Increasing Dollar Size | Podcast Episode #471

0:00
Hey everybody, this is Ryan Mallory with shareplanner.com’s Swing Trade in the stock Market in today’s episode is going to be a follow on to last week’s episode.

0:08
And so if you remember last week’s episode and if you haven’t watched it, definitely go back and listen to it because I think it’ll be a helpful primer for this episode here today.

0:17
Last episode I talked about how am I swing trading. I have changed my position sizes from 12 1/2 percent, which had been really the long standing percentage that I had put on my trades for, for probably years. And I’ve increased that to 16%.

0:33
And in doing so, I got a lot of questions about it. And, and one of the best questions came from a member of the trading block.

0:40
And I’m going to highlight his question here today about exactly what he asked. Now essentially, I, I, I’m a huge believer in, in keeping your accounts separated.

0:54
So that means like long term accounts are in a long term account by themselves, dividends are in a dividend account by themselves, bonds and a bond account and swing trades and a swing trade.

1:03
That’s how I do it. I’m not saying that’s necessarily the right recipe for everybody, but I find that for most people that it works pretty good, helps you keep your emotions straight because you could have a really good day swing trading and a really bad day with your long term investments.

1:17
And what happens in your long term investments might create emotional turmoil that impacts your decisions in your swing trade by keeping them in separate accounts.

1:25
I don’t know why, but for whatever reason, the way that we’re wired as humans, it just is able to keep the emotions in the separate accounts to keep the decisions isolated from one another.

1:37
And that’s been a huge help to me. So when I talk about doing, you know, 16% position size, I’m not talking about like all the money that I have invested in the market is 16%. I’m talking about that swing trading account is 16%.

1:50
So today’s podcast episode I like I said it came from a person in the share pointer trading block and he said, he said to me or he posted, he said, I just finished watching your new podcast on YouTube and have a question about what you said.

2:03
You talk about trading 16% of your account per trade.

2:08
Let’s assume if you had $100,000 account that you’d be trading using $16,000 position sizes. My question is, is if your account goes to $120,000 because of winning trades, are you increasing the position size therefore to $19,200 or keeping it still at $16,000?

2:21
I’m only asking because I’ve kept the same a dollar amount even though my account has increased in size.

2:32
Wondering if it’s smarter to increase and decrease depending on the account total and always use a fixed percent amount. I hope this makes sense.

2:43
OK, it does make sense. It’s actually a really, really good question and it’s something that I wish I would have pondered a little bit more last week in in that episode. But I’m I’m glad to make a new episode out of it.

2:52
Always looking for a good content and good questions to answer. So with a 16% position size that affords me essentially if I was to Max it out at 100%, that would give me 6.25 or 6 and a quarter positions that I could trade completely if I was 100% long or 100% short, depending on the direction I was trading.

3:13
Now I don’t go just, you know, from zero to 100%. So the, the likelihood that I would have 6.25 positions is very unlikely. In fact, if I had 6 full positions, that’s probably where I, I, I doubt I would just go add another quarter position just for, so I could be 100% long.

3:32
So that would, that would keep me pretty close to like I think was that like 96%? Not yet about 96% long at at six full positions.

3:44
But if I actually was 100%, what would that look like? Because I take partial profits on my trades and as I as a trade increases in value, I do trim, trim some of the profits off, some of the position size off because it’s almost a form of raising your stop loss.

3:59
It’s definitely a form of risk management, but it has a similar impact to raising your stop loss without actually having to raise your stop loss because you’re reducing the amount of risk that’s involved in the trade when you’re closing out a certain amount of shares on your trade.

4:07
For me, it’s usually 1/3 of a position size.

4:14
When I do that, I’m decreasing the risk exposure in the trade. That has a very similar effect, probably even a better effect than what a stop loss has.

4:23
Now, that doesn’t mean you don’t use stop losses. I’m a firm believer in using stop losses and can believe that you should use hard stop losses.

4:30
But any time you’re you’re taking capital out of a trade, there’s nothing safer than than than that than being parked on the sidelines with that capital.

4:40
So it has an incredible ability to help you manage the risk by taking partial profits along the way. So if I was 100% full, it’d probably look, and I’m just speculating here, it’d probably look more something like, you know, I’d have about 5 positions or so maybe 5 and a third positions that were no, I’d probably say it, it’d probably be like 5 positions at about 1/3 of a of a of a position size.

