Big Win Turned Big Loss | Podcast Episode #147

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, everchanging 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.

0:25
You can succeed at the stock market, and I’m ready to show you how. Hey everybody, this is Ryan Mallory with Swing Trading the Stock Market. And I’ve got an e-mail today that really just breaks my heart reading it because you know it. It deals with the real struggle and a real experience that a trader had in the stock market, traded in the GameStop in AM C hype, and it didn’t turn out very well for this person.

0:50
But I really like what this person’s doing here by owning up to their mistakes and trying to fix it and to do it right and not double down or go back to the mistakes that they made in the past to try to correct it, like revenge trade or anything. I don’t like seeing that. But this person, she does a really good job at reaching out to me and asking me the necessary questions to try to make the right decision for their trading going forward.

1:14
So she gives me a name to call her and look, she’s been through enough already. I’m not crazy about the name, but because of what she’s already gone through with her trading, we’re going to get to that in this e-mail. I’m gonna let her call herself whatever she wants. Now, again, I did not come up with this name, but she wants to be called Princess Peach.

1:33
Yes, Princess Peach. Not a name that I would have chosen, but who am I to say she shouldn’t be called Princess Peach? So Princess Peach writes me. She says, dear Ryan, I absolutely adore she put that in cap. You’re a phenomenal podcast.

1:49
I have several questions and apologize in advance for this lengthy e-mail. So before we get into the lengthy e-mail, what kind of bourbon am I drinking? It’s called New Riff Single Barrel Kentucky Bourbon. It’s a sour mash. It’s 52.7% alcohol, 105.4 proof.

2:07
Again, it’s a sour mash. But you know, when I drink it, it’s it’s got like this little caramel taste to it at 1st and then it gives you like the spicy licorice at the end. Not a huge fan of licorice. I can handle it in my bourbon, I’m fine with it, but I’m not so sure it’s like up there with like the top five or top 10 best bourbons I’ve ever had.

2:25
I think it’s decent for the price point, which I think is like around the $40 range, I think it’s respectable. I’m going to give it like a 6.9. That’s about as high as I can go with it. Again, it’s good, not bad at all, but that’s about as far as I can go with it. So with all that said, Princess Peach really gets down into the nuts and bolts of this e-mail.

2:44
She says I am a professor of education policy and recently got into more active trading. In the past I typically went with the buy and hold strategy. I would mostly buy ETS and blue chip stocks. That is your Fang stocks. You don’t know what Fang is that your Facebook, Apple, Amazon, Netflix, Google.

3:00
She also got into Tesla, Goldman Sachs, Target, and others couple of months ago, she says. I added margin to my account and started getting into swing trading and day trading. I locked in some decent profit. So what I’m seeing right here is maybe the stage is getting set for okay.

3:18
I’ve I’ve done it one way in the past. I’ve made my profits over the time and then I got into a little bit more active swing trading, day trading and all of a sudden those gains that it took me maybe a couple years to make, I was making them in days. So what is that going to do? May give you a false sense of confidence.

3:35
So here comes the plot. Twist says. However, I got caught up in GameStop and AM. C FOMO. Flurry FOMO is the fear of missing out. Initially, I made about 30,000. Against my better judgment, I did not honor my stop loss and continued to hold these stocks even after every indication the bubble was bursting.

3:53
I lost about 90,000 total. This was extremely painful, made even more so due to the major price drops on borrowed equity that just rips the heart. I am trying to be a more disciplined trader in my slow process to recoup those losses and I’m also nervous about using margin.

4:10
So her first question, what is your general advice for trading on margin? The gains are amplified but the losses are so enormous the losses feel enormous due to the loss aversion concept. The feeling of losing 10K on a trade is worse compared to not riding a $10,000 gain due to being stopped out.

4:26
So I talked about GME AM C doggy coin dosy coin. However, you say in a previous episode, but for those who are just listening or hearing about this for the first time, which I’m pretty sure that has to be hard to do considering how much in the news these have been of late.

4:42
There was a lot of hype, a lot of people buying into these stocks. You got to remember G MB went from being like a four or five dollar stock back in September of last year hitting highs of like 483. Just a couple of weeks ago. The short squeeze was incredible. And even at 480 there was people still saying, oh, the short squeeze hasn’t even begun, Which obviously that was crazy talk.

5:03
And a lot of people will say, hey, the system’s rigged. Robin Hood sold out to the hedge funds and I know they’ve sent out emails and everything. My opinion, they should never have halted the trading. I think they screwed over the the retail traders for sure. But we all knew GME was not going to keep those price levels forever. It just wasn’t.

