Taking Profits In Your Trades | Podcast Episode #79

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, everchanging world of finance. Learn what it means to trade profitably and consistently managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

0:25
You can succeed at the stock market, and I’m ready to show you how. Hey everybody, this is Ryan Mallory with Swing Trading the Stock Market Podcast. It’s 11:00 and I am just now getting to this. I try to do this once a week so that you guys have it for yourselves at least by Thursday morning when you wake up for your commute to work or your commute home, whatever works best for you or just somewhere in between.

0:50
I’m drinking an oldfashioned, so if you hear a little bit of like a jingling, that’s the ice hitting the sides of my glass. And I’ve got my podcast notes written on the back of a dinner receipt that I found because I couldn’t find any note cards. And I left my notebook at work.

1:06
This goes back to December 4th of last year. So yeah, so I found the receipt lying around. I wrote down my notes on it and I even dated it. I don’t know why I dated the receipt, but I did do that today. We’re going to be talking about taking profits in your trades, not all at once, but partially along the way.

1:23
Why do we do that? Why is that a good thing? So there’s a few points that I want to talk about. One is how it minimizes risk. The second one is it guarantees part of your trade will give you a particular return. So there’s a few other points, and I’ll get to those because they’ll make more sense as we get it later into the podcast episode.

1:42
But the first is it minimizes risk. So let’s say just to give you a better understanding of what I’m talking about, let’s say you buy stock ABC at $100 a share and it goes up to $110 a share. At this point, you don’t know if it’s going to keep going or if it’s going to pull back some.

2:00
It’s made a 10% move. It looks pretty good. It looks pretty sharp. Maybe it doesn’t have a lot more room to run. So, but we don’t know that because you could sell the whole thing and it could go up another 10% in the next few days. And then you’re like, man, I missed out on all those gains. So what do you do?

2:15
Well, there’s a nice in between and that’s taking some profits off the table. So maybe you take a half off or maybe you take a third off at 110 and then you write it up to 115 and you take another part of the position off. Let’s say if you take took a third off at 110, maybe you take another third off at 115 and just let the last third run wild.

2:34
If you’re if you’re fortunate enough, maybe that last, that last third runs up to 130 or $140.00 over the next couple months, that’d be great, right? And then you, you book the last gains and then you have like an averaged out profit you know of you know 10% at 115%, another maybe 30% at the last third.

2:54
But it doesn’t have to be thirds, it can be quarters, it can be halves. I usually do either thirds or halves. It doesn’t mean I won’t do quarters, but I try to stay consistent in that regard. You know thirds or halves, maybe quarters if if I’m just wanting to shave a little bit off.

3:10
But it helps to minimize risk. You start getting into some uncertain waters. You start, you start taking a little bit off the table there, and that’s good. That’s a good thing to do. So it guarantees part of your trade. It guarantees that you won’t wake up tomorrow on a stock that closed 10% higher for you.

3:29
And then all of a sudden it got downgraded and all of a sudden it’s down six, 7% and you’re only up 3 or 4% as a result. That won’t happen to you because you got out of some of that position, maybe it was 1/2 position at 10%.

3:44
So it helps to minimize the risk, the downside risk that may be taking place in the stock even though it’s rallying. But here’s the thing though, it doesn’t have to be just taking profits off the table, it can also be to minimize risk to the downside.

4:01
You could be in a trade that just isn’t working out. It’s way oversold. You think that there could be a bounce coming in the near future, but you’re just not quite sure you want to close out the whole trade jet. So maybe you take a third off, you just reduce your your your risk of exposure a little bit.

4:18
You take a third off or you take half off the table. That way if it does rally back up, you can make back some of those profits get you closer to a break even level. Yeah, we’ll have to rally higher than where you originally got in at to make up for the losses that you took when you took some of some off the table early on.

