Averaging Losers | Podcast Episode #111

0:07
Hey, I’m Ryan Mallory and this is my Swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex ever-changing, world of Finance, learn what it means to trade, profitably and consistently managing risk, avoiding the pitfalls of trading. And most importantly, to let those winners run wild, you can succeed at the stock market and I’m ready to show you how, hey, everybody, this is Ryan.

0:30
Mallory with Swing Trading the Stock Market and we’re going to talk about averaging losers. Actually, we’re going to talk about A lot of things here because for one you guys really like these emails, I really like them too. Because for one it gives me a lot of content to work with here. It gives me some real life situations that can apply to you guys directly but it also a lot of times in the past I’ve been doing these podcasts now for a while, I think this is my hundred and eleventh episode and so when you do this many episodes, sometimes you can be like, okay, what can I talk about that?

0:56
I haven’t talked about before. Well when you start doing the emails, what’s great about it is that that I can actually take experiences from you guys and unpack them and really address some really cute too. Pics here. So there’s gonna be actually a number of things I talked about here because this person here he’s from Canada Toronto, Canada, he just turned 24 years old.

1:12
He’s a just recently graduated from a university. He admits that he’s in debt right now from being a student. And he got a full-time salary, right after he graduated. So sounds like the typical person coming out of college here, gets a good job, gets a little bit of student debt that he needs to pay off young and he’s interested in the stock market.

1:30
And by the way, my, my drink of choice here. Okay, because I get a lot of emails about about what I’m drinking a lot. And so what I was doing before I say this all started up really by me just being late at night and I’m like, I need a drink when I do this podcast and I decided to start talking about it, right?

1:46
I don’t spend the whole podcast on it but hey, look. You guys like bourbon for the most part. Most of you guys do. So it doesn’t hurt to tell you guys about it. But this one here, it’s a fan favorite or a crowd favorite. I guess is probably the better way to put it. It’s called screwball peanut butter whiskey. I don’t even think I’m going to like this.

2:01
I have a feeling I’m going to hate it so I hope I’m supposedly Rise. I’m pouring it right now. I’m using like a 2-inch Ice Cube. We’ll see how it tastes panel again. I I don’t have a lot of Hope and I put I’m using the Ice Cube because I don’t even think it’s that expensive of a whiskey. I saw it.

2:17
I’ve been kind of curious about. It said, okay, I’m going to give it a try here so I’ll give it a shot. Hmm. Oh, hell no. If this is a bad podcast, guys blame it on the scruple. Oh, what did I even just drink, just then.

2:37
Holy cow, here’s the thing. People like to put these, like flavors into the bourbons and their whiskies and stuff like that. If I want peanut butter, I’m just going to eat peanut butter. I’ll go Joe Black on that thing. I’ll ask for a spoon with peanut, but that’s what I feel like I’m doing right there. Except it’s like a liquid form.

2:53
It’s gross. It’s like that the liquid stuff when you have an opened up a peanut butter jar and a long time and you open it up and it’s got like this little Lake in the middle of like peanut butter juice. And that’s what I feel like I’m drinking here. Holy cow, jeez. That was bad. That was instant disappointment.

3:10
Anyways, I don’t mean to offend the people at screwball. Peanut butter, whiskey, that’s an awful idea, obviously, they’re not paying me to talk about this stuff case. So this guy’s name here, this guy, not going to use his real name, obviously, like I never do.

3:26
I’m going to come buh buh ba, you is it Bo? That’s, that’s the or is it just bo bo? Bo Jackson was be 0 so it will just go with bo bo bo, like I said listen Canada Toronto specifically just turned 24 years old, he’s in debt, he just graduated out of college, he’s 24 years old has a full-time job right after he graduated, he started investing through a tfsa account.

3:51
I had to look up. What that is through wealth, simple back in March 20, 20 basically, it sounds like it’s a tax free account that you can invest in. You can withdraw from no penalties, I could be wrong on that. I’ve just Googled it basically. So if I’m wrong it’s Google’s fault. So he started trading with $1500.

4:07
It went down to twelve hundred dollars because he said he had no idea what he was doing and I’m doing a little bit of paraphrasing because it’s a long email. He says eventually I started creating a strategy that worked because I got up to eighteen hundred dollars. And from there, I decided to start trading with a bigger account size around five thousand dollars. Eventually, I’d like to trade with a hundred thousand dollars.

4:22
So he tells me his strategy here. Okay, 50% of his portfolio on a five to seven year investment such as Apple, Microsoft and Facebook. That’s great, those things are doing great, right? The other 50% is open to position in trading. I currently have Manulife because of its very low risk factor in volatility.

