Avoiding Lost Profits | Podcast Episode #429

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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.

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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.

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You can succeed at the stock market, and I’m ready to show you how. Hey everybody, this is Ryan Mallory with shareplanner.com’s Swing Trading the Stock Market.

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In today’s episode, we’re going to talk about avoiding lost profits. In fact, I didn’t even have to come up with that title.

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That was the title of the e-mail. So I just went with the subject line of the e-mail and made it the title for this podcast.

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So I appreciate the guy writing into the show here giving me the title as well as the content for this podcast episode.

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So as I always do on my podcast episodes, I don’t use people’s real names just because a few years from now they might wish that their name wasn’t out there.

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So I always give them a fake name. Usually it’s a Florida redneck name if they don’t give me one because I am from Florida and consider

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myself pretty much a Florida rednecks. So I give them a little bit of a name representing where I come from.

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So for this episode, we’re going to call this guy Bud, and Bud writes Good day, Mr. Mallory. I don’t think that’s what people say in Florida.

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Good day. But anyways, maybe he’s from England, I’m not sure.

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Good day Mr. Mallory. A coworker of mine recently turned me on to trading in February, so I’m still pretty new at it.

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I went on a decent run early, but then luck ran out and I realized I was relying more on luck than on skill.

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I signed up for shareplanner.com and started reading and listening to your material. It’s been a massive help and I have started to gain back some of those losses.

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I have been more diligent on choosing the correct stocks to trade based on your rules and guidelines, but I find myself either getting out of the trades too early or staying in them too

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long, losing out on profits in both scenarios. Mostly I get out too early and kind of panic because I don’t want the stock that I’m in to drop and

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lose those profits. Today for example I was up 8% on a stock I purchased yesterday so I moved my stop loss up to account

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for a 1% drop in price and was stopped out relatively quickly only for the price to rebound back up past where it was.

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My question is if you get a chance, how do you calculate how far back do you have your trailing stop loss and what is the indicators that I should get out or let it run?

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Also what do you consider a good return on a swing trade to be considered successful? My coworker told Me 2% but that seems low.

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If you don’t get time to answer this e-mail. I completely understand and I’m just trying to get a better hold of managing profits and

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expectations, so I’m writing to you on the off chance I can get some information to help. Thank you for your time and appreciate everything you do with shareplanner.com as it’s helpful to me

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in a tremendous way, sincerely. But OK, Well, hey, I tell you guys all the time, if you write the show, more than likely I’m gonna

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make an episode out of it. I mean, I think 95% of all the emails that I’ve received, I’ve made a show out of them.

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And that’s just because you guys write good questions. And so I always like using your stuff.

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Otherwise, I would have to come up with some of these things and then I can get repetitive and I don’t want to do that either.

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So there’s a number of things that I picked up on this e-mail. Some of them were questions, some of them weren’t, but I still think the ones that weren’t

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questioned still need to be addressed because I think there’s areas that he needs to think about that could be beneficial to them.

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So one of the questions that he talked about was trailing stop losses. How far do I put my trailing stop loss in this scenario?

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He used a 1% stop loss for one. I don’t ever use a trailing stop loss.

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I want my stop loss to be below A level, my ultimate stop loss. Now I do take partial stops at times just because I’m trying to reduce the risk, but that’s a risk

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reduction move, not so much a the trade’s gone wrong. I need to go out before it just completely ruins me.

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So the stop loss that I ultimately get out at, that’s definitely going to be below a support level that I think is key to the trade working or not working.

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Meaning if it goes below that stop loss, the trade doesn’t work. The trade has ruined its thesis for a while would be even in the trade it’s not working now.

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A lot of people think that means that the stock is just going to plummet from there. No, it just means that the reason why I’m getting out is because that the reason why I got in is no

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longer supported. I get into stocks all the time that I get stopped out of and that they will go back up.

