stay away from those forever if I have to, but I’m not going to trade them because for the very reason I don’t want to wake up and see my investment down. 30%, you take something like Silicon Valley Bank.

6:19
I know that there were some people that were trying to buy the dip on Silicon Valley Bank when it was really starting to crash. You were catching a falling knife. Something you definitely don’t want to do another way to wake up to some really bad. Losses is when you’re trying to time the bottom of a stock rather than letting the stock form its bottom base, and then break out better to do it that way than to just see the stock drop and saying, I’m going to buy right here having no idea whether or not that stock is actually starting to form a bottoming process with a placement that you can put for a stop loss.

6:45
That makes sense. If you can’t do that, you can’t you can’t try to catch a falling knife. But yet people were doing that with Silicon Valley Bank and I know one person Did it and then he lost his entire investment because the bank went belly-up, those kinds of traits, not necessarily ones that you know, you lose everything on but the trades where you’re seeing a stock go from my point, a of $100 down to Fifteen dollars, or $10 or $5, they’re very tempting.

7:13
Because you think to yourself, man. If I just get a little bit of a bounce back, I am going to make so much money on this trade. I’m gonna be able to make so much more off of that tray because it came right back. To the upside. It’s almost like this like hero mentality. Did a lot of times that we try to trade with, we think to ourselves, man.

7:28
I can really be a hero if I get into the stock here as a stropping, nobody else wants to touch it right now, everybody selling it. I’m gonna buy it and there’s this saying that everybody attributes to Warren Buffett. He says that, you know, I’m fearful when others are greedy and I’m greedy when others are fearful. And so they equate it to something like the regional banks that are completely imploding.

7:46
Well the difference between you me and Warren Buffett you and me we don’t have the Millions of dollars at our disposal to be able to say, hey if I’m wrong about this trade, I still got plenty of other billions that I can fall back on if I’m wrong on. We have to trade like every tray could ruin us because it can’t and it will if we’re not diligent and trying to avoid some really bad scenarios.

8:12
I talked a lot about the meat and potatoes of a traitor. Try not to get in at the bottom not to try to get out at the top but to try to get that big chunk in the middle. When you remember that and you start to see something where a stock is dropping like 50 or 60% in you’re tempted to buy it ask yourself are you trying to get the appetizers, are you trying to get the meat and potatoes?

8:32
Because if you go for the appetizers, you’re likely to fill up on the appetizers and enjoyed. Really the Harvest of the meal, the filet mignon, the mashed potatoes, the loaded baked potatoes, or the, you know, the really good stuff that they bring out that you’re really there for. Not the appetizers, the meat and potatoes.

8:49
So ask yourself when you see a stock drop in 60, 70 percent. You’re thinking to yourself, man. This is a stock that I can make a lot of money on if it bounces back, are you trying to get in at that appetizer level or you trying to get in at the meat and potatoes level? Because the medium potato levels would suggest waiting for that stock to bounce a little bit waiting for it to base some and to start to break out.

9:08
You don’t have to get in right at the bottom. He talked about earnings and I’m not going to spend a ton of time learning, but it’s absolutely crazy. From a swing trading standpoint, to try to hold a stock through earnings. Yes, you can make a Egg. You can make a lot of money trading in earnings report, but you can also lose just as much.

9:25
I remember, when I was a kid. I did SMS. I, and array1 time during the day, actually, I shouldn’t say, I was a kid. I was probably in my early twenties, holy cow, I got railroaded on it, and I wasn’t even a lot of money. I probably had a few hundred dollars on each one of those traits, but I got destroyed.

9:40
I remember that afternoon after the earnings came out. I’m looking at both of those and they were down, like 15 to 20 percent each and I was losing some money. Is money, that was important to me. It doesn’t matter if it was, you know, forty or fifty dollars. At that time, that was a lot of money. And I could tell you, I like the trade, I like the technicals.

9:58
I did not know how to predict earnings and I still don’t know how to predict earnings. Nobody knows how to predict earnings. You don’t know how they’re going to unfold each and every time the moment you think, oh well I saw Apple, I saw Google, I saw meta, I saw Netflix, I saw Tesla, they all be turning. So I’m going to go ahead and get into this other Tech stock and then you see that text Dot come out and it drops 20 percent but you thought okay.

10:19
There is a precedent of all these tech companies beating earnings. This one’s got to do it too, and all of a sudden you’re shocked and why are we holding through earnings? It’s probably because there’s a story that we fell in love with we really like the company really like apple, Apple’s easy to understand. We use it every day. We use it with our Mac books, we use it with our phones.

10:35
The are pods, the iPads. I use a lot of their products, but it’s okay to love their products, but it’s not good to fall in love with the stock itself. Yes apple is treated investors really good. There’s probably going to be a time at some point in the future may be very long time from now, where Apple becomes more of like a GE where there will be something else that disrupts, the marketplace, that becomes the new leader and Innovation.

11:04
And when that happens you may see apple shrink back some but we can’t be still married to the stock at that time. When that happens. How about Market implosion this guy’s talking about how he gets caught in these Market implosion scenarios and he starts to lose a lot of money and yes you get an SMP 500 that pulls back five or six percent you would think that.

