Trading Money You Shouldn’t Be Trading | Podcast Episode #170

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.

0:25
You can succeed at the stock market, and I’m ready to show you how. Hey, everybody, this is Ryan Mallory Wood, Swing Trading the Stock Market and got a good episode for you here today. I got a pretty lengthy email, so this one might go a little bit longer than usual.

0:40
I’m gonna still try to keep it to my normal time, but don’t have that kind of confidence in this very long email that I got, but nonetheless, gonna tackle it and see what we can do. Let’s go ahead and start the email now, he says, Ryan, I subscribe to your Patreon account, Swing Trading the Stock Market.

0:58
For those who don’t know that, that is where you get all of my market research each and every day. That’s gonna include updates throughout the week on the S&P 500, the Russell 2000, the NASDAQ 100. Also, you’re going to get updates on all the FA stocks plus Microsoft plus Tesla, and multiple updates each week on my watch lists, both bullish and bearish, and you’re gonna get my daily setups each and every morning, plus the most intriguing charts and trade setups that I come across each and every day, swingtradingthestockmarket.com.

1:26
He says, for the podcast, please call me Storm in memory of my German Shepherd good boy who changed me. I put her down this past February 2021. I’m very sorry to hear that, man. Dogs, dogs are great animals. He says, my story is quite unique to me, but I’m sure it is quite familiar and common to those in the note.

1:44
My wife and I have been saving money for several years and save up a nice tidy sum for a middle class family. We were basically stashing our cash in a safety deposit box, and after I spoke to a buddy of mine who was a business major, my wife and I decided to invest in the stock market. Invest, he puts in quotes, was the key word long term.

2:03
So my buddy suggested to me I purchase stock in Apple, Microsoft, and Tesla as long term investments. He suggested I put 80% towards Apple and Microsoft and 20% towards Tesla. We started to invest in the market of January 2021, so I basically took his advice with one exception.

2:19
I didn’t feel comfortable investing in Tesla at $692 a share, so I didn’t. But then Tesla started to rise and FOMO started to kick in. Well, I tell you what, quick break on the email here. I don’t like where this one’s going. When he starts talking about the FOMO, starts to sound like he’s chased the sucker higher. He says, I finally caved in and bought Tesla at 795, then 796, then 815.

2:41
Just stop it, stop it. 895 and all of a sudden, I was in Tesla for 65% of my cash. Did Tesla even get to 895? I gotta check this out. Holy cow. Yep, Tesla got to 895. It barely got to 895.

2:57
I think the high on the stock of all time is 940 cents a share. So this guy almost top ticked Tesla. Wow. Look, I’m not making fun of the guy or anything else like that. I’ve top ticket stock before my time, so, and it probably won’t be the only time I ever top ticket a stock. And all of a sudden, I was in Tesla for about 65% of my cash.

3:16
We were so excited Tesla made us almost immediately gain 12% return on our money, but then, as you know, the market went from $900 or so per share down to 595 or so per share. The entire time this was happening, my wife was freaking out. She had never had any investment knowledge other than to put it in a mattress and let it grow by adding to it.

3:34
She grew up in the Philippines. It was far more poor than I could ever imagine. Next thing we knew, the money that we had worked so hard to save, then finally invest, was down 17%. We were devastated. I kept telling my wife that I know this is scary, but Tesla will bounce back and we can recover from this.

3:51
Thankfully, my wife loves me and trusts me, though at times I don’t believe it myself. Well, I resisted the temptation to buy more Tesla stock at 595 because that would put us at approximately 65 to 70% of our nest egg for retirement and we wanted to retire in the Philippines in 5 to 8 years.

4:07
Poor money management when we were younger kept us from having more. Plus we can live like a king and queen in the Philippines on just our Social Security, but investing will become our money to travel to Asia and return to the US to visit our son. Well, Tesla started to bounce back.

4:24
From $595 and I resisted, but when I got to $634 I sold all my stock in Apple and half of my stock in Microsoft, and I bought more Tesla. I finally gave in, which put me at 50 shares of Tesla. Awesome if it goes up, but Tesla is extremely volatile and not good to invest in for someone that wants to retire in 5 to 8 years. Whew, and I’m not done yet, guys. This one goes on.

4:52
All right, he goes on to give me a little bit more information, but to kind of keep this podcast as brief as possible, he says, here are my questions. Down 12.8% on Tesla, 15.1% on Microsoft, 2.6% he’s up on Apple, down 2 on ARKF and 0.7% up on ARKG.

5:13
These are supposed to be long-term investments. Do I just be patient and leave it alone, or how do I figure out how to get out of Tesla? Also asks, how do I change my thought process from long-term investing to swing trading? I’m starting to look at the money I have invested and wanting to use it in swing trading, but that is my retirement money.