4:39
I don’t know anything about Manulife here, really? That’s like an insurance company. I’ve never traded it before. So, I mean, I look it up, it’s traded here in the United States. But, I mean, it went back from like, 2008 went from like, 45 plus dollars all the way down to the single digits. There is some volatility there, but since 2009, it’s been kind of dead money and when I say that, it’s just, it’s been range bound.

5:00
It literally hasn’t moved anywhere between into $25. It just keeps going back and forth within that range. Yeah, it might be a tradable range. I’m not overly crazy about this kind of a stock. It’s no Apple, that’s for sure. It’s not a Tesla or Microsoft, or any of the fancy tech stocks. Not even a Bank of America or a Citigroup.

5:17
Maybe not even a Wells Fargo, but then again, Wells Fargo kind of sucks. So then he tells me, what I do is I buy with about 60% of the money I have available left after my long holds, which I see a support line or when I see a big drop and then set my sell at one percent profit because it generally moves 1 to 3 percent a day.

5:34
I don’t know if that’s low risk, if it’s moving every day, one to three percent. That’s a lot. I mean, granted, this guy’s only been trading since March and I’m not being hard on him at all. He even asked me to take it a little bit easy on him at the end of the email because he has only been trading since March. So I’m not coming across, I’m going to be critical where I think I should be critical.

5:51
But one to three percent a day, I mean that might be a little bit volatile. I don’t think most stocks move one to three percent a day. Right now they do, but when things kind of get back to normal, they are not. So if you’re able to profit off of making one to three percent a day off of a stock, when things do get back to normal, when VIX gets back to like 11 or 12, I wouldn’t necessarily expect those kinds of moves going forward.

6:13
If it doesn’t go up, I’ll wait until it does even if it’s two to three months because I then collect the dividend. Now, remember, dividends they get subtracted off of the share price. So if a stock has a dollar dividend and trades at $100 a share, when it goes ex-dividend date, it’s going to drop by a dollar down to 99.

6:29
I mean, it doesn’t mean that it can’t make it right back up. If it’s Tesla and they had a dividend, right? And they had a dollar dividend, it’d probably be made up of sometimes in like 10 seconds. Holy crap. This whiskey is disgusting. I mean, I’m fighting through it guys. I am. I’m trying to be a warrior about it. It’s gross.

6:45
I can’t even think of a single thing I mix it with. I’m sure there’s recipes all over the place online. I don’t even want to try them. I don’t think there’s any improving on that stuff. That’s disgusting. So here’s where I really run into some issues here.

7:03
It says, if it continues to drop, I will wait for another potential support line to show up or until it’s very undervalued and buy more to even out my entry point. Buy a second time lower and the price goes back to my original entry point, I’m in a profit. Of course, I understand this is very risky, so if it doesn’t go up, I’ll wait until it does even if it’s two to three months because then I collect the dividend.

7:25
All right, I’m going to stop there because we’re going to unpack a lot of that right now. You go back to 2008, 2009. Granted, this person’s only been trading since March, I don’t know to what extent he’s looked at MFC’s chart going back to 2008, 2009 or even just long-term. I do it all the time. I know a lot of these charts like the back of my hand going back to 2008, 2009. You take the S&P 500, I could map it out on a piece of paper for you. I’ve just looked at it for so long throughout my life. But MFC, it goes from 45 down to single digits.

7:48
Okay, this thing was in a beautiful trend line going all the way up to 2008 and then it fell apart. It’s never recovered from 2008. It hasn’t even recovered half of its losses. It’s recovered maybe about 25 percent of its losses from that date. You take a chart, any tech chart probably, and it’s probably way beyond the lows from 2008 and well beyond the 2007-2008 highs.

8:05
So we got a problem there because what does this person do? Let’s say down the road, he does have a hundred thousand dollars in his account and he’s trading this MFC thing like he outlined here where he puts in a large percentage of his portfolio in it, looking for the one percent move. And this thing just goes down. It goes from 15 down to, let’s say, 13. He says, okay, it’s oversold. I’m going to double down on this trade and it goes from 13 back down to six or seven. What does he do then?

8:26
And this thing just goes down. It goes from 15 down to, let’s say, 13. He says, okay, it’s oversold. I’m going to double down on this trade and it goes from 13 back down to six or seven. What does he do then? Because I can tell you this back in January, this was before covid ever struck, this thing went from 20 all the way back down into the single digits. Now it’s back from 8 plus dollars a share to $15, so it’s almost doubled off of the lows.