5:09
So that means I’ve taken 2/3 of my of my gains off of those trades.

5:15
I had five positions that were once full positions. Now they’re down to 1/3 and that would probably represent about one and and 2/3 of a of a full position. If you were to add up all those thirds, that’s what it would would look like.

5:27
And then I would probably have about 3 positions that that were representing about 2/3 of an of a of a position size.

5:37
That means 3 positions that’s gone from a full position down to 2/3 because I’ve been taking partial profits.

5:43
That would be essentially like having two full positions in the account among those three positions there.

5:50
And then finally, I probably have like 2 positions that were full and that would give me about 5 and 2/3 of a position or about 92% of an account.

5:57
Now they could go up to 100% depending on what I do with those those current positions. But that’s kind of what the closest that I would get to 100% long.

6:05
That probably means I’d always have a little bit of powder dry for adding new positions down the road.

6:12
So getting to 100%, the reason why I would be staggering, like I’d have a few positions that were at one third and a few positions that are at 2/3.

6:22
The reason for that is because I just don’t go from zero to 100% long. It’s not like I say, OK, the market’s breaking out here.

6:29
I’m going to put all my, my chips into the middle of the table here and start playing to the long side.

6:34
No, I start adding incrementally. So as one position starts to increase in value and the market starts to show, hey, yeah, we’re, we’re serious about breaking out here, then I’ll probably add another one or two positions.

6:42
And then as those positions start increasing volume, I’m probably going to start taking some profits off the table and as well as adding new positions to the table.

6:49
So you start getting that staggered approach where all of a sudden you have a layer of positions that are just a third in size of your typical 16% for, for me, at least 16%. For others, it can be something different.

7:06
And then I’ll have another layer of positions that are like 2/3 of the original position size. And then I’ll have actual full position sizes in the portfolio.

7:13
So it’ll be a combination. So the, the, the question here that’s being asked though is that, and we’re going to use a hypothetical $100,000 account. If I’m trading $100,000 account, that means my position size is $16,000 on each trade.

7:29
When it goes from 100 to 120,000, that’s going to be a $19,200 position size. Assuming that I’m using 16%, would I be changing my position sizes along the way each and every time?

7:44
Ideally, yes, because the, the, the, the thought of compounding money at a higher level is can create some very lucrative opportunities.

7:53
Now that doesn’t mean that I get into a trade. I make 5% off of the trade. You know, my, my account goes up.

8:03
Let’s say I make 10% off of the trade. Just make it easy.

8:05
So a $16,000 position on $100,000 account goes up 10%. I make $1600 on that trade.

8:13
My my account’s now $101,600 because of that $1600 that was added to it in profits. Am I now going to raise my position size from the 16,000 to 16,000 and change?

8:28
No, I’m not going to do that. And the reason for that is because I’m not dollar watching my account.

8:33
I. I reached over the years, don’t dollar watch your account.

8:37
Don’t if you have $100,000 trade, the first thing shouldn’t be is like, oh, I’m up 5% today. How much money is in my account now?

8:43
Because then you’re focused on things that the market doesn’t care about.

8:52
So for me, looking at what that dollar amount is at the end of each day or at the end of the beach week doesn’t really hold a, a level of importance to me. Now I know that when I’ve been on a run and and I have had a lot of good trades, maybe it’s like at the halfway mark of the year or maybe it’s at the end of the year. I’ll look at the account size and say, OK, in this particular case, let’s say I go from 100 to $120,000 a trade. I wasn’t incrementally increasing my position size along the way.

9:16
I was probably trading just $16,000 the entire time. That’s how I would do it.

9:22
And then when I see that, OK, I’ve reached a milestone 120,000, I’m going to increase my position size to 19,200 and of course it gets to 150,000, I’m going to be increasing my position size to 24,000.

9:34
If it double s at 200,000, it would be $32,000.

9:38
Now there’s some caveats to that and and I’m going to get to those in a second, but first, make sure that you check out Swing Trade in the-stockmarket.com.

9:51
That’s going to take you to my SharePoint or website and it’s a really awesome way to get all my stock market research each and every day with it.

9:58
You’re going to get videos sent to you that’s going to be updates on all the mega cap stocks like your NVIDIA, your Apple, your Tesla, Eli Lilly.