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Especially when you’re in a bull market, it’s very possible. But what you want to avoid are the ones that don’t go back up, and those are the ones that can ruin

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you and define your year. And that’s what I’m trying to avoid.

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When I’m using stop losses, I know that they can go back up. In fact, it can go up very irrationally.

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But in the process I’m also trying to keep myself from having those off chances that a stock completely ruins me.

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I get the fact that if I don’t use stop losses at all, there’s a good chance 70 to 80% of the stocks that I get stopped out at will go back up again.

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In a bull market, that’s very possible. But the ones that don’t, if they go down 50 or 60% and that’s very possible.

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There’s plenty of stocks that have come nowhere near their all time highs like what we’ve seen out of the mega cap place.

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And so in the situations where that happens, it destroys you. You can’t let a losing trade define your year.

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That’s, that’s what it boils down to. And you can’t go into every winning trade thinking that this trade has to be a great trade or else,

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because then you’re gonna hold on to it in an undisciplined manner. You’re gonna take a big loss more times than not, or at least at some point you’re going to.

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And you’re gonna wish you never did that ’cause it only takes one bad trade to wipe out a history of good trades.

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So I don’t use trailing stops because I want my stop loss to be below the key level. If you get into a stock at 100, then you start the trailing stop loss at 1%.

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So that means every time it makes a new high on the trade that stop loss inches higher, but it’s always at least 1% back from the highs of the trade.

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The problem with that is that it’s very easy to get stopped out when you’re using a 1% stop loss. Even a 2% is gives you a noticeably better chance of being successful and not being stopped out

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erroneously. You take the 1st 30 minutes of trading, for instance, it’s very easy for a stock to move 1% against,

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yet the opening bell for no reason at all for none. And that’s what you want to avoid is getting stopped out when it’s really not even a genuine price

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move that’s getting you stopped out. And that can happen a lot in the 1st 30 minutes of trading.

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And even if you don’t use trailing stop losses, even the idea of just using a 1% stop loss in general, there’s a very good chance, like I said, first 30 minutes of trading, even the last hour of

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trading, it’s very easy to get stocked out during those periods. Yes, you get to like the lunchtime where there’s low volume action less likely at that period just

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because the beta of the market tends to contract a little bit. But in general, 1% stop losses, unless it’s a day trade and you’re trading off intraday charts, it’s

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it’s really difficult to be successful with a 1% stop loss. I think the tightest you’ll ever see me get and it’s very rare that I ever even get this tight.

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It’s probably because it’s a slow moving ETF of some kind would be like 2%. Usually my stop loss is ranged about from 3 to 5% depending on where where the partial stops are at

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as well. It can get up to like 66 to 7%.

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So the next question that he asked me is like what’s a good return for a swing trade? He has a Co worker at work.

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A lot of people talk about stocks at work and he said 2%. Now 2%’s good, but you probably have to be going into it with a stop loss of less than 1% in order

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to justify a 2% stop loss. I mean a 2% target or a 2% average win rate would would justify a 2 to one return if you’re using a

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1% stop loss. If you wanted like a three to one, which is what I try to go after, that’s going to be like .067% or

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something like that, very, very tight. So I don’t necessarily think that 2%’s a good one.

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And the reason why is because you’re not giving yourself a lot of wiggle room. Again, if it’s day trading, that kind of gets into a different feel because you’re using intraday

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charts primarily and not daily charts. The other thing I would say is, is that your average target has to be based off of where your stop

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loss is at. So if I’m going into a trade and I actually have a, a good one here, Cyber CIBR, that’s one that I’m

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in right now, my total average loss in the trade if I’m to get stopped out would be about 1.8%. My final like line in the sand for like the final third of my trade would be about -2.76%.

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I haven’t even been close to getting stopped out even a little bit on that particular trade. It’s done great.

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It’s been textbook price action so far. But because my average loss on the trade would be -1.8%, I don’t necessarily have a huge target

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price. My target price is gonna be around if it’s a perfect scenario and I’ve already taken 1/3 of my

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position off the table with that for a 2.4% profit. If it gets up into the 59th, I’ll probably take another third off the table and it gets up to 6061,

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I’ll take another third and probably close it out, assuming that it’s done running.