11:24
Okay, if all the stocks pulled back five to six percent? I’m fine I can handle some of that stuff. I usually have about a seven or eight percent stop loss on my stocks. That’s a little bit more of a stop loss than I would one use. But I also know that I have a much tighter stop loss and what a lot of people prefer to use, I use it because I want to be able to maximize my reward even more by keeping my stop loss.

11:41
Tighter. And so, I’m very picky about the trades that I get into. But Market implosion, you think, like I said, if the market pulls back 5%, if your stocks just pull back 5%, that’s great. No, that’s usually not the case because usually stocks that were in, were, in growth plays were in trades that have a lot of potential for big moves to the upside for breakouts.

12:00
And so when the market pulls back 5% or 6% or 7%, we might be looking more at like a pullback of 13, 14 or 15 percent in our trades. And so it’s very easy from a I % pullback for you to see stocks in your portfolio, to pull back, fifteen percent, or even just 10 percent, it’s still significant.

12:20
And so, when we’re in these uncertain times in the market, when the market is pulling back in a big way, I mean, you look at just spider just right now. Coming into this week spy pulled back from 444 all the way down to 432. That was about a two and a half percent, pull back for a lot of stocks.

12:36
That was probably like a 5 to 10% pull back because there’s a lot more volatility in the streets. And so when we get Into uncertain times. We still have to follow our. Stop loss is. Yes, that’s probably going to mean we get stopped out of some traits. But remember what I say, we keep the loss of small so that we can let the winners run wild when things perform really well.

12:52
And if we keep those losses small and we follow our stop losses, then we can avoid letting some of these four percent losses turn into like 10 or 15 percent losses and during Market uncertainty when we don’t really know what’s going on here. How far back is the market a pullback?

13:07
Are we looking at a potential top here or something of that nature? Then we need to be scaling back on how many open positions we have. We need to be looking for opportunities, to take profits, to be able to scale down our exposure. It’s okay to be 90 percent cash, or even a hundred percent cash at times. When the uncertainty is extremely high, because it’s during those times, you got to let the volatility to do the work for you.

13:29
When the market selling off really hard, the volatility ramping up, there is a lot bigger swings in the market. And so when you’re seeing a lot bigger swings in the market, and let’s say, you’re short on the market. You don’t need to be 100% short, to be able to make a good profit off of the market for much of 2022. I was short and I made money by just being, simply like 10 to 20% long at most of the time and we have this mentality.

13:53
When it comes to trading that we need to make big big bets. We need to be like, Michael burry. We all have seen that the movie He did The Big Short and he went huge with a lot of people’s money with a lot of his own money. He went huge shorting, the mortgages, the banking industry, and everything else during 2008 and he won big, but he also had huge draw Downs during that time in his account and there was times where it looked like he was not going to make it.

14:17
And while it worked out for him, it doesn’t work out for everybody like that. And if you’re not right, if you’re not in the right place, at the right time and you’re forced to take those losses and trust me those brokerages, when your love They are going to force you to take losses. They are not going to let you make them lose a dime of their own.

14:36
But we try to be like Mike Weir and I have a lot of respect for him. I mean he made some really good cause but I also know to that’s not really something that all of us can do. I know that I cannot use his strategy for my own approach to the trading the stock market. If I did, I would be a motional basket case.

14:51
I could not handle that kind of stress, and that’s okay. But we have to be able to manage the risk for ourselves and not try to do what you saw in a movie. Movie or what you heard of these people. When they make these big beds and they get extremely rich to base, our own trading decisions off of that, similar kind of an approach where we’re trying to just get rich off the market because usually, you’ll get poor really fast and trading should be born trading needs to be boring.

15:17
Yes, there’s times of excitement, there’s times where you have increased volatility of by and large we should be managing our portfolio tour. It stays as boring as possible because the moment you add too much excitement. To it is probably the time where you’re starting to lose control of your portfolio, your trades and you’re setting yourself up for some not so pleasant results and that includes options trading, how many, how many people get into the options trading?

15:42
Because they think they can hit it big and they keep losing money. But it’s like, well, you can Define the downside. You, it’s only so much. Can lose when you’re dealing with premiums, very true but people usually trade with too much premiums and they lose way more of that premium than they would ever have imagined losing. And they do it overnight options will cause you to go broke and most cases.

16:00
Most people are not suited to trade options, that’s why they have all these disclosures when you’re saying up for a brokerage account, they want to know if you’re able to trade options. Most people are not. Most people will lose their hide trading options and if you want to talk about a good way to lose 15 to 20 percent overnight trade options, it’s better to make a Little bit just trading equities then to lose a lot trading options.

16:21
You have to get past the mindset as I have to hit a big. And I know this is not a popular thing to be saying among most Traders, they’ll tell you. Oh, but I’m there’s so much potential and options. You can make so much money. You can control so many shirts. Yes. Your reward is going to be drastically reduced by trading equities, but so is the risk.

16:39
And if you can’t control the risk, and you can’t control it in most cases, just buying calls and puts all the time. Because of that overnight risk, you’re going to lose a lot of money. And one thing that’s going to help us swingtradingthestockmarket.com, this is the patron website that goes along with this podcast on YouTube.

16:55
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17:11
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17:29
ryan@shareplanner.com. This guy sent me an email. I made a podcast out of it couple days later so really good stuff. I really appreciate hearing from you guys. Tell me your stories, tell me your frustrations. Tell me your problems. Tell me everything. I want to hear about it. Thank you guys and God bless.

17:46
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18:02
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18:19
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