5:18
It was never going to hold on to those price levels. There’s nothing to sustain those. Kind of Even when GME was at its pinnacle in the business world back in the 90s and early 2000s, this stock never made it into triple digits. Yet here we are, $483, and the stock is like, no better than Blockbuster.

5:36
So Princess Peach here gets caught up in that because she’s dealing with the pick six that we talked about in football, where the quarterback drives the team down the field, they get down to the goal line, quarterback throws a pass into the end zone and gets picked off. Instead of scoring 7 points, the other team’s taking it 7 points and 100 yards the other direction for a touchdown.

5:54
You just had a 14 point swing there in the game. It’s probably going to be a game that you’re not going to win as a result of that 14 point swing. It is huge. And that’s essentially what happened here to Princess Peach. Gosh, that’s going to be a hard name to get used to saying Princess Peach went from $30,000 up on this trade with the Wall Street bet stock to being down $90,000, That’s $120,000 swing.

6:20
Do you know the euphoria of saying, Oh my gosh, I’m up $30,000 on this stock to being down all of a sudden 90,000. I mean it, it is massive amounts of money that you’re talking about. Now, has she been right or let’s say she got in a lot earlier, Let’s say she got in at like $20 a share and then this thing went all way at the $480.

6:38
She never had to work again for the rest of her life, but the FOMO got the best of her. And when it became almost too obvious and when you felt like you were missing out on something that everybody else was bragging about, then you got Princess Peach jumping in there, getting into the stock and getting their head handed to them. While people will always talk about how much money was made by traders on GameStop AM C Nokia, what’s not going to be talked about is how many people lost and how many people lost big.

7:03
And so the biggest mistake that Princess Peach did beyond just not using the stop losses or honoring the stop losses as she says, was going into margin when it comes to trading specifically to the long side. Because when you short, even if you have the funds for it, you still have to use margin because you’re borrowing shares in order to short.

7:18
Nonetheless, just looking at this strictly from the long side, you should never go into margin. You really should not. I don’t go into margin at all. I personally believe that it opens the door to some very bad trading habits, to incredible emotions. Because look, you use margin.

7:35
Let’s say you use it through Think or swim, or you use it through Robin Hood, or you use it through some other platform, they’re not going to lose their money. If you have $100,000 trading account and you’re using $200,000 total, between your trading account and margin, if that stock drops 50%, you’re out.

7:52
You lost all $100,000. Now the brokerage isn’t going to lose anything. They’re going to stop letting you use margin as soon as you start becoming a danger to them losing a single penny. So everything is amplified by two X. You gotta remember draining in the stock market’s hard. It’s an emotional business.

8:07
Everybody says don’t let the emotions get the best of you. And they’re right. But as human beings were emotional and what we’re doing is emotional, so it’s very difficult to keep it out. And then when you start jumping in, they’re using margin. Oh yeah, you better believe it’s gonna get tough. You better believe that you are not going to be able to control your emotions.

8:23
They don’t control their emotions on Wall Street. They don’t control them. And these hedge funds, these people are people who have been doing it forever. Let me tell you, if I go into margin, I’m not controlling my emotions either, because I know not only are my losses double versus if I were just using my own money, those emotions may not even be double the emotions.

8:41
It’s probably like quadruple or quintuple the emotions it’s amplified. And really, what is margins? You’re trying to force profits out of the market. Just use your money. When you start getting into margin, you’re trying to force something out of the market that under your own circumstance that you can’t get it to provide.

8:56
So what do you do? You start using other people’s money and you start using margin, and as a result you’re setting yourself up for a dramatic failure. If I lose a three or 4% on a trade, that’s one thing. If I have to start losing 6 to 8% on a trade on the regular because I’m using other people’s money or margin, yeah, that’s not very scalable.

9:14
That’s gonna become very difficult. But if you’re right, Ryan, think about all the profits that you can make, Who cares about the profits? Because the very act of getting into margin is making it that much more difficult to manage the risk. And if you can’t manage the risk, then what? Well, it doesn’t matter. It doesn’t matter if you can make a lot off of the trade.

9:30
If you’re not managing the risk, you’re doomed. You are flat out doomed again. And I say this all the time on all my episodes. Manage the risk. The profits will take care of themselves. You start going into margin, you’re not managing the risk. Some of you guys will disagree with me. That’s fine. But after all these years, I’m still in the game. Speaking of staying in the game, one of the best things that you can do check out swing trading, the stock market Calm.