10:08
There’s always names being taken or being added to the list. Apple, Broadcom, Google, Meta, Amazon, you get it.

10:17
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10:27
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10:32
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10:40
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10:47
So it’s a really, really cool gig there that you can that you can be part of. OK.

10:57
So we’re talking about re evaluating when, when the portfolio increases in value, do we want to increase the size of our positions as well?

11:09
Like I said, I think it’s more on a milestone basis. I don’t want to be constantly recalculating or or saying, OK, I have a losing trade now I got to knock it down and that’s the other direction that it can go. Let’s say you’re in a draw down.

11:23
Now if my, let’s say for instance, and I don’t have big draw downs, you know, Lord willing, I don’t want any going forward either.

11:30
But let’s say in this particular case, I go from 100,000 down to 98,000 in my account. Am I going to change my position sizes?

11:40
Probably not. I, I don’t, I, I wouldn’t do that.

11:44
That’s, that’s like a 2% draw down there. I don’t really see a significant reason to change.

11:49
And again, this really goes, goes for me how it’s going to work for you could be possibly different. If I get go from, let’s say I have just a really bad trade and I go from like 90 down to 80,000, would I change my position size then?

12:01
Absolutely.

12:03
Because the significance of a of a 16% position on a $80,000 account is going to be much different than at $100,000 account.

12:11
And trust me, if, if your account goes from 100 to 80,000 without even looking at the totals, you’re going to know that you probably need to adjust it.

12:20
So you’re going to look at the totals and make the adjustment as necessary. So the dollar amount and, and we’ve talked about this before, we talked about this more so in last episode. It’s so important that the percentage that you trade, OK, for a, from a position size standpoint is meaningful.

12:39
So you, you have two key elements that that have to be, have to meet each other at a crossroads.

12:47
The first one is that the amount that you’re trading is meaningful. And then the second one is that that your emotions are, are stable enough to trade that amount.

12:57
So the, the, the example that I gave last week and, and I’ll, I’ll modify it a little bit for this podcast episode is that if you’re trading $100,000 account, if you’re trading $1.00 per trade and we’re going to go extremes here. If I’m just putting a dollar on that trade, would would that be meaningful to you?

13:15
Not really. You probably wouldn’t even pay attention to it.

13:19
I doubt you’d even put a stop loss in there. I don’t think I would put a stop loss if I was just trading a a dollar of $100,000 account.

13:27
If I lose a dollar, Oh well, I don’t care. I have, I have a friend that actually who will sometimes buy like one share or something just to be able to track that particular stock.

13:36
So it’s always showing up in his watch list.

13:40
And he because he wants to always know it’s like a, a 3X of a particular stock, like a one of those inverse ETFs.

13:47
And so he buys like one share of these things and he has them in his account and he doesn’t ever sell it.

13:53
He doesn’t do anything with it, but he’s able to track it. Now, what does that one share mean to him?

13:59
Absolutely nothing. It doesn’t mean anything to him because it’s just one share.

14:04
So in in the sense that is his emotions really being impacted by that share, by that one share that he’s trading on that particular position.

14:14
No. So his emotions are over here.

14:17
The meaningfulness of the trade is over here and they are nowhere close to actually meeting with each other.

14:23
And so you got this like I guess you would call it a gap between the two. They’re not meaning to get together.

14:32
They need to come together to where to where they find the perfect position size. Now you can have $100,000 on the trade in your $100,000 account.

14:42
And what is that going to be a meaningful trade? Yes, absolutely.

14:45
So that the meaningfulness of the trade comes way over here. And then is your emotions going to be completely wrecked trading $100,000 on a particular position size?

14:54
Absolutely.

14:56
So now you have your meaning that how meaningful the trade is and how emotionally unstable you are on the trade is overlapping each other.

15:05
So they’re not meeting, they’re overlapping. That’s a problem too.

15:09
You don’t want them overlapping. You want it to where it’s meeting and where where the the trade itself is meaningful and the emotions are stable enough to trade that amount.

15:17
You don’t want them overlapping and you don’t want a gap between the two. This might be one of the first examples that that if you’re listening to me like on Spotify or Apple, it may be beneficial to go to my YouTube channel and actually watch the video portion of this one because it it may probably makes a little bit more sense because I’m actually demonstrating it with my hands what I’m talking about there.

