How to Limit Losses in the Stock Market

追加: 2026-06-01

[00:00:00]In last week's video, I talked about the two best times to buy a stock. This week, I want to talk about the importance of limiting the size of your losses. And if you do it wrong, it actually hurts your overall performance.

[00:00:14]So, I'm going to give you a simple, straightforward way to limit the size of your losses in your portfolio so you don't have those crushing losses that can outweigh many gainers. And of course, I'll do my normal market analysis. We'll figure out if there is a risk of a stock market crash. And then finally, at the end of the video, I will show you the day trade of the week. For those of you focused on short-term trades, but let's begin with a look at the most important thing in trading, limiting the size of your losses. It's really key to make sure you plan for the loss before you take the trade because this will determine the size of your position and how many shares you buy.

[00:00:56]So, it always begins with applying a proven strategy that identifies stocks that have a high probability of success.

[00:01:04]If you're just randomly buying stocks based on tips, then you're more or less a gambler. You have to have a strategy that has been proven to have a positive expected value. Now, once you have that, what's important is that you take only small losses when proven wrong. And I'm going to show you how to do that in just a moment. You want to establish your loss exit point before you enter the trade. Now, we'll look at Intel, which was our example from last week. And in these uh two charts that I'm going to show you, we're going to look at the exact spot where you would take the loss if proven wrong. So, you always want to plan to lose at support by having a stop-loss point. Now, when I'm position trading, I don't really want to have a hard stop. So, by position trading, I mean holding stocks for days, weeks, months. We want to look for the stock to close below our support price so that you don't get those little whips saws that take you out of the trade. You also want to give a little bit of extra wiggle room in the stop-loss point based on where support is. So, we'll dive into a chart in just a moment. Ultimately, we want to make every trade have the same amount of risk. So, let's take a look first at the weekly chart of Intel.

[00:02:25]There was a few buy points. We'll choose the most recent one, which was the breakout through resistance right here from optimism from sideways trading with abnormal price action. So, we talked about that last week, and if you want to go take a look at last week's video on the two best times to buy, you'll see that this was one of them. That initial breakout from low volatility. All right, this is a weekly chart. So, this would be for a longerterm investor. We're going to buy the trade right there at the closing price for the week. We'll call that $63.

[00:02:58]Now, what we would then do is establish where support is. Support is very simple. Where did the stock stop going down and start going up? That line in the sand is a barrier that the market has established as the point where the buyer said, "Okay, we don't think the stock is worth anything less than this."

[00:03:18]And they came in and they defended the stock's price. So, in our example here on Intel, that would be at about $40.

[00:03:24]That's pretty big spread, which means that it's not the best of setups because the riskreward trade-off isn't ideal.

[00:03:31]But let's just go through the exercise.

[00:03:33]So, our entry price on this trade is $63 and our support price is $40. That means our risk per share is $23.

[00:03:44]So, if we buy 10 shares, then our risk is $230. If we buy a 100 shares, our risk is $2,300.

[00:03:53]The number of shares that you buy is determined by your risk tolerance. How much are you willing to lose? Are you willing to lose $230 or $2,300?

[00:04:04]Let that determine the number of shares you buy. And in doing this, you make every trade have the same amount of risk. If you said, "Okay, I want only to take $1,000 of risk on this trade."

[00:04:18]Maybe you have a $100,000 portfolio.

[00:04:21]You're willing to risk 1% of your portfolio on any one trade. $1,000 divided by $23 of risk is roughly 40 shares that you would buy for this trade. Now, if we go back to an earlier example on Intel, which was the buy point right here, again, a sideways trading pattern, a abnormal price break through resistance. In this case, our entry price is $30 and support is at about $23. So, in this trade, we only have $7 of risk. That means you're actually going to buy more shares on that trade because your risk tolerance divided by the risk of the trade means more shares. $1,000 divided by seven is whatever that is two. I can't even think about it right now, but you get the idea. You take $1,000 divided by seven and you get your risk. It's just under 150 shares or so. All right. So, that is how we plan to lose. And very simply, if the stock were to roll over and close on a weekly chart below that support price, then we take the loss. Now, let's look at a daily chart example for the other type of trade that we talked about last week. And that is the pullback from new highs, the break of the pullback. So, for example, this Intel had a long pullback here and it broke the pullback right there. In that case, we're buying at 50 and support is at 40. So there we've got $10 a share in risk. Now, you always want to give a little bit of extra wiggle room. I'd put my actual stop slightly below that because we do find that the market isn't perfect and sometimes it needs that little bit of extra wiggle room. More so with day and swing trades than with longerterm position trades. But very simply, establish your entry point using a proven strategy. Plan to lose at support, which is the last inflection point on the chart before your entry signal. Calculate the difference between the entry price and support. In this case, it's $10.

[00:06:28]So, establish your entry price and support price. That's $10.