5:31
He says, I’m getting good at reading graphs. I can see the head and shoulders and inverse head and shoulders, and so forth. And I also play some support and resistance levels by ping ponging off of a sideways range. Thanks for the time and sharing your knowledge. One day I hope to be able to make a few hundred bucks a month for travel and my retirement.

5:51
Sincerely, Storm. All right, before I dig into this email, the drink that I’m having today is Jack Daniel’s Tennessee whiskey. And right off the bat, I’ll be honest, I don’t have a lot of faith in this one. I have tried these gimmicky things from like Screwball peanut butter to that banana fiasco from a couple of weeks ago to all sorts of different cinnamon flavor stuff.

6:12
They usually just don’t impress. I remember there being a Wild Turkey American Honey that I did a long time ago on one of these episodes, and it was pretty decent. But this one’s the Jack Daniel’s one. I don’t know. I’m not a huge fan of Jack Daniel’s anyways. There’s a couple of Jack Daniel’s on the higher end side that I do like.

6:31
This one is the Jack Daniel’s Tennessee Honey. And a lot of these, you’re going to get like a syrupy flavor and that’s the one thing I hate. The weird thing about this one is I actually can taste a little bit of this like cough syrup aftertaste, which doesn’t sit with me well.

6:46
I don’t want to taste cough syrup after I’m done. So when it comes to Wild Turkey American Honey versus Jack Daniel’s Tennessee Honey, I would definitely go with Wild Turkey American Honey. That one wasn’t actually too bad, but like I said, these are like kind of built for people who aren’t gonna be able to drink whiskey just straight up or just find it too harsh in general.

7:07
But this Jack Daniel’s, that aftertaste, I don’t know. That’s just not sitting with me well. Maybe if you mixed it with some RumChata, it might work. Overall, I’m gonna give this one a 3.4, and it’s only because it’s just not god awful like Screwball peanut butter or Raven’s Lace. Hate those two. So 3.4 for Jack Daniels.

7:30
Now, back to Storm and his email here. There’s a lot to talk about here. One of the things that kind of scares me about what Storm’s doing is that he’s using all this money that he has saved up, him and his wife. They’ve saved up. There’s an emotional attachment to it. And anytime you inject emotions into your trading, the greater the chances that you’re gonna make a mistake based off of what your emotions are telling you to do. That scares me a little bit. He’s using retirement money that’s taken years and years and years to save up. They’re saving up for retirement. They have goals for this money.

7:57
And they’re swing trading. I’m not saying that they can’t make money doing it, but I hate the idea that they went off of this friend that told them what to buy, Apple, Microsoft, and Tesla. I mean, the big thing for this buddy, he shouldn’t be telling them like the percentages to put in these stocks. I mean, here’s the reason why. It’s because everybody has a different risk tolerance. Some people, if they have a $200,000 account that they’re trading with, they’re not gonna be able to put $20,000 on a trade perhaps. Maybe there’s too much emotion in that. They have to drill it back down to maybe like 5000 or $10,000 even though it’s a $200,000 account.

8:32
Whereas there’s another person that might have a $50,000 account and they can put $10,000 on a single position, which would be 20% and not even blink an eye and still trade just fine. Every person is different. So nobody can like really come in and say, oh, you should put 80% towards Apple and Microsoft, and 20% towards Tesla. And then this is like in January 2021, which everybody was all hyped up from the rally in November and December, people were feeling good. Tesla was going nuts, and he did the right thing by not chasing Tesla initially, but that FOMO kicked in, and I mean, I’m like reading what he’s doing and he’s making money off of it at first, but then by his own admission, he’s not managing the risk.

9:08
He’s just buying at 795. And of course, it feels good to keep adding to your position when you’re making money by doing it. But the assumption is that it’s going to keep doing it. And if you’re a new trader over the past year to the stock market, you’ve kind of gotten the feeling that, OK, it was good in March of 2020, it was good in April, and it was good all the way through the end of the year. It started off good in January, but then like February through April, it’s been very, very frustrating for a lot of traders. And there’s been moments where it’s been very frustrating as well. But the saving grace for me on a lot of trades is the fact that I use stop losses.

9:41
So when I’m wrong on a trade, I don’t get killed. And these are also all very sexy names. Everybody knows what Apple, Microsoft, and Tesla are, and it’s fun to own those names because you feel like you’re part of the action. You feel like you’re part of what’s going on, but nobody likes to invest in Caterpillar or Waste Management or Walmart because it just doesn’t have the curb appeal, right? So people are drawn to those names and then when you have a buddy that’s telling you, hey, this is good stuff, you’re thinking, OK, tell me this stuff. Yeah, I know what Apple is. I know what Microsoft is. It’s familiar to you. It feels safe, it feels good, but the market doesn’t care about that.