9:05
But if this guy was just starting to invest about two months before he started investing, he’d be in the hole so bad right now and I don’t know when this thing comes back. Maybe it comes right back up, you know, maybe by the end of the year, it’ll be back in the eighteen to twenty dollar range. I have no confidence about that. And here’s the thing, stocks don’t always come back. There’s a litany of stocks that did not survive the 2000 dot-com bubble. There’s a litany of stocks take Lehman Brothers and Bear Stearns they did not survive 2008, 2009. There was a lot of money lost in those. You take Qualcomm, if you had bought at the highs of 2000 during the dot-com bubble, well guess what? It wasn’t until about two months ago that Qualcomm finally broke its all-time highs going back to the 1999-2000 time frame. It took Qualcomm 20 years to make that money back again.

9:44
I’m taking it easy on you, I promise. I’m a little salty though right now because this peanut butter whiskey is trash. I’m probably going to get COVID tested tomorrow just because I’m not sure if there’s something that wrong with this drink. All right, I probably shouldn’t say that about it. There’s no link between COVID and peanut butter whiskey. Screwball peanut butter whiskey, boy. It tastes like it though.

10:00
So here’s the question. I don’t like averaging losing trades. I’d never average a losing trade. If you’re losing on a trade, you never add to it. That’s never a time to get in. It’s never time to get back to break even. Losing trades is usually a reason to get out of the trade, not to try to stay in it longer. Here’s the thing. If you’re trying to swing trade and you’re looking for a position that’s going to go from, you know, in the next five to six days up one or two percent and it doesn’t do that and then you’re expanding your timeframe to two or three months, well, that’s money that’s being tied up in a trade that may never become profitable for you.

10:26
And then if it continues to sink like what we saw MFC do Manulife do back in 2008, or back in January of this year, where it doesn’t come back, then you’re turning into a long-term bag holder, and that’s not good either. So you don’t want that. I’m also not a huge fan of just trading one particular stock, because I think a lot of times we do that because we feel like that there’s some kind of inherent edge in that stock. And I don’t think that’s necessarily true. I think there’s some stocks that respond better to technical analysis than others.

10:58
I’ve mentioned it before, I think Bitcoin does pretty good to technical analysis. And I think the fact that it trades 24/7 and it doesn’t deal with these crazy gaps and stuff makes it a little bit more trader friendly. That doesn’t mean there isn’t a ton of volatility, but a lot of times it does respect the support and resistance levels that you outline. And when it does break a support level or resistance level, it usually marks a change in the trend or a significant move in that particular direction of what it’s breaking.

11:21
And he says this too Manulife is very consistent, which is why I’m happy to hold for a long period. In this way, I never take losses. Well, I don’t know if it’s necessarily consistent. Somebody, because back in January, it had a significant sell-off. It goes from like the 20s down to single digits, eight dollars. That’s a significant move. I look at the technical analysis right now. It looks like a double top, so I would be very careful right now because since March, the market has been very forgiving when it comes to not respecting the risk not saying that you’re not respecting the risk. I think you’re respecting risk in a way that I think has its own set of risk to it, but this MFC is not going to be a free lunch for you and it’s very capable of sinking lower.

12:00
Every market is. And so you have to go into your trades thinking that. But what bothers me though, is that this person, Bo, he says that I’m happy to hold for a long period and this is why I never take losses. Well, you are going to take losses in the stock market and it’s important to get used to those. It’s not bad to have a losing trade.

12:15
I had a losing trade today Citigroup. I shorted it. Trust me, I’m wondering if there’s ever a reason to short a stock ever again right now, when you’re looking at this market. I’m not saying that with complete sincerity. I’m just with the Federal Reserve constantly pumping up the market Citigroup looked like a good short.

12:32
It squeezed me a little bit. I had to take a 4.9 percent loss on that today. That’s okay. I’ve had plenty of those kinds of losses and losses aren’t really bad. I managed the trade as best as I could. That’s what it comes down to. I managed the trade, got out for a 4.97 percent loss, I only stayed in it for less than a week.

12:48
So I want to know quickly whether or not a trade’s going to work out for me. If it’s going to be a loser, I want to get out of it fast. So it’s the more profitable ones that I want to let keep rolling higher. You take Twitter for instance, I’ve been in Twitter since August 5th. Notice how that stock I have been into it for about twenty-two calendar days.

13:06
It’s up about 8%. It was up over 10% at one point. I sold a third of my position on the 24th for 8.9% profit. I’m letting this last third continue to run. It’s okay. I’m happy with that. I’m going to keep raising my stop-loss. My stop-loss is getting tighter and tighter every day. But when I have a loser, I have to be able to accept it and you have to be able to accept it on a stock whether it’s MFC or any other stock when the stock isn’t working.

