Rushing Success & Opportunity Cost | Podcast Episode #133

0:00
Hey, everybody. This is Ryan Mallory with Swing Trading the Stock Market, and I got a good episode for you guys today. We’re gonna be talking about small-time trading, pattern day trading rules, and avoiding a couple of stupid mistakes that a lot of traders, especially new to the game, get themselves into.

0:16
Heck. This is, this is something that traders have all experience levels get themselves into trouble with. But in any case, this email comes from John Boy, not using his real name, never do, unless they really beg me to use their real name and then maybe I’ll use their real name. But this case, I’m going with John Boy, good redneck Florida name.

0:34
And in his email, he starts us off with, hi, I found your podcast on Spotify earlier this week. That’s awesome. It’s also available on Pandora now. I just got an email from them the other day saying, hey, we got your podcast. So check them out on Pandora if that’s your preferred platform.

0:50
He says, I started from the beginning and now I’m now on August 2020 with your podcast, so I’m almost all caught up. So I am convinced that you can help me manage my risk, which will lead to overall better gains. I have done really well on a lot of different short term trades, but a few have gone south from the beginning and I waste too much time and stress waiting for them to come back up and miss out on other trades.

1:10
He’s bringing up a very, very important point here, and I know I stress it some, but I don’t think I stressed it enough, so I’m gonna use part of this podcast to stress it again and that is there’s an opportunity cost when you stay in your trades for too long. I studied economics when I was at the University of Central Florida.

1:26
I did political science too. I think political science is a pretty much worthless degree, quite honestly. But the first thing that I learned in my economics class and it it’s probably the most important thing besides understanding like supply and demand was opportunity cost. The opportunity cost of trading is very, very real if you hold on to a losing trade for the long term.

1:46
So I talked about in a previous episode called One Bad Trade. We talked about this guy named Silas, friend of mine, held on the trades for far too long. And so this reader is doing the same thing and there’s an opportunity cost there. Let’s say that you get into a stock at $100 it goes down to $30 OK?

2:03
You’re down 70% on the trade and it takes 15 years for it to come back up to $100 but you hold on for a little bit longer and you get out at $110. Ah, you made, you made 10% on the trade. You may even go to a cocktail party like, yeah, I sold my stock ABC for a 10% profit today.

2:21
But you’re not telling, hey, I had to like bag hold it for 7 years. I had to have a drawdown of 70% in order to get 10% of profits. No. You don’t do that. Nobody does that. You gotta act like you’re a sophisticated trader.

2:37
But in the grand scheme of things is. You held a trade for 7 years, you held a trade for 10 years or 15 years trying to get back to break even. Hey, maybe you, you’ve been holding Qualcomm since the 2000 bubble burst. It’s finally broken its all-time highs. There’s an opportunity cost there, right?

2:54
Sure, there is. Yeah, you, you, you’re profitable now on your trade from 2000, but at what cost? At what opportunity cost. And so, if you take a basic economics class, opportunity costs will tell you that it’s the next best thing that you could have been doing.

3:09
So if you go walk your dog today. There’s an opportunity cost of that. What’s that opportunity cost? Well, you could have been walking your cat. I’m not a cat guy. You know why? Because I feel like these things, if the cats were 100 pounds heavier, they probably eat me.

3:25
They, they probably wouldn’t eat anybody. I don’t think cats like me. I, I don’t really like them either, but hey, we coexist together, right? But Nonetheless, again, no offense to the I know people who have like strong opinions when it comes to cats, so I’m not gonna like be mean to you about the cats.

3:41
I just don’t like cats personally, but there’s an opportunity cost to everything that you do. And so so many traders, they get into a losing trade and they stay in it because they gotta win it, but they don’t think about what is the opportunity cost? What am I giving up in order to stay in here?

3:57
You take a stock like Micron Technology. You know, back in 2000, that stock was trading at over $90 a share. If you were a back order on that incredible sell-off. You’re still really, really down on that trade. It’s at $71 a share right now. Guess what?

4:13
You could have sold it at maybe 88 $89 a share, got it out, waited for it to settle at around $2 a share. And if you wanted to still believe in that stock at that point, you could have bought it at $2 and got it back up to $71. For me, I’ve traded this thing multiple, multiple times over the years and I’ve made a lot of profits.