15:42
But 16% is meaningful for me emotionally. Yes, I’m stable trading that amount.

15:50
That’s perfect for me. If I go up to 20%, I’m not as comfortable At 20 percent, 16% I was fine.

15:57
At 12 1/2 percent, I had a gap. There is, there is a, a, a gap between the two and that wasn’t working for me.

16:03
Now let’s say my, my account goes, and this is where we’re building on what we talked about earlier where the position size increases, hits a milestone.

16:12
Let’s say it goes up to $200,000. Am I going to still be trading 16% on on a $200,000 account?

16:23
Good chance that changes. It could be that I’m like, OK, I’m going back down to 12.

16:27
I’m OK at 12 because that’s a $24,000 position size. I don’t want to go up to thirty, $32,000 in this hypothetical hypothetical account because the emotions start overlapping.

16:39
What’s meaningful?

16:42
And so we don’t want that. We don’t want them to be overlapping.

16:46
We need them to be beating in the middle. At $100,000 account, they meet in the middle.

16:50
At 200, they start overlapping and it’s it’s unlikely that at 200,000 that there’s going to that they’re going to pull apart from each other.

17:00
It’s possible. And in the case right here, yeah, I would say that I that the the 12% that I was 12 1/2 percent that I was trading before had a little bit of a gap between the two. That’s why I moved it up to 16%.

17:13
So it’s it’s something that’s always going to be changing. So I wouldn’t just say that, OK, 16% is, is the way forward.

17:19
You know, because you, you double your account or maybe even you, your account goes up by 20% and you’re not necessarily comfortable going from 16,000 to 19 to 19,200.

17:30
You may say to yourself, I kind of want to just keep it at 16,000. OK, that’s fine.

17:34
There’s nothing wrong with that because you’re trading at a place from a dollar amount where the, the, the emotions and the meaningfulness of the trade meet together.

17:42
And so that means that the percentage that you’re putting on those trades has gone down. That’s totally fine because what you don’t want is to inject variables into the market the market doesn’t care about.

17:52
And one of the biggest variables that the market doesn’t care about and will actually play against you on is your emotions.

17:57
So is it if your emotions cannot be stable, that’s where the, the, the position size has to come down some.

18:05
And you got to find it to where the meaningfulness and the, the, the emotions are one in one with each other.

18:13
Wow, we covered a lot.

18:16
Did I forget anything else? I don’t know if I did.

18:20
I’m looking through my notes here, But I guess one of the things that would would say, just wrapping this up, you want to constantly be re evaluating.

18:27
I do it too. I, I at least twice a year, I’m re evaluating where am I at with my position size percentage wise?

18:37
Do I need to change it? Do I need to decrease it?

18:39
And if I do, I’ll let you know on the podcast, as long as I’m still doing the podcast, which I don’t have any plans of changing that anytime soon, but but I’ll, I’ll let you guys know.

18:49
But I, I want to keep that constantly being re evaluated. That’s something that I need to be constantly asking myself, is this the right percentage that I should be trading on all my positions?

18:58
And that’s the other thing too, is all my position sizes are the same. Yes, they might go down to 1/3 or 2/3 of a position, but they all start out the same.

19:02
So as the stock increases in value, I’m taking a little bit of that profit off the table.

19:12
If you enjoyed this podcast episode, I would encourage you to like and subscribe on YouTube and if you’re listening to me on Spotify or Apple or some of the other major platforms, make sure to leave me a review and five star.

19:22
Follow me on there as well. Leave some comments.

19:24
Let me know what is your ideal position size?

19:28
What position size do you trade from a percentage standpoint? You don’t have to give me the dollar amount if you want to, that’s fine too.

19:33
But tell me just from a percentage standpoint, what is your ideal position size? I would love to hear from you guys.

19:39
Also, check out Swing Trade in the-stockmarket.com and send me your questions. Send me your emails.

19:45
What are the things that you’re wrestling with, grappling with? You can send them to me ryan@shareplanner.com.

19:50
I’m the only one that reads them. I’ll give you guys a fake name so that nobody knows who it is that wrote it, but in the process you get your questions answered.

19:57
Thank you guys and God bless.

20:01
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20:08
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20:16
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20:23
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20:34
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