Using Stop-Losses On All Trades: Why Is It So Hard To Do | Podcast Episode #40

0:07
Learn to trade, stocks successfully, learn to profit consistently. I’m Ryan Mallory and on my weekly podcast, I’m going to teach you the in and out of a complex ever-changing stock market. If you will learn to trade better trait, smarter and profit bigger.

0:26
Now let’s go trade. Hi, this is Brian Mallory with the swing trading podcast and today we’re going to talk about why do stop losses hurt so much, why do they create such pain? Let me tell you why I’m talking about this today.

0:45
This morning, stopped out. If two of them, can’t say I like being stopped out of stock. But it comes with the territory, it comes with trading, you’re going to get stopped out and it’s going to happen frequently. So what are stop losses?

1:00
If you’re new to trading, you may be scratching your head at this. Stop losses are basically a protective measure that you use to ensure that. If a stock does not go the direction that you expect it to go that when it goes against your position or goes against the direction that you expect the stock to go, that it will stop you out for a manageable loss.

1:23
Now, they’re not foolproof because say you have a stock that’s trading at 100 and you have a Loss at 95 and you decide to hold the stop stock through earnings and following earnings, you have a open that takes place at around 85 dollars, well, that stop loss isn’t going to get you out at $95.

1:45
It’s going to get you out at $85 when the Market opens. So They’re not completely foolproof that’s why things like earnings and big FDA announcements or just stocks that have some crazy overnight gaps and price action. You’re not seeing me trade them all that much.

2:01
The goal of a stoploss like I said is to manage your losses. You’re trying to keep losses small. You’re trying to keep them predictable. You don’t want the stocks to run against you in such a way that you don’t know what the ultimate downside is to them. So stop losses are a form of trying to keep the losses controllable and predictable if There to occur.

2:21
Now, why do people don’t want to use these things? Is because they don’t want to admit a loss. They are so worried about the winning and losing of it of their trading that when a stock goes against them, they can’t admit defeat. That’s why I feel like women make sometimes so much better Traders is because they tend to not be wrapped up with the winning and losing of their trading strategy and instead they’re just trying to be more systematic in their approach.

2:47
Whereas guys, they tend to get more ego-driven and when they have a loss, they Except they have to hold out, they’ll double down to try and get back to a winning position quicker. And as a result, they just doubled their losses. So, I think that the reason why most people don’t use them, particularly with men is that they can’t afford to emit a loss.

3:08
They can’t take a loss and if you’re going to trade in the stock market and you can’t take a loss, you should not be treated because you will lose. I will explain this to people and the swing trading Trading Block today because I got stopped out twice. Like I said and I took profits on Another trade pretty early on and I didn’t like having to do any of those actions, right?

3:27
I wanted to be able to hold those positions but I had to follow the stop losses but it’s going to happen throughout the course of the year. And for me I probably get stopped out about 100 times over the course of the year and I probably am solid on about 150 plus trades a year where I don’t get stopped out unless it’s for a profit itself because I you can also tighten your stop-loss.

3:47
So you don’t have to keep it at the same thing forever and ever as the stock continued An increase in value, you want to increase the stop-loss as well to protect those profits. So it’s not just protecting yourself from massive losses. It’s also protecting you from losing all your profits as well on a winning trade.

4:05
It also helps you to stay in the game, right? So a lot of people, they just go and they think winning trading is about finding the right stock picks. No, I mean, stop losses are a big part of your trading strategy, or at least it should be because it keeps you in the game. It lets you trade and live for another day in the, in the stock market.

4:22
And if you’re not using the stop losses, you’re susceptible to losing everything. You really are. And so, with proper risk management, using stop losses. You can create a level of predictability for your Trading going forward because you’re keeping the losses manageable because they will happen.

4:41
But when they happen you don’t let them get out of hand. And for me personally I keep my stop-loss about two to three percent from my entry price. Now it’s not an exact specific number every time because it’s going to fluctuate a little bit with support and resistance levels as it pertains to the individual charts.

5:01
So the one thing that I always find is that people love stop losses until that they have to actually use them. You know if you’re on a hot streak and everything everybody likes to talk about. Yeah I got to stop loss and you know if it doesn’t work fine but they’re just assuming that it’s just going to go up because they might be writing a hot hand or they just have an X been exposed to enough difficult situations pertaining to stock trading to realize that.

5:21
Yeah, you’re going to have, you’re going to fall in some rough times, but yeah, people like these things as long as, as long as they don’t get executed. And when they, Executed. They get mad especially especially when they get stopped out and the stock hits their stop and then it reverses and goes right back up to as if and even goes green on the day that will irritate traders to no end and always feel bad for them and that regard because they have a hard time processing that but that’s part of trading.