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But overall, if I come away with 5 1/2 percent on that trade and my Max exposure on that trade was negative 1.8%, that’s a really good trade.

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I’ll take that every day, but on other trades that might not be good. For instance, if I have an average stop loss on the trade or a average loss on the trade going into

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it for for the Max risk of -4%, well then the 5% isn’t gonna be that good. Instead, I’m gonna be looking for something probably around like the 12% range.

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That’s what I’m gonna wanna come away with there. So saying that, OK, is 2% good or not?

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No, it really compares to what is your stop loss gonna be on each individual trade, because if you have a 3% stop loss, well then a 2% goal is less than one to one.

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You don’t want that. It’s just not an effective way to manage the risk.

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Another thing that I would tell traders to take into account is that when they’re looking at a trade, look at the volatility with the trade.

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I mean, if you have a stock that’s got like a range that’s three or 4% almost on a daily basis and you’re gonna use a stop loss of 1% or 2%, that’s probably not going to work.

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You’re probably going to get stopped out erroneously. Again, you use stop losses on different types of vehicles.

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They, they can be tighter. Like for instance, if you were trading TLT, the bond ETF, you could probably get away with that in a lot of situations where you can use a 2% stop loss.

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Even then it’s kind of tight.

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But they’re, I’m not saying that you can’t get away with it though, is what I’m trying to say. So there’s a potential there.

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But if you’re trading something like squared the stock SQ or DJT, that one has tons of volatility. You take GME or AMC or Chewy, use A1 or a 2% stop loss, almost guaranteed that you’re gonna get

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stopped out of it and there and there probably won’t be a good reason for it. But one thing that there is a good reason for is to sign up for swingtradingthestockmarket.com.

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Yes, that is the website that goes hand in hand with this podcast. It’ll take you to SharePlanner and it’ll give you the opportunity to sign up to get all of my swing

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trading research that I do every day. That’s going to include watch lists.

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That’s going that I do every day actually. And then not only that, but I also do a follow up on the watch list in video format each day talking

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about the watch list that I posted. And then I’m going to do updates on the stock market, which includes the S&P 500, the NASDAQ 100,

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the Russell 2000, and then some other indicators that I find intriguing. Plus you’re gonna get the updates on the mega cap updates.

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That’s your Meta, your Amazon, your NVIDIA, Apple, Microsoft, Google, Tesla. I might have forgotten one.

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I’m not sure. Amazon.

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Did I say Amazon? Yeah.

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And then also, each week I’m gonna send out my bullish and bearish master watch list. These are the watch lists that I’m gonna curate my setups from throughout the week.

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So check that out. Swing Train in the-stockmarket.com.

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You can also just go to shareplanner.com as well. It’ll take out the middleman, I guess, but check that out.

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And you’re also supporting the podcast in the process.

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Another good question is how far back do you place your stop losses?

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He kind of asked me though, how do I calculate how far back to move the trailing stop loss, which I kind of take as what percentage do you put your stop loss at?

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But I think it’s also a good question when you think about it, How far back do I consider a stop loss placement?

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Usually my stop losses are pretty relative to current price action. That doesn’t mean that I won’t go back two or three months fits the narrative of the trade, but

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often times there’s key levels in the near term that I identified that I use as my stop loss. Now, I might use a rising trend line that goes back ten years and it’s bouncing off of that rising

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trend line. But the portion of the trend line that I’m most concerned about is whether or not it breaks below

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the trend line portion that falls just under the current candlesticks that I’m looking at on the daily chart because that’s what’s most important.

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That’s the current trend line. That’s where the current trend line price is AT.

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And so if it breaks below that trend line, I want to get out. So I don’t go really that far back.

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I think probably Max a couple months and usually it’s it’s based off of the last few weeks of trading.