9:49
That is the website that goes along with this podcast. With it, you’re gonna have access to my Patron account. Very cheap, very affordable, and it’s going to provide you with all of my market research each and every week. So you’re gonna get multiple updates on the SP500, the NASDAQ 100, and you’re gonna get it on the Russell 2000 each week.

10:08
Then you’re gonna get updates on all the Fank stocks plus Microsoft plus Tesla. And if that’s not enough, well, you’re gonna get multiple updates to my master watch list for both bullish and bearish stocks and daily setups each and every day. That also includes some of the most intriguing charts that I come across each day. Check that out swingtradingthestockmarket.com So I took a long time to answer the first question.

10:28
The second question and the third question are this. What are the advantages and disadvantages of using stop losses versus a trailing stop? And is one more applicable to certain trades? I find myself having trouble deciding between the two and deciding whether to use a percentage or a dollar figure for the stock price.

10:43
Good question. I can answer that one pretty quick actually. One, I never use trailing stop losses. Why is because trailing stop losses. Let’s say you’re in a stock at 100. I always try to keep it consistent on. This shows and I always use the stock trading at 100 just to make it easy. But let’s say stock ABC trading at 100.

10:59
You put a trailing stop loss of $5, right? It goes up 103, Your stop loss is now at 98. It comes back down and you’re stopped out. Now ask yourself, at $98, was that trailing stop putting you in a place where your stop loss was below a key support level To where if it broke that key support level, you knew something was wrong with the trade on a technical basis?

11:19
Or was it just trailing the high price of your trade by $5 all the time, showing total disregard for current support levels? Yeah, it was doing exactly that. That’s why I don’t use the trailing stop losses because it’s kind of like the lazy way to trade even from a percentage standpoint. I get that we don’t want to lose our profits.

11:35
But if you get to a point to where let’s say the stock runs up 15% in a day and you’re like, man, there’s really nowhere to put the stop loss at, then take maybe some profits off the table. Because that is a direct way of managing the risk. And it’s also an indirect way of using a stop loss because you’re taking a little bit of capital off the table, which means your exposure to loss is going to be much less.

11:55
So if you take a third or you take a half off the table, your potential loss, and that’s what a stop losses doing for you, it’s guarding you against big losses by being able to control the loss right in front of you. That’s what taking some profits along the way is going to do. So if you don’t know how to protect the profits or the chart just isn’t conducive to being able to raise the stop loss to any particular point, but you wanna make sure you walk away with some profits, take a little bit off the table.

12:19
So I put my stop losses in every day and I put them below key support levels. A lot of people talk about, well, if you put your stop loss out there, then the market makers are gonna be able to see where your order at and they’ll go down and steal your shares. True, they might be able to do that, but you put it below a support level where there’s a lot of tendencies to buy at that particular support level and it has to break that support level in order to trigger stop losses, Then you’re doing something right.

12:41
Makes it much harder on the institutions to take you out of your stop. And let’s be honest too, if you’re trading like 15 shares on $100 stock, most institutions aren’t going to care about 15 shares, OK? Now if they see a whale out there that’s trading with like 10,000 shares, yeah, they’re going to, they’re going to possibly try to take those shares.

12:58
That’s very possible. But sometimes I’ve had stop losses that are so well placed, it gets like within one or two pennies on like a $500 stock and then all of a sudden it rallies because it was so well placed below a key support level. Now, I don’t try to make it that close, but in this case or in other cases in the past, that’s that has happened.

13:17
And all of a sudden it goes in rallies and all of a sudden I make money off the trade instead of being stopped out. Question 4, what’s your perspective on trading highly volatile active traded stocks? I sometimes make profits on these trades, but it seems to be a hit or miss. Keep up the excellent work on your podcast. It’s fantastic. And I love hearing your voice and your whiskey recommendations.

13:35
Well, thank you. Thank you very much. Hey, what can I say? I got a face made for the podcast, but I’m not against trading highly volatile stocks as long as I feel like I can manage the risk. I’ll trade them all day long if I if I can, and there’s a trade set up there. What I’m not going to do is chase GME into the triple digits or even like double digits, thinking that I can manage the risk on something that’s moving up 100% a day.

14:00
Because you really can’t. I saw a stock the other day that was up 600% and by the end of the day it was still at 400%. But good grief thing just dropped from being up 500% down to 400%. Somebody’s down 20% right out of the gate and it can make those kinds of moves extremely quick. What you have to remember is, is that when a stock is up a lot, it can also swing back down with the same velocity if not more.