4:31
In fact, right now I’m up over 40% on the trade. But if I had bag held it back in 2000, which I wasn’t in it at that time, but let’s say I was hypothetically, no, all I’m trying to do is just get it back up to break even. That’s why you gotta manage the risk. That’s why you got to get out of a trade when it goes back.

4:47
People are like, oh, stocks always come back up. You know, you just gotta hold on. You just got to make an investment of it. No, you don’t. You don’t because that money could have been applied to so many other trades from 2000 to 2020 that you missed out on. Maybe that money could be worth 400 or 500% more over that 20 year period than what it is right now, which would be, you know, down about 20% for you still from where you got in at back in 2000.

5:13
There’s the opportunity cost. It’s those trades that you’ll never know about that you never took because you didn’t have the capital to apply to it. Makes sense? It should. Hey, by the way. My whiskey today. It is Saarac rye, straight rye whiskey, 45% alcohol, 90% proof.

5:31
That was gonna be pretty strong. It’s actually pretty tame. It’s very tame, especially if you drink it with the ice cube, which I don’t think you want to. It’s a very tame whiskey. That’s what I’m drinking on this episode here today. It’s it’s a very solid whiskey. It’s got a, a nice flavor to it. I wouldn’t say it’s my favorite whiskey of all time or, or rye whiskey.

5:49
But on a scale of 1 to 10, I’d give it like a 6.3. It’s a, it’s a solid one, no doubt. But if you’re gonna drink it, definitely do it without an ice cube in it. Drink it neat, boys. But I hope you guys are getting what I’m talking about on this opportunity cost, OK? We’re talking about opportunity costs for the first part of this email here.

6:07
It’s hugely important. Most people don’t think about that. They just think, hey, as long as it comes back up and I make a profit, great, no, it’s not great because that, let’s say you put $10,000 on Micron in 2000, that 10,000 could be worth 50,000 today just simply by trading it correctly and, and honoring your stop losses.

6:26
Yeah, there will be some more losses along the way, but there’s also gonna be profits and if you properly manage the risk and you use, you know, some technical analysis on your trades and, and, and play them out and not let your emotions get the best of you, yeah, you could have made that 10,000 be a lot more, but we just had this like, I don’t know what it is.

6:41
I don’t know if it’s like this in every country, but, uh, here in the United States, at least it seems like people are really wrapped up about not losing ever. It’s like it’s um invalidation when one’s man card. I don’t get it. And the other thing, and I think this is a pretty lame excuse too, is like, well, it’s a stock that I’m willing to hold, if it’s stock that I believe in, but no, because, but you didn’t believe in it because you got into it as a trade at first.

7:03
Well, if I get the profits that I wanted out, no, that’s, that doesn’t, that doesn’t make sense either, man. You’re, you’re losing opportunity costs, and you don’t want to miss out on opportunity costs because that money can result in a lot more opportunities for you down the road. So here he goes on to say too is that I want to use stop losses on my trades now, but I want to learn how to read charts better so that I’m not putting a percentage or a dollar amount lower and get stopped out when I could have had an educated stop loss and I talk about that a lot in my previous podcast, so I don’t have to get into that too much or regurgitate that.

7:33
I mean, I will in the future podcast as it as it’s relevant. I don’t necessarily think I need to get into it on this particular one, but just remember. You don’t want to just put a stop loss out there like a trailing stop loss of 5% because it might not mean anything of where that systematic stop loss is being placed at.

7:49
It might be in the middle of a trading range and you’re just gonna get easily stopped out. It needs to be below a key support level. And the more support levels it can be below, the better, he says, so please tell me the best sites to read charts and find company information and financial reports. Well, I use TC 2000.

8:05
They’re a little bit on the higher end. They’re about $100 a month for their best package. I like it just because I can flip through the charts really easily. But if you don’t have a big trading account, that might become an added expense that you might not be able to afford. Another one is TradingView. They have a pretty good platform there too.