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But I can also have as a stop loss and I think these can work really good too. A support level underneath current price that if it breaks below it, I want to get out of it.

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And that support level is marked by 5 or 6 tests of a let’s say I buy a stock at 25 and there’s a key support level at 23.

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And that’s key support level has been tested five times a year for the past four years. Technically I’m going all the way back four years, but the reason why that support level’s relevant

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is because it’s held for the last four years and it may have had a recent test one or two months ago that I find very relevant still for the stock.

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So the placement of the stop loss can encompass price action that goes all the way back many years, but it’s gonna be the most recent parts of that support level or that trend line that I’m paying the

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closest attention to. That’s kind of a hard thing to talk about what I just talked about if I’m not showing you guys the charts.

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So forgive me if you find that a little bit confusing.

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I always try to make these podcasts understandable without having to pull up a chart. That’s really one of the main objectives of this podcast.

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And so when we start talking about some topics, they’re easier to talk about without a chart than others.

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This one was kind of hard to show cuz I feel like I could actually show this to you on a chart much easier than I can to describe it to you.

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But hopefully you figured out what I was trying to say.

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You also asked me about the indicators.

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What kind of indicators would I use for getting out of a trade? I don’t use any indicators for getting out of a trade.

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And the reason why, so you have people that’ll use RSI or the MACD or stochastics.

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I mean those are kind of the popular ones.

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They’ll use moving average crossovers.

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And the problem with those is that they’re reflective of price and they’re usually lagging in the

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reflection of price, meaning that a stock might be turning lower five days ago and it’s just now

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giving you a crossover on the MACD or the RSI or a moving average.

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They tend to be lagging.

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It doesn’t mean that they can’t be useful.

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But I do think though, that often times when we’re trying to use it as a stop loss, we might take on

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another 4 or 5% on a losing trade that we didn’t have to take because the indicator was lagging so

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much.

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So there is a lagging feature to indicators by and large.

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So that’s why I think in all things, whether it’s stop loss, placement entries, get familiar with

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price action, become acquainted with it, embrace it because the more you understand a stock based

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off of its actual price action.

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I use candlesticks.

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Some people use other things.

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I think line charts are very difficult to gain much from.

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But for me, I use candlesticks.

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The more familiar I am with those, the better off I am.

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I also sense that there’s some emotion in the, the trading that Bud is engaged in here.

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He thought he was really good.

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Then he starts to realize that he was more lucky than good.

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I, I sometimes wish I could just be lucky, but sometimes it’s just you can go through rough patches

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of trading.

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You’re like, man, I wish I was more lucky than anything because at least that lucky sometimes pays.

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But there’s definitely some emotions there where he struggles with getting out of a trade too early

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or too long.

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And I, I think there is a broader feeling that pretty much every trader has where they’ll second guess when they get out of a trade.

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The tendency is, is OK, if I get in the stock at 100 and I get out at 110, OK, I don’t have a dog in that fight any longer.

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But what do I tend to do? I want to go back the next day and see where is that stock trading at?

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If you just got out of Apple the day before, you want to see where Apple’s at the following day.

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You want to say, OK, is this thing still going up or is it going to go down and validate the reason

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for why I got out? If it keeps going up, you’re going to be like, oh, I knew I shouldn’t have got out.

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What was I thinking? I’m so stupid.

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But again, you got to remember, and I say this all the time, that stocks are going to go up or down

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after you get out. What you’re really trying to avoid is the big wipeout trades that go against you and they keep going

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against you. And if you don’t have a stop loss, you’re going to have to shoulder that burden and you don’t want

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to have to deal with that.

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But one of the things that I think helps to manage the emotions, because we’re not going to be able

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to get all the emotions out of our trades.

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We’re humans. People will say, oh, you got to trade emotionless.