14:20
So the more volatility to the upside typically means that there is a lot of volatility to the downside as well. So again, you can manage your risk on these by when you do get a favorable move in some of these more volatile plays, One, make sure that you have a high degree of confidence and where you’re placing your stop loss at in terms of support in terms of being able to manage the risk.

14:41
But secondly, if it goes up five, 6%, maybe take a little bit off the table, maybe drop it down to 1/3 of a position because then your emotions will be far less. And I know I get it, people will say, well, if it goes up to, you know, $10,000 a share, I could have made all this extra money. We got to get past that again.

14:56
Trading is about making good trades, about executing the trades from cradle to grave. You get hung up on how much money I could have made if I didn’t sell. You’re never going to make it in this business because you’re always going to be looking back in hindsight and then adjusting your trading strategy on the fly, thinking that if I would have just kept a full position like I did on my previous trade, I could have made so much more.

15:13
So then you apply the same philosophy on the next trade and then you miss out on the profit opportunities there because you didn’t manage the trade right and also talks about recouping losses. How do you do that? Well, recouping losses is a very sense of subject because it revolves around losses. It revolves around something not going right for you on a trade.

15:31
And if it’s a big loss, like what we’re dealing with on Princess Peach here, well, that can be really brutal and it can cause you to take some major risks to try to recoup those losses. That is the same as what led to those losses in the 1st place.

15:46
So when you’ve had a big loss, it’s always good to take a step back, think it through. Don’t try to just jump right back into the trading and try to force some trades. Don’t do that. Take some time off. Rethink things. Ask yourself, where did I go wrong? What did I do to create these loss? Think about it from an emotional standpoint.

16:02
Think about it from a technical standpoint. But then once you’ve figured that out, okay and you understand where you went wrong at, then you just start again. You don’t think that? OK, My Portfolio started off making X amount of dollars and now it’s at Y amount of dollars and I gotta get it back up to where it was before at X dollars.

16:21
Now X dollars is gone. X dollars is a thing of the past. That’s in your past. If you start thinking about where X dollars is, it’ll only make things worse for you. Forget about where you were at at dollar X Again, it’s in the past. It’s a loss.

16:37
You’re moving on. What you want to do is okay, you’re currently at Y. Let’s make a good trade and get to Z. Let’s make another trade, and let’s just keep making another trade. You start again where you are at and where you are going forward, and you forget about where you were at before.

16:53
So you were at X before, you’re at Y now. You’re not trying to get back to X, you’re trying to make some good trade so you can get to Z. If you went from $100,000 in your account down to $50,000 account, you no longer have $100,000 in your account. You used to. But your job is not to try to make that money back going forward.

17:11
Your job is to make good trades and your job is to take that account from 50 to 51,000 and then from 51 to 52 and from 52 to 55 and from 55 to 60. But if you just keep thinking about with Ki was at 100 before and I’m at 50 now, my job is to get from 50 back up to 100.

17:28
No, it’s just about making good trades. So if you like this episode, I’d encourage you to subscribe to the platform that you’re listening to it on. Most of you guys are on the Apple podcast app, so make sure you subscribe. It’ll notify you when I to another one of these episodes, usually about twice a week, and keep sending me your questions. ryan@shareplanner.com This was this was a tough one to dig through because I knew there was a lot of motions for that person and I wanted to be sensitive to Princess Peach because that wasn’t an easy thing that she went through.

17:55
And I’m glad that she’s still wanting to try to learn how to trade and to do it right. And if you have questions or similar questions, this was a great e-mail. Send it to me ryan@shareplanner.com I’m trying to get as many of these things on the air as possible and if this episode benefited you in any way, I’d encourage you to go to your podcast platform of choice and leave a review if it gives you that ability.

18:16
I know on Apple they do that. Just leave a 5 star review If you feel like I’ve earned that for you. It means the world to me. I love you guys. Take care. 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.

18:37
With your membership you will get a seven day trial and access to my trading room, including alerts via text, e-mail and WhatsApp. So go ahead, sign up by going to shareplanner.com/trading Block, that’s www.shareplanner.com/trading-block and follow me on SharePlanner’s, Twitter, Instagram and Facebook where I provide unique market and trading information every day.

18:59
If you have any questions, please feel free to e-mail me at ryan@shareplanner.com. All the best to you and I look forward to trading with you soon.