[00:06:33]$100 divided by $10 a share in risk is 10 shares for this trade. 10 shares times $50 is a $500 trade to take $100 of risk. And if it were to roll over and penetrate that support price, then we get out. It's a simple mechanical way to identify your risk, the number of shares you should buy, and of course, your overall position size. All right, let's take a look now at the charts of the overall market and figure out where the market is likely to go. We'll start with a chart of the S&P 500. I'm jumping back into the stock scores website. SPY is the symbol for the S&P 500 ETF and the trend is up. Very simply, even in the short term, if we go to the one-mon chart, you can see the trend is up. On the three-year chart, the trend is up. I would say it's getting a little extended because if we were to draw a line across these tops, we're basically at the top of that price channel, but there's no sign of a breakdown yet. And until there is, we just have to remain bullish. You can see the stock scores are very healthy. And what we want to watch for is a break of the upward trend line. So if we go to the short-term chart, this is the 2-hour chart, and we were to break down through that floor of the trend line, then we'd have a reason to maybe start to get concerned, but there still isn't that yet. Let's take a look at the NASDAQ 100. QQQ is the symbol and again straight up led by the semiconductors which have really pulled this market higher. It is a very strong market but pretty risky given how far it has moved in the last two months. Let's take a look at the small cap stocks. IWM is the symbol. It has not kept up with the large caps and that's because interest rates are stubbornly high in the US. But the trend is still up there on the daily chart. the trend is up. On the one month chart, the trend is up.

[00:08:31]And then of course on the three-year chart, the trend is up. You always want to trade with the trend. The trend is your friend and it is still strong on the US small caps. Canadian market T.Xi XIU is not as strong as the US market as money has been pulling out of that very strong sector gold and silver which was very hot for a couple of years. Really, it has cooled down a lot. We'll look at that chart in just a moment. But still, the trend here is up as well. We're not dealing with a market that the sellers are in control of. The buyers are in control. So, there is your trends on the Canadian market. Let's take a look at gold. Aha. See, the trend here is down for the last little while.

[00:09:14]This is a descending triangle pattern.

[00:09:17]And we break down through that floor, that would be a negative. If we can start to build rising bottoms, then that will be positive. That hasn't happened yet. That's why the sentiment stock score is so low 33 for gold. Now oil of course has been very strong but it is breaking its upward trend line. So there is the daily upward trend line. We had a little double top here. We've broken down through that floor price. So that is a somewhat negative signal. It's still not terrible. If we look at the one-mon chart, we see it's essentially sideways but with a lot of volatility which demonstrates how much uncertainty there is. And then that three-year chart, there's that critical point there. We've kind of broken that upward trend line. So, we want to be cautious with oil. All right, let's move along to currencies. US dollar is UUP, and it's more or less sideways. If you look at that one month chart, sideways there, three-year chart, sideways, but choppy, a little bit volatile means there's a lot of uncertainty. Bitcoin GBTC rolled over this week. It had been trying to make a little comeback for the previous six weeks, but now we're rolling over. If we look at the one-mon chart, you see there that uh the trend has switched from rising bottoms, triple top, breaking the trend line, and now falling top. So, the short-term outlook is bearish for Bitcoin. Finally, the chart of the Treasury bond market, TLT, which made a good comeback this week, but still in the downward trend. And so it's positive that we've come back. Of course, when this goes up, interest rates are going down in the bond market.

[00:10:54]So the market has predicted a little bit that we are starting to stabilize and perhaps inflation will cool with that pullback in oil prices, but still it's not a strong um situation for interest rates. Interest rates remain elevated.

[00:11:09]So you want to be somewhat cautious there. So my ratings then you see bullish on all stock markets. Gold bearish in the short term, neutral in the long term.

[00:11:17]Oil and US dollar neutral on both time frames. Bitcoin bearish and [clears throat] neutral in the long term and bonds neutral in the short term and long-term bearish. Now oil, I've put it neutral, but it has broken that upward trend line. So if we get another breakdown, we're going to have to go bearish in the short term on oil. I'm not quite ready to do that yet because I know that this is a headline driven market, but it could change very quickly. All right, let's take a look now at the trade of the week. This is a stock that was really hot this past week. We found it in our active live service on stock scores and we'll dive right in. This is mask. We always look for abnormal trading activity to tell us the stock is worth trading when we are day trading. And so I've got some indicators for that. It's called an action candle. These little pink and orange dots there are action candles.

[00:12:07]And what we like to do is if we miss the initial break, remember our first buying opportunity is that break from low volatility. I missed the initial break there, but then we watch for the pullback. That's our second chance and broke the pullback there, which led to this explosive move to the upside. And then it happened again later in the day.

[00:12:27]Pullback, break of pullback for another explosive move to the upside. If you want to learn more about how we do that, take a look at my website stockscores.com.

[00:12:36]And as always, if you've enjoyed this video, please leave a little comment.