13:29
Right? It’s not the time to double down on it and hope that it gets back to break even because there’s a lot of capital that has been lost on people who just want to break even or just want to get back to their original buy-in price. And let’s say you have, you know, twenty-five hundred dollars on MFC and you’re in at like $20. Here we’re talking about into the future here. Trading strategy’s been working great. Let’s say it’s not even twenty-five hundred dollars that you’re trading with anymore. Let’s say you’ve built your account up to $25,000 and now you’ve got like $12,000 in the stock and all of a sudden you get this heavy sell-off.

13:48
It goes from $20 down to six or seven dollars. What’s the game plan going to be there? You’re going to keep doubling down on the trade? Are you going to keep adding more to the position hoping that it just gets back to its original entry price? Because I can tell you at that point, that’s where the emotions are going to just start wrecking havoc and it’s going to cause most people to panic. So that’s why when you get into the trade, you got to know where you’re going to get out of the trade.

14:22
So when you get into MFC, if you feel like you have an edge with it or if you think there’s something on the charts that says, okay, it’s going to bounce off this support level or it’s overbought and it looks like it wants to hold this rising trend line, then you got to know if you were wrong and if that trend line doesn’t hold and if that support level doesn’t hold, where you’re going to get out of the trade at. Because I really, if there’s anything I don’t like about this email, it’s it talks about the fact that you’re willing and happy to hold for a long period of time so that you never take losses.

14:48
You have to take losses. That’s part of trading is taking losses. I’m like wrong 40% of the time. I’m okay with it. So you added a few questions at the end of this email. One says, what can I do to make the strategy better? I feel like I kind of outlined a number of things that you can do. Can I make how can I find a better entry point? Well, that’s about trading with the edge.

15:04
You got to find on the chart where the reward is greater than the risk that you’re taking on. And that doesn’t mean that you double down and just hope that you can get back to the original entry point for a profit. What influences a stock move? There’s a lot of things that influence a stock. Being in insurance, it’s going to be affected by its industry.

15:20
The insurance industry. It’s going to be affected by the financial services sector. You have the broader market, which represents about 50% of a stock’s move, followed by about 20% the sector, another 10 to 20% of an industry, and then the rest of it is actually the stock price itself whether there’s news, whether there’s something specific related to the stock that is causing it to rise or fall.

15:36
So again, I’m not trying to be harsh on you. I know you’ve only been doing it since March, and I’ve had these questions before. I’ve had these thoughts, like, man, I should just trade this one stock only because I have such good luck with it and that’s usually not a good idea.

15:51
So I would encourage you to like, branch out. Try to find other charts that might work for you. Try to branch out and find some other trades that appeal to you. I like just looking at charts for what they are charts. Whether it’s Apple, whether it’s Microsoft, whether it’s Square, whether it’s Caterpillar. If the chart looks right, I’m taking it.

16:09
Now, there’s certain types of charts I’m not going to go after. I’m not going to go after stocks usually that are under $10. Definitely not going to go after low-cap biotech stocks. I tend to avoid Boeing at all costs. So VIX VIX-related stuff I don’t play those either.

16:25
There is a power in making one percent and a lot of people talk about that in the stock market. I think you’ve got to be willing to take what the market’s going to give you. Sometimes the market’s going to give you a loss, sometimes it’s going to give you a win. Sometimes it’ll be 2% or 3% that you’ll make, and sometimes it’s like a tenth of a percent.

16:43
So don’t try to, you know, map this out on an Excel spreadsheet. “If I keep doing this, this, this, and this and make this kind of money over this period of time, I’ll be making this much money every day in the stock market.” Don’t do that. That’ll take you down a bad road. Take what the stock market’s willing to give you. Trade according to your plan. Map out your trades before you ever get into it. I’d also like to encourage you to please, please, please…

17:00
…go check out the review section for Apple. Leave me a good review if it is in your heart to do so. Five-star reviews are always the best. If you can’t do a five-star review, I understand. I really like your five-star reviews and it just helps me continue to churn out a lot of really good content, because it gets me a little bit more exposure.

17:19
I always appreciate that. So thank you again, guys. And God bless. Thanks for listening to my podcast, Swing Trading the Stock Market. I’d like to encourage you to join me in the SharePlanner Trading Block, where I navigate the stock market each day with traders from around the world. With your membership, you will get a 7-day trial and access to my trading room including alerts via text, email, and WhatsApp.

17:41
So go ahead, sign up by going to SharePlanner.com/tradingblock. That’s www.shareplanner.com/trading-block. And follow me on SharePlanner’s Twitter and Instagram and Facebook, where I provide unique market and trading information every day. If you have any questions, please feel free to email me at ryan@shareplanner.com. All the best to you, and I look forward to trading with you soon.