8:23
I don’t know what the price is on that, but I’m pretty sure it’s gonna be cheaper than TC 2000. So check out those two. Those would be the two that I really like. There’s also like on Thinkorswim, they have a software platform that you can download and they have decent charts there. I don’t think it’s as good as TC 2000 by any means, but it’s still pretty good.

8:40
And then about financial reports, I don’t know where you go get finance. I know you can get them at Yahoo Finance, but uh in terms of like the best ones, I don’t know that. Uh, I, I haven’t looked at a financial report in ages. I really can’t even remember the last time I looked at a balance sheet income statement.

9:01
If I did look at them, I don’t even sure what I’m really looking for that would provide me with clues that somebody else hasn’t already discovered. So it’d be better off just looking for somebody’s analysis on those financial reports if I were interested in financial reports, but I’m not. I just don’t think that there’s anything to really glean from it.

9:21
And I don’t think it’s very easy to be both a fundamental trader and a technical trader. I think sometimes you can be a fundamental trader and use technical analysis to stage your entries, but ultimately the two kind of conflict. They’re not really made for each other. I know some of you guys might disagree with that, and that’s fine. I mean we’re gonna have different opinions.

9:37
It doesn’t, doesn’t mean we can’t be best friends or anything like that, but essentially I don’t pay too much to the financial reports. I don’t listen to earnings calls. I don’t call in. Uh, I don’t even have questions.

9:54
And so also if you’re a new trader, I wouldn’t try to be like a master of fundamental and technical analysis simultaneously. That’s just gonna add more work to your plate and probably not work out well for you. Try to be a master of one. Start looking at technical analysis, charts, Japanese candlesticks, charting patterns, looking into all those things because I have accounts with TD and Schwab.

10:18
Well, I think you just have an account with Schwab now because they’re all together now. He says, I do have a problem with TD Ameritrade that if I do a couple of trades that I get out of the same day, I get a warning for day trading. It doesn’t seem to happen on my Schwab account, but I haven’t traded as much in that account. Well, here’s the thing, you can’t avoid the pattern day trading rule, and he goes on to ask as well, is there a platform that I cannot worry about the rule without having $25,000 in it?

10:34
I know that this rule will stop me from being able to do stop losses correctly if there’s any way around it. So here’s the thing, you can’t avoid the day trading pattern rule. I know some people. Go to these prop firms offshore, they pretty much all turn out to be a bunch of scams and frauds, so I would avoid those as well. Please don’t go in that direction.

10:49
Prop firms, bad news. These people used to reach out to me all the time. I don’t know if they still exist. They probably do in some shape or form, but uh they used to always try to get me to, hey. We’d like to set something up with SharePlanner where if you refer us clients and they trade on our platform, we’ll give you like $1 for every trade.

11:07
I’m not gonna do that. Look, man, even if it was to make me a gazillion dollars doing that, I’m not gonna do it. I’m gonna be able to rest my head at night and so these prop firms, they can go pound sand. I’m not, I’m not ever going to, you know, work with them in any shape, way, or form ever. I also get a lot of CEOs of these.

11:22
Penny stock companies constantly want to come on this podcast show. And I tell them no, I don’t have any desire for that. I’m a one-man crew, and if they listen to this, they would know that. So they’re just some crazy people out there, but prop firms, pretty bad stuff, you don’t want to be messing with them.

11:38
The only way around the day trading pattern rule is to get over $25,000 in your account. There’s no platform here in the United States that lets you avoid that because it’s a regulation imposed by the federal government. Now swing trading, you shouldn’t be having this issue granted, sometimes I’ll have a day trade.

11:54
I had a day trade today, not because I was expecting to have a day trade. It was because the swing trade just really did not perform well for me. So what did I do? I got out of it. I had to get out of that trade, man, because it broke out, then it had fake, the market started showing signs that wanted to fall apart.

12:14
I had to bail on the trade. Yeah, it kind of turned into a day trade. Now, if I’m trading with under $25,000 though. That’s gonna be very few and far between that those happen and for those who don’t know, the pattern day trader rule includes any margin customer that day trades 4 more times within a 5 day business period.

12:31
Don’t do 4 more trades within a 5 day business period. But if you’re swing trading, it’s gonna be a, a rare occasion that you’re getting stopped out the same day that you’re getting in, especially if you’re using like stop bosses of 45 and 6% and you’re trading large gaps. If you’re trading super volatile place, there’s not much I can do for you there.