4:36
But yes, you can take profits to the upside to the downside. And there’s there’s reasons for minimizing risk in both ways. In the end, when you take profits off the table or when you’re reducing your your exposure, when the stock just really isn’t working out for you, the one thing that you’re doing is you’re minimizing risk.

4:55
You’re you’re taking risk off the table. You are trying to manage the risk. And when you’re managing the risk, that’s always a good thing, OK? It’s never a bad thing to take a little bit of profit off the table to to book some gains, let the rest run, But you’re going to guarantee that some of your trade was able to maximize a good run in the stock.

5:18
Also a good time to be doing this is when you’re seeing a stock running right up into the resistance overhead. So let’s say you’re long on a stock, you start, you start seeing it creep towards a major resistance level, you’ve seen it struggle to break through it. You’re like, man, I’m up 15% on the stock right now.

5:34
I don’t know if it’s going to sell off the next day. The market’s overbought, The stock’s overbought. The stock’s hitting some resistance. It may behoove me, I think that I’m using that word right. Behoove. I think that’s the right usage of the word behoove. I’m going to go with it. I’m not even going to look it up on Google okay.

5:50
I’m just going to go with it. It may behoove you to take a little bit off the table. Maybe it’s just the third and say okay, let’s see where the stock wants to go from here. And if it wants to hold on to those gains that keep pushing higher that say it pushes through that resistance, OK, you still have 2/3 running higher.

6:09
And the reason why this is a great tactic is because we live in a world now of 0 commissions, so there’s no reason to do it, not to do it. When I was doing the splash zone, which is now called the trading block, but in the splash zone I used to never do, that was either all in or all out. And the reason why is because I know that when people sign up for the splash zone, one they are learning to trade for the first time or they’re wanting to be part of a trading community.

6:32
But they also want to mirror a lot of my trades. I get that I’m not going to tell you which ones to get in and which ones to get out. I’m going to tell you which ones I’m getting in and which ones I’m getting out of. But being cognizant of the fact that people are are watching or following some of my trades, it’s hard for me to get out let’s say half position or 1/3 of a position because people are going to get chewed up with Commission costs, with extra Commission costs because not everybody has a big portfolio, not everybody’s trading with millions of dollars that and I’m not trading with bazillions of dollars either.

7:04
But in any case though people people don’t want to get chewed up by their Commission costs, especially for people with training with small portfolios. But now that commissions are out of the off the table you can do that. You can do it with a small account. You could just take a share or two off the table if you have to.

7:19
But it’s still you’re minimizing risk you’re you’re you’re managing the risk not just minimizing it but you’re managing the risk and and both both things are are good things to do if you’re short and I had this I had this stock last week NTR let’s see was it last week or it was it, it might have been I don’t know it was either Friday or Monday of this week last Friday or Monday anyways I had been short NTR and I’ve been pushing it had been pushing lower and it was doing good and I think it was up like 7% at one point.

7:51
I think it might have been Friday of last week. NTRI had about 7% of gains. But if I looked at the chart at the time, it was sitting at $44 a share and there was this major support level with all the bearishness in the world. Yeah, it’s it dropped a lot the day that I that I decided to cover it but it wasn’t able to push through that 44 level.

8:09
So I said to myself setting up to to bounce now what I did do is I actually closed out the whole position. Hindsight probably should have just taken half off because the next day to my surprise, it actually went through that $44 level because there was more bearishness in the market and the market kept pushing lower and it was enough to get NTR to go even further.

8:32
So I should have just taken half off the table instead of a whole position. If I would have done that, I would have been able to maximize my profits even more. And I did that another day too. I did that with a API should have and and this is part of being a good trader is learning from your mistakes.

8:49
A API got a little bit spooked when I saw a lot of call action coming in. I was short a AP, it ran up I was I I I basically got out of the entire trade for like a small profit. What I probably should have done is taken half off the table just to curb some of my exposure if I was getting spooked out. Not not take the whole thing off because the next day it went down like 6% five and a half 6% and that was a big big opportunity to profit off of that.

