Always Assume You Will Lose On All Your Trades | Podcast Episode #29

0:00
Hey, everybody, this is Ryan Mallory doing another swing trading podcast for you guys. Today’s episode will be on always assuming that you will lose on all of your trades. Now, that doesn’t really sound very Exciting or very happy to talk about or maybe you, you’re thinking, why would you take that kind of approach with your trading?

0:23
That’s uh It’s kind of a dire outlook. I mean, if you’re good and you’re successful at your trading, shouldn’t you be assuming that you’re going to do well? And I would tell you, No, no, you shouldn’t so. So this is what we’re gonna do. We’re gonna talk about 3 ways you can keep your losses to a minimum.

0:40
And here’s the thing. I always assume the worst from all my trades, that they will always be unprofitable. So for most of you, that is probably one of the most asinine statements you’ve ever heard a trader make, but it’s true. I don’t look at my next trade as the one that I will make a lot of money from.

0:58
Instead, I will look at it from the vantage point that I will lose a lot of money, and what do I need to do to prevent that from happening or becoming a reality. Now granted, I don’t lose on all my trades, not even most of them. This year, I’ve been profitable on about 56 to 57% of my trades.

1:15
That’s an excellent rate and one that I will look to maintain through the end of the year and beyond. But having that kind of solid win rate is only because I take the risk on my trades so serious, and that can only be done by assuming the trade will always be a big fat loser.

1:32
Now, when you boil it down to the bare essentials, my approach to trading is pretty much this. One, assume the worst possible outcome on my trade, and how will I trade it in a way that keeps the loss as small as possible. And here’s the other thing, assuming the worst, it kind of keeps you out of some trades that could really be a bad trade.

1:50
Like if you’re trying to get short on a stock and you find out that, hey, there’s a couple of companies out there that are looking to buy out this particular stock or may be interested. Assuming the worst that it could get bought out, that’s enough to keep you from getting into that trade in the first place.

2:07
So, that’s another reason why it’s good to assume the worst. And the next thing is, if I don’t lose, I consider myself fortunate and I raised the stop loss accordingly because I’m going to use that opportunity not to lose as much from the current price point that it’s currently trading at.

2:29
Now, in all honesty, you probably aren’t going to find a lot of traders who are going to approach trading with such a dire outlook. I mean, think about it. Why do people get into the stock market? They do so with the intent of wanting to make money and believing that they can do it and they have what it takes to do just that.

2:54
As for me, I know what kind of havoc I am capable of unleashing on my portfolio and what can go wrong if I don’t treat every trade as if it will end up being a losing trade. That allows me to zero in my focus on what matters most on a trade, and that is to manage the risk.

3:17
Now, if you’ve been following this podcast at all, you know this is a very, very, very, if not the most important aspect of all my trading is managing the risk. I tell people to You know, trade what’s what you see, manage the risk, and the profits will take care of themselves.

3:34
I have a whole series on that that you can find. But now, the other reason why most traders will never embrace my doom and gloom approach to trading is because that is not what we are taught when we’re growing up.

3:52
Our parents were at the forefront of that, and that is the right approach. I mean, unless you’re Red Foreman from that 70s Show, any good-intentioned parent isn’t going to go around calling their kid a dumb ass all day long.

4:11
Instead, we are taught things like, you can do it, you can become anything you want to be. Dream big things, never doubt yourself.

4:30
But when it comes to the right mindset and trading, we should be more along the lines of thinking. The biggest threat to my trading success is myself.

4:51
It is about making trading as difficult as possible for you. And if you don’t realize that the stock market is out to do that to you, then you are completely at risk for destroying your portfolio’s capital.

5:17
So in order not to do this, I’m gonna give you 3 tips on being a successful trader, focused on the losing side of trading, which of course, is the right side when it comes to managing the trade right. Number one Avoid trading stocks within a week of their earnings.

5:33
This goes without saying, unless you have a verifiable edge when it comes to trading stocks, you should stay away from earnings reports. For long-term investors, it’s different. You pretty much have to if you’re going to hold something long-term.

5:59
But for swing trading, you don’t, and as a result, you trade in between the reports. Look. There are plenty of ways to profit in the stock market, and trying to predict this one-time event with any consistency is downright impossible.

6:15
First, you have to predict whether they will be earnings and revenue, and even if you get that right, you have to hope that the company guides higher if you’re long or lower if you’re short.

6:31
Get either of these wrong and you will see the market run against your position. And that is exactly what brings me to my next point about earnings.

6:50
You have to predict the reaction correctly. Even if you predict the outcome of the earnings report correctly, you’re not guaranteed to predict the reaction to the earnings report correctly.

7:10
No one is geared to get all these things right. Not even the big trading firms. That is why I don’t even attempt to try to predict an earnings report because I, if I am going to manage risk to the greatest degree possible, I can’t do that if I’m waking up to earnings reports where the stock is 10 and 20% off.

7:30
And as a result, I am taking a massive hit to my portfolio. If you don’t believe that, look at Facebook. Facebook just did that recently with their most, uh, with their earnings reports.

7:47
People took a massive lick on Facebook, and so you can’t predict where it’s gonna go. And that kind of horrible price action will kill the risk reward of your trading strategy.

8:08
And when you are wrong, it takes a lot of time to make up that kind of loss. 2, avoid the crappy stocks.

8:24
The market poses enough of a challenge that you don’t need to make it harder on yourself by trading the stocks riddled with fraud and a lack of profits in general.

8:41
I basically don’t trade anything that is under $10 a share. Sure, there are some companies that I could justify trading below the $10 threshold, but when they trade that low, there’s usually a very good reason for it.

9:00
And just a broad rule of thumb, I don’t even look at these stocks. I keep my focus instead on liquid stocks whose companies are established and have been around for a while.

9:16
There are plenty of credible companies that will provide you with plenty of price action without having to delve into the world of penny stocks and, and those companies that are on the verge of bankruptcy.

9:35
Beyond the problems that I just mentioned, the ability to manage risk on these penny stocks are nearly impossible, not to mention that most of them do not even have that much liquidity to begin with.

9:52
So even if you do use a stop loss, there is no guarantee that you will get a fill near the place that you got stopped out at.

10:09
Also, I would encourage you to ask yourself. How many successful traders of penny stocks have you ever met personally that were able to sustain their gains long-term, year after year?

10:30
My guess is that you won’t be able to name any, and that’s because they don’t really exist.

10:47
The reason why I even bring this up at this point in the article of always assuming your trade will be a loser is that more than anything else, when you trade stocks under $10 you’re very, very rarely ever are going to succeed.

11:04
The odds are stacked against you.

11:19
And I get a lot of people that like penny stocks because they get this feeling of having a substantial amount of shares when you can say you own 10,000 shares of a penny stock at $1 instead of 10 shares of Amazon or 5 shares of Amazon at $2000.