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Having a Trading Plan Before You Get In a Trade Ep 47

Today we have another question about a stock selling off, what to do, and some other things to think about regarding fundamentals.

Today’s question:

“Hi, my name is Jared. I had a question about a specific position that I’m in. The ticker symbol is EOLS I got in on May 10th at 2626, and since then, it has dropped drastically. Dropped drastically down to like 1380, I think it is right.

I’m trying to be long-term about this, and from all the news that I hear is that it’s going to go up. I have no idea at this point. And the technicals are terrible.

I honestly don’t know what to do. I’m down just about $5,000 right now. I just wanted your input. Otherwise, I’m going to keep holding on to it, and that’s pretty much it.

Thanks”

Let’s Talk about Trading Plan

It seems like you’ve already decided that you’re going to hold on to it. That was the last statement there that you made. In either case, you’ve made your decision.

Quick note: If you ask me a question regarding a stock, usually by the time I get the video out, sometimes it takes me a week or two. Understand that sometimes these videos are released a little bit later just because I filmed them in batches.

Be sure if you’re submitting a question to ask a few days ahead of time if you want a technical question regarding a certain specific stock.

I don’t know what this company does. I never looked into the company. Jared says he believes and thinks that this company is going to do well. The fundamentals, and he says all the news is great.

In that case, fantastic. But I will tell you not all the news is accurate. Not all news is real.

How do I know? Well, because people make stuff up about me. I’ve seen reviews be made up also on other authors and books on Amazon reviews.

People make stuff up to bash other people. You’ve seen it with the presidential election even – so it happens.

This is the nature of the world that we live in. So, what do people do in company situations and stocks? Well, they can do a pump and dumps. I don’t know if this is the case with this company.

I’m just saying don’t buy into the news.

For example, Wells Fargo prints out fake reports. Even there are company holdings that they should be real reports, and they do fake reports.

There’s Enron in the past as well. I’ll show you if you’ve never heard of Enron or if that’s before your time.

Enron was an American energy company based in Texas, found in 1985. They had a bunch of scandals and accounting problems – just a mess. Otherwise, it still can happen. The company itself rarely does these kinds of things. But it still can happen.

Pro Tip: I wouldn’t buy into the news of these kinds of companies. You can’t believe the news. 

The problem with news is if I tell you something is good – good to you means a whole different thing the good somebody else.

Great could mean something entirely different for you. Amazing shipping or amazing profits, or anytime you use a certain word, it’s challenging. That’s why a lot of those reports that they do in earnings calls are very stiff and specific. They’re very cautious about the language because of the interpretation.

It’s one of the reasons why I like technical analysis. That’s because you don’t have to worry about the language part. Lawyers deal with this kind of stuff all the time. With the stock market, there’s not enough room to digest and debate these kinds of things.

Whatever news you’re hearing about any specific stock or company, I want you to remember that it may or may not be true. And you may or may not be interpreting it correctly. And sometimes you digest certain news because you’re looking for validating yourself.

Take a look at Evolus – EOLS

When I look at stocks and charts and companies, I look at it like this. And I look at the price action. Typically looking at the price and the charts, the technicals usually it’s going to have the same type of fundamentals.

Great technicals have great fundamentals. When I look at this stock, I say here we have a huge problem around the 30.

This stock got a little above that level. And you have some serious support around 10.

Is it going to be holding the 10?

I don’t know.

Is it going to break out past the 30?

I don’t know. I don’t know if it’s going up. I don’t know if it’s going down. The thing with stocks when you’re investing is you’re looking at your money management plan. 

What’s your plan before you got into the trade?

Were you looking to risk $1,000, $5,000, $10,000, and where are you going to get out?

Let’s say the stock continues to go down like Enron all the way. Are you going to hold it for life?

I don’t know. Is that a Walmart stock? Is it an Amazon stock? Is it an NVDA stock? Is it a dividend play?

How does it fit in your portfolio? Is it the only stock that you have?

And that’s the thing people don’t realize. They look at individual stocks, and then they make an entire decision because their whole investment is in this individual stock in the market. And instead, what you need to do is look at your investment in the sense of just like a portfolio. You could do it as a circle if you want.

Maybe you have this basket, and perhaps this stock is just a tiny fraction.

Is that part of your speculative place? Let’s say this is your whole portfolio. 

But inside of that whole portfolio, you have:

  • speculative plays 
  • long-term dividend plays 
  • option plays 

Maybe you have five of these speculative plays. How does that fit in? And what was your plan for that individual trade?

What are you risking?

That’s what the way I would look at it as far as the technicals go. I mean you have problems at 30, and you have possible support at 10. 

But is it going to hold there? I don’t know. But you have to look at it in terms of a plan. Ask yourself what your plan with this trade is.

If you’re going to hold it for life, then you’ll never cash out your investments. Then you’ll die with a lot of stock investments, and you might pass it down to your kids. And then they now enjoy their life with the stock investments that you made – which is perfectly fine.

But you need to know if you’re going to hold this for 2, 5 or 50 years. What’s a plan?

If you don’t have a plan, it’s probably wiser to get out and then construct a plan.

This stock continues to go lower. So, was your and to continue to buy more as it pulls back. Or is it just to hold on and see what happens. But in that case, there’s no plan.

Wins and Losses in Trading

Before you get into any trade, you always want to have a basic plan. That’s because if you’re constantly risking $200 over and over again, you may think that’s a ton of losses. But that’s only several losses. And out of those losses if one of them it was a nice winner and then you made your $1,500 that is okay. In that case, that was a worthwhile investment.

Well, you risk $800 to make $1500.

Business-wise: that’s fine. It makes sense. Sometimes you invest in a website, and you might have put $2000, $5000, $25,000, but then your returner payout was much greater, and you won.

This is stock trading. It’s the same thing. You’re spending money, and then you’re making money — income and output: what’s coming in and what’s going out. You’re managing your money and your finances. 

In this case, watch the 30 possible resistance. Watch the 10 possible support.

The problem is that you have a bearish volume that’s picking up. That could be a little bit of an issue. Other than that, if you’re looking at a shorter-term play, the 10 is pretty significant.

And then you have a little bit of support also right around 13.25 where’s some support may kick in.

Final Word

All these things do play a role in the stock and not to mention it is a new company.

Sometimes it takes a couple of years to digest something. 

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