9:12
That short set up. It was a good short set up that I had, but I let it spook me out of the trade. But then on the flip side I did do good because on Disney, Disney was starting to test some support levels at around the one 34135 level. I thought, okay major supports right at 1:33.

9:30
I’m going to cover my short there half of it at least and see what the rest does. The next day it bounced higher. I went ahead and got got out. So the first half I got out at 5%, the second-half I got out at 3%. It averaged out to about 4% on the trade, but I was still able to manage my risk pretty well.

9:47
Now, some good stories of where taking profits have has helped me out, and this is one of the best parts of the trading block subscription newsletter that that you can be a part of if you’d like, is is that one. I trade a lot of different stocks, you know, different risk profiles. You have everything from McDonald’s to BYND or SPCE, which I think is like Virgin Galactic whatever the the Rockets that go up, you know a few minutes down the road to Home Depot.

10:14
But you take the case of beyond me. BYNDI took profits at 8% because I wasn’t sure this is very volatile stock. It was starting to get a little bit topsy turvy. I wasn’t sure if this thing had a lot, lot more room to run. So I I booked half my profits there and then the next day went all the way up or not the next day, but in the days that followed I was up 37% in that trade.

10:36
So I closed out the second-half at like 120, made 37% on the second-half, 8% on the, let me make sure I said that right, 37% on the second-half, 8% on the first half. Now if I had just gotten all out on that 8%, I would have completely missed that huge run, the extra 20% that followed.

10:56
So that was a big deal that I took half at one point and half at another point because it would allow me to to maximize my gains on that second-half of that trade and really bring up the average of the whole trade. So in essence I was I was up 18% on the trade instead of just the 8%. Another example where the first half taking profits where I did played out of my favor was with Shake Shack.

11:18
I got out for I think it was like a 12% profit the first half of the trade. Then the second-half it just really started to get wishy washy. It came back down to the $66 price level. I went ahead and got out made about. I think it was like 7 or 8% off of that trade.

11:34
But you take the first half of the trade and the second-half of the trade, I made around 10% on that trade. But I would have not have made as much money on that trade had I not taken profits along the way. And finally, I’m in. I’m in Spotify right now, right? Spotify has not been a good trade to me.

11:50
I’m down about 5% on the trade right now. It’s just not working. And I feel like that there could be some more downside risk. But on the other hand, I also know that it’s extremely oversold. It could easily and that doesn’t necessarily guarantee a balance. But historically speaking, it does lead to a balance usually.

12:10
But it’s it’s very oversold and it looks like it wants to bounce, but it just hasn’t bounced yet. And so I want to give it that opportunity, but I also don’t want to keep as much exposure to the long side as I am in that stock. So I sold 1/3 of my position in that stock today.

12:28
Square, same thing. I was up. I’m up about 8% on that trade. I took about a third off of the table. Let the other 2/3 run. So you get the, you get the idea of what I’m talking about here. We’re taking profits along the way can actually help you in your trading. That’s why I’m a big believer in it, why that’s why I think it can help you in your trading.

12:45
Take profits along the way because what you’re doing is you’re one, you’re minimizing risk and then two you’re managing the risk. So if you’re looking at it, managing risk is under is the big umbrella and minimizing risk is right underneath it. So you’re you’re minimizing risk when you’re managing the risk and that’s what taking profits means taking profits on your trades.

13:03
Make sure to do it. Thanks for listening to my podcast Swing Trading the Stock Market. I’d like to encourage you to join me in the SharePlanner trading block where I navigate the stock market each day with traders from around the world. With your membership you will get a seven day trial and access to my trading room including alerts via text, e-mail and WhatsApp.

13:21
So go ahead, sign up by going to shareplanner.com/trading Block, that’s www.shareplanner.com/trading-block 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 e-mail me at ryan@shareplanner.com.

13:42
All the best to you and I look forward to trading with you soon.