10:14
And so often I talk about caring about what only the market cares about. And so when the stocks start to get extremely parabolic or highly elevated, it doesn’t care what you feel about the stock or the attachment you have or the security that you feel with that stock. If it’s time to pull back, it’s gonna pull back and it’s gonna hurt you. But what I hate to see is this doubling down action where he sold all the stock in Apple and half his stock in Microsoft, and he bought more Tesla. He gave in. So he’s got a very volatile position for him. Fifty shares of Tesla, that’s probably moving by thousands of dollars a day at times and it’s very, very difficult to stomach.

10:49
And again, this is a position size that what I get from reading his email, it’s too much for him. He doesn’t want to be trading this large because the emotional swings that are coming with it are scaring him. He’s down on the stock, but because he’s down 12.8% on these 50 shares, he can’t get out of it. Now, let me just tell you, I don’t know if Tesla is gonna go up or down in the near term. I don’t know how it’ll do in the long term. I mean, overall, stocks generally tend to trend higher over time, but if you look at the stocks that are in the Dow and the S&P 500 now versus what they were 20 to 30 years ago, almost a completely different set of stocks.

11:26
So things do change. Stocks do fall apart. You don’t remember Sun Micro, do you? That was trading back in 2000, one of the most popular stocks back in the day. Look at GE, look at General Motors. I mean, these are stocks that have fallen from grace. Look at Ford. Look at where most of the bank stocks are now versus where they were at in 2008 prior to the Great Recession. Things do change. So while stocks as a whole tend to do good over time, it doesn’t necessarily mean each individual stock is going to do well over time.

11:57
And I don’t know what the future holds for Tesla. Nobody does. I mean, you can have faith in it, and that’s one thing, but that doesn’t mean that the market’s gonna say that, hey, that faith was well placed. So one of the big things here is I’m concerned about the position size, and he’s trying to make it right. The other thing I don’t like is the target prices. Targets are great, but does the market care about our target prices? It does not. It doesn’t care about our stop losses either. Stop losses are there to keep a stock that’s going against you from going really bad against you.

12:27
So that’s to protect us from the market. Target prices are kind of like what we think we can get out of the trade or what we hope to get out of the trade. But if you say, OK, my stop loss on Tesla is $100 so I need to get $300 out of the trade, it doesn’t mean the market is going to reward you in that manner. In fact, it may never. What you really want to do is be getting into Tesla because there’s a reason to be getting into it. It’s breaking out or it’s bouncing off of a trend line or something of that nature. And then there’s a clear path to that $300.

12:59
If there’s a ton of resistance overhead, then it’s hard to say, OK, there should be a $300 price target on it. Essentially, what I’m trying to say here is that you can’t force your will on the market. You can’t dictate the terms of what the stock has to do to the market, because oftentimes you’re going to get stuck in a long-term losing position because you thought it should go to a certain price and the market didn’t agree with you.

13:24
Just as a side note, I’ve been sipping on this Tennessee whiskey the whole time. It doesn’t get better. It may in fact actually get worse, but unlike some of the really bad whiskeys, I can actually push through this one. Here’s the other thing, he has goals to retire in the Philippines with his wife, and that’s awesome. I’m getting married here pretty soon. I’m excited about one day retiring with her and doing some fun things. I don’t have any intentions to retire anytime soon, by the way, but one day it would be nice to, right?

13:57
But I’m so worried about the emotional attachment to this money, and it’s a valid emotion to have an attachment to this money because they’ve worked so hard and they’re very proud of the fact that they stowed away all this money over the years. They’ve worked hard to do that. And so I’m scared, OK, if you don’t use risk management or if you don’t manage your trades appropriately, you may take a big hit on this thing. And I can’t look at it and say, OK, you’re down 12% on Tesla. Here’s how you get out because the market’s gonna dictate that, not me.

14:30
And then, you know, he’s in like the ARKF and he’s in ARKG and these are very trendy things, these ARK funds. Cathie Wood, I don’t know what the heck she does. I know she manages these things, but should I be putting my faith in her? I don’t think I should. I mean, those things are getting killed right now. And she’s kind of been elevated to this like god-like status where everybody thinks that this woman knows what she’s talking about.