5:48
I’ve had so many stocks in the over the years that will get stopped out and then they will reverse course. And go back up, I even had it today with spot Espio T. I went ahead and booked the prophets in it. And then when I did that, At the stop went right back up again. It was like 11 percent higher on the day so it does stink.

6:06
But that comes with trading. Look, there’s always another trade and that’s what people fail to remember. There’s always another trait. You don’t have to make your money from a certain specific stock. So if you get stopped out, or if you take your profits and then the thing, reverse course, just let it go.

6:22
It’s not a big deal because there’s always another trade out there. There’s always another stock that can do pretty much the same exact thing for you and probably a similar setup as well. You just got to be able to willing to put the time and effort into it to find ending them. People fear them to. I mean, people are so fearful about stop losses and in the fact that they may miss out on a big rally because they got stopped out too early, you know, I mean I have a great example of that it was a few years ago.

6:47
And if you’ve been in the swing trading Trading Block for any period of time, everybody knows about this, okay? Because I still gripe about it to this day and what happened was it was like a Friday afternoon. We were long on LinkedIn, And everything was going great.

7:02
I mean all my other stocks were doing good that day but LinkedIn was struggling a little bit. And again it was a Friday afternoon, it was about 3:30 and the stock just started taking a drift lower and we weren’t that far from our stop loss and it hit and I got out of it.

7:19
Didn’t really think too much about it. Okay. Now what I’m getting ready to use, like the worst-case scenario for a stop loss but it does happen. And if you trade long enough, it’s going to happen to you. So Monday morning, I turn on the computer and I am looking at the market news and everything.

7:36
And I see this news article that says, Microsoft acquires, lengthen, Not that. Not that that can’t be, there’s no way. There’s just no way. I was literally stopped out 10-15 minutes before the closing, bell on Friday afternoon and you’re trying to tell me on Monday.

7:56
Lincoln got bought out by Marcus soft. No, there’s no chance. So what do I do? I go ahead and I pull up a chart of Microsoft. Things up 60%, 60%. I really didn’t know what to do with myself at that point. I just had never experienced something like that in my life where I’ve been stopped out the day before the stock gets acquired at a 60 percent premium.

8:14
Oh my gosh my head hurts when I think about that still to this day and yeah. I was not thrilled about that at all. I was angry. I really was. I, I mean, people say, oh, you shouldn’t be angry or you shouldn’t trade with emotion. Okay. Give me a break your long, a stock 15 minutes before the closing bell on a Friday afternoon and you wake up Monday morning and the stocks up, 60%, you’re not going to be mad, I don’t think so.

8:32
Every single person on this planet is going to be that I was mad. I probably slam my fist on the keyboard. What I saw that I was Furious because that was a lot of I left on the table and and you know, a lot of people in the Trading Block to, they didn’t, you know, some of them actually did hold it over the weekend because they didn’t follow the stop loss which I don’t know. Maybe I’ll give him a waiver on that one but nonetheless, if I had to do it over again hindsight 20/20. Yeah, I would have held over the weekend but that’s hindsight.

9:09
Okay. But at the time I get stopped out of LinkedIn, I don’t know anything about it acquisition. So did I do the right thing? Yes, I did. Do the right thing. I followed my trading plan. Now the Thing, is that going forward? I could have been, like, I’m never using stop losses again. Those things really screwed me over. Why would I ever ever use a stop loss again? Did you see what happened on Lincoln?

9:24
That’s an anomaly, it’s an anomaly. It that’s not going to happen every time. In fact, it’s probably never going to happen to me again. I mean, let’s just be honest You get stopped out 30 minutes before the closing bell on a Friday afternoon. Monday morning, you wake up the stocks been acquired for a 60 percent premium, probably not happening.

10:01
Okay, so going forward, I don’t change my strategy because it’s some crazy circumstance and you shouldn’t treat change your strategy simply because you get stopped out in the stock bounces back up because what you’re going to do in the future, you’re going to start taking huge losses. Because what happened in those specific situations is not going to happen to every every stock that get stopped out, you’re going to have Boyd, you’re going to take on bigger losses that you didn’t have to tape because you didn’t follow your trading plan and use risk mitigation strategies to keep your stocks from becoming big losers, instead of small losers and then focusing on the big Winners.

10:35
So don’t fear stop losses? Okay. Yes, crazy. Things can happen. The LinkedIn example was pretty extreme. I still hate it to this day. I’ll still talk about it all the time because I think it’s a way of therapy for me to cope with it because I still wish I could say, I was was holding LinkedIn when they got bought out by Microsoft, but I wasn’t.

10:54
So, any case that’s going to be it for today. I hope you guys enjoyed this podcast, a little stuff. You stories above some painful memories using stop losses, but that doesn’t take away from the fact that you should be always applying them to every trade that you make, so do it. And don’t worry, I’m probably the only person that’s ever happened to probably not, but it’s not going to happen to me again, or at least I don’t expect to Take care. God bless.

11:10
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11:26
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