12:52
Before I forget too, I wanna tell you guys about my Patreon account. My Patreon account is gold, folks. It’s really good. You can get to it by going to swingtradingthestockmarket.com. You’re going to get multiple updates each week on the S&P 500, the Nasdaq, the Russell. You’re also going to get updates each week on all the bank stocks plus Microsoft, plus Tesla.

13:10
Bank stocks are going to include Facebook, Amazon, Apple, Netflix, Google. Top of all that, you’re also gonna get. My bullish embarrassed watch lists updated multiple times each week. These are my master watch lists that I’m scanning each and every day. They’re getting updated on a regular basis and then I’m gonna publish them out to you.

13:30
Also, on top of that, I’m gonna tell you what my daily trade setups are. I’m gonna show you some intriguing charts that I find interesting from a trading standpoint. So you’re gonna get all that more at swingtradingthestockmarket.com. Check it out. Before I get to my final point, John Boy here acts as if the day trading pattern rule is gonna be his roadblock to being able to successfully use stop losses.

13:53
That’s just not the case. It’s, that’s really more of an excuse than anything else. You can’t get around that rule. So you have to respect it. I don’t necessarily agree with the rule. I don’t think it’s a good thing at all. I think in some ways, especially this year, it’s probably kept a lot of people from just hyper trading all over the place. Robin Hood bros would probably be just hyperventilating at the opportunity of trading $100 constantly back and forth. You don’t wanna do that. Prep your trades a little bit more, plan them out, know where you’re gonna get out of the trade before you ever get into it. You don’t swing trade and have an issue with the pattern day trading rule. It just doesn’t work that way. And here’s the other thing too, and I notice this a lot, especially with new traders.

14:09
There’s a rush for success. There’s a rush towards success. There’s like, man, if I could learn this in the next six months or seven months, I could quit my job and everything. Don’t do that, especially if you’re good at what you’re doing. There’s no need to rush your development. The stock market takes time. It really does. And there’s gonna be some people that learn faster than others or will experience success faster than others.

14:29
I don’t think I was the fastest learner. It took me a lot of years to figure out how to do this stuff and all the stuff that I’m telling you, I didn’t really have a mentor. I didn’t have a book that showed me all this stuff. I had to learn it all on my own and that’s what I’m doing on this podcast is I’m sharing you all my insights really multiple times each week, but you can’t rush success.

14:48
You gotta put the hard work into it. The stock market is very, very difficult and it’s ever changing. I would equate it to like you don’t go to a doctor and say, hey, teach me how to be a brain surgeon over lunch or over the course of a couple of weeks, they’re gonna laugh at you. It’s the same thing with the stock market.

15:03
You can’t, you can’t just rush the success. You’ll know that you’re a good trader when your capital shows that you’re a good trader and you’ve got. Go and take some punches along the way. You’re gonna take some hits along the way. You’re gonna learn a lot along the way, but you can’t rush the success. If you do that, you’re only gonna make bad trading decisions and ultimately the outcome that you receive is not the outcome that you originally sought.

15:24
So don’t go rushing success in the stock market. You need to learn, you need to experience. I’m hoping that this podcast can help that up for you by conveying a lot of the lessons and a lot of the principles that you need to have as a trader, but ultimately, it’s gonna be taking like what I’m telling you what other successful traders that you’ve been able to learn from and applying that to your trading.

15:46
And until you can do that successfully and confidently, it’s gonna be very hard for you to experience success on a regular and predictable basis. Do it right. Let success come over time through the process. If you enjoyed this episode, please be sure to go to Apple if you’re listening to it on Apple or Google or whatever platform that you’re listening to me on.

16:08
Make sure to leave a positive review. I really appreciate it. It really means a lot to me and it helps me to continue to spit these suckers out each and every week, multiple times a week. So make sure to go there. It supports what I’m doing. And if you have a question that you want on the show, send it to me at ryan@shareplanner.com.

16:27
I’m getting to pretty much as many of them as I possibly can. I’m not skipping over any, so keep sending them my way and I will get to it eventually. So thank you guys and God bless.