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That’s pretty much darn near impossible. One of the things that can help you to trade more emotionless is by having a strategy in place

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before you ever get into the trade that will outline where are you going to take profits at along

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the way. Whatever the stock was that he was up 8% and there’s a good chance that he had an opportunity to at

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least take a third off the table and to reduce his risk in the process because he’s lessening his

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exposure and taking some profits, but still leaving himself with like 2/3 of a position that can

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still make a dramatic impact on his trading.

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I’ve always found when I don’t take profits along the way that my emotions on that full trade is

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gonna run much higher and usually I’m gonna be more aggressive about getting out.

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Now I take profits along the way. I usually take a third, another third, and then I finally exit the position.

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Sometimes I might do it in quarters, but usually it’s in thirds. When I get to that final third, I’m in a pretty good place mentally because I’ve taken a third at my

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first target price and then I took a third at my second target price. And now, yes, I have a third target price ultimately where I would like for it to get to.

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But that’s not ultimately where I’m going to close out the position ’cause now I can let that position run wild.

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I can really let it run because I’ve taken enough profits off the table where it’s going to be. Unless there’s a major news event that just completely crashes the stock, I’m going to be in a good

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place to make a good profit on the trade. So I can have a wider stop loss.

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I can let it run a little bit more wild. And if it does run more wild, man, it just adds a lot of cushion to that trade.

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So wrapping this up, know that, hey, trailing stop losses, they have a lot of downside just because of where they tend to get into this like no man’s land where there’s no reason for the stop loss to

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be there. But because it’s trailing price, it has to cross into those areas.

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And one of the best ways that you can deal with the emotions of trading is to limit the impact of those emotions by having a more concrete strategy of how you’re going to manage losses, how you’re

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gonna manage winners, how you’re gonna decide what to get into or get out of. And don’t have those stop losses too tight now.

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Now I do have an old fashioned here that I want to talk about for those who are new to the podcast. Over the years, I’ve always had like a a bourbon that I talk about before.

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I used to just drink the bourbon neat on this podcast and I would give a rating on that. However, I ended up getting a lot of bottles of bourbon.

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I said to myself, you know what? I don’t think I can buy any more bottles.

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So I just don’t have any more room for them. I know that’s a first world problem to have I guess, but.

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I really I I can’t buy another bottle. It’s just where am I gonna put it?

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At this point, I’m running out of room, so I’m making old fashions. I love old fashions more than I enjoy drinking bourbon neat.

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So I wanted to find the perfect bourbon that goes along with an Old Fashioned. I’ve tried Buffalo Trace, I’ve tried Colonel Taylor, I’ve tried all sorts of different ones.

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This one is me going back to my roots, and that’s with Knob Creek nine year. This is what I originally started out with.

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I went to Evan Williams when Knob Creek started getting too expensive. I think it’s like up to $70.00 for a handle now of the Knob Creek nine year, which I just, I’m not

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gonna spend that much for a handle. So but it’s really good.

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I it is better than the the Evan Williams tasting it. Man, it takes me back to like the the pre COVID days of when this stuff was actually pretty cheap.

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I think I would pay like $40.00 for a bottle of it was amazing and on a scale of one to 10, I give it like a solid 80.

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I think it’s just a really, really good bourbon for the old fashioned. Now the the problem with it is just too expensive for it.

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So I I can’t be too excited about it. But Knob Creek nine year eight point O if you enjoyed this podcast episode, I would encourage you to

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leave me a 5 star review on whatever podcast that you’re listening to me on. And if you have any questions, send me an e-mail ryan@shareplanner.com.

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I read them. I’m the only person that reads them until I read them out loud on the podcast, obviously, but I

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don’t show the names to anybody or anything that’s kept with me. Feel free to send me your questions.

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I’d love to hear from you guys. ryanshareplanner.com and don’t forget to check out

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swingtradenthestockmarket.com where you can just go directly to shareplanner.com as well and get all the information that you need.

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Thanks for listening to my podcast, Swing Trading the Stock Market.

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All the best to you and I look forward to trading with you soon.