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Tackle Today: STX and the Stop Loss Trade-off

May 19, 2021

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Seagate – why you so naughty?


Seagate Technology (STX) made our Scouting Report on May 8th due to its textbook bull retracement pattern. The way that the stock played out after triggering illustrates the inherent trade-off of using a tight stop loss as a swing trader versus using options. If you bought the stock for a swing, you likely put your stop loss under the pivot low at $86.87.

Unfortunately, due to volatility, STX fell enough to stop you out before finally surging to the target. What a frustrating turn of events. The trade worked, but because it was so volatile in the middle, you might have been shaken out.

The pro of the stop loss is it prevented you from losing more if STX had ended up falling further. The con is it whipped you out before big profits arrived.

Here’s a situation where the options trader likely had the upper hand. If you had sold a bull put spread with a loose stop near the short strike, you probably wouldn’t have gotten stopped out. Or, if you bought a bull call spread and was willing to incur the max loss, you wouldn’t have even had a stop loss.

Options have their own trade-offs, but one of the most obvious perks is they allow for looser management.


Chart of the Day

Seagate Example

Seagate gave swing traders a mean dose of whipsaw. It’s inevitable to get whipped out of trades from time to time. But if you find it happening too frequently, it could mean you need to adjust your rules or learn some options strategies.  

Video of the day

The Queen’s Court

In this week’s edition of the Queens Court, the coaches bring separate trading picks for Coach Emily to review. Will she accept the trade ideas or will she lop off the coaches heads?

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