14:56
And the thing is that these people that we elevate to a godlike status when it comes to the stock market, they start reading their own press clippings and they’ll start believing it themselves. And rather than try to be profitable, they try to stay relevant. You’re seeing that, I think, with Citron right now after the beating they took from GameStop. I think these people are more concerned a lot of times with staying relevant rather than just improving their craft. They like being in the news.

15:26
But if you’re going to get into investing and swing trading in particular, and if you think you’re gonna nail it right out of the gate, you’re probably not. You might have some of that beginner’s luck in the beginning, and I’ve seen a lot of that, but eventually, the market’s gonna catch up with you. And I think that’s what’s happening right here. They had that beginner’s luck. They got on a hot streak right out of the gate. They’re making some good gains and then reality set in.

15:52
The market starts turning sideways. You’re seeing pullbacks in tech, people are taking profits in tech, and they’re taking it on the chin here. In the end, it’s more important to be happy and copacetic. Is that the right way to say it? I think it is copacetic with your wife. I don’t even know if that’s the right term for that, but any case, I’m going with it. It’s good to live in harmony. You don’t want money to become the issue.

16:21
And so when you’re trading with money that you can’t afford to lose because it’s already been tagged to something else, it’s been already earmarked, that becomes an issue. It’s also good too to maybe start with like some smaller amounts because then the emotions are not there. Add to it when you gain your confidence and you start to see real results year after year.

16:44
I mean, right now, he’s in a real bind because Tesla may bounce and I, for this guy’s sake, I hope it goes to the moon and around Mars for him, OK? Because I really want to see this go well. I just don’t know if it is. Nobody does. And so this 12% loss could become a lot worse if the market has a broader pullback.

17:08
So for me, I don’t take losses of like 12 or 13%. Very rarely has that happened. That’s usually because like an unexpected news event happens and that’s like a one-off kind of a thing. But in this particular case, I’m setting a red line in the sand and then I’m also, OK, on the bounce, let’s try to make this a smaller loss. Let’s start getting out of this position as fast as I can on some of these market bounces or at least start raising a stop loss to protect myself from making a bad loss and a far greater detrimental loss.

17:41
Because right now, this market’s overheating. I mean, there’s a lot of things to be concerned about with this market, like the things that you’re seeing in crypto and these NFTs. I mean, these NFTs in crypto have the tulip bubble from the 1600s written all over it. You got people just piling into these cryptos, they don’t even know what they are, OK?

18:06
They don’t even know that Dogecoin was created as a joke. I got people now trying to say, oh, Dogecoin is going to $3000 a coin. I mean, do you realize how stupid that sounds? It’s not going to $3000. I mean, what are we gonna create? Trillionaires out of Dogecoin? No. I mean, people are getting caught up in it because it’s on TikTok and everything else.

18:34
And in the same sense, on a much smaller scale, some of these tech stocks from 2020 and into early 2021 have got a lot of people sucked in and now they’re trying to deal with how to manage some losses that they weren’t setting out to ever have to deal with. And so the thing here is to make sure you don’t let a loss of 12 or 13%, which is not ideal but it’s still manageable, turn into a 30 or 40% loss. I mean, if the market has a big correction, you could see a massive sell-off. I mean, that’s just the fact of the matter.

19:03
The other question was, how do I go from an investment mentality to a swing trading mentality? Well, for one, I think you can do both of them if that’s what you choose to do. I think you gotta keep them separate and in separate accounts, mainly just so that you don’t confuse the two. Because sometimes you can have a bad day in your investments but not necessarily a bad day in your swing trading.

19:27
And then when you’re swing trading, you start to feel like you have a bad day because your investments are doing bad, but not necessarily your swing trading. You follow me? And so that’s why I like to keep them separate. I have an investment account, I keep that separate. I have a dividend account, I keep that separate. But I think that swing trading needs to kind of stand on its own.

19:49
But swing trading mentality is much different than investing. Investing, you’re not necessarily having to follow the stocks each and every day. I think this guy invested in these tech stocks thinking that they were going to become an investment, but when they started not working out for him, they quickly became a swing trade for him. And it’s either gonna be an investment or a swing trade, but I never think it’s that great of a thing to try to change your investment to a swing trade or your swing trade into an investment.

20:16
If you change your swing trade into an investment, it’s either one because you fell in love with the stock or two, you’re taking a big loss that you can’t afford to take. So it’s like, oh, I’m gonna make it a long-term investment. I also think going forward, if you’re going to make a long-term investment in a stock, it needs to always be after massive, massive selling.

20:39
So the last time we had a massive, massive sell-off was 2020. That’s really where you’re wanting to get long on stocks, not when the stock is at all-time highs and it’s just gone straight parabolic. That’s not when I want to get into stocks. I want to get into stocks when there’s a massive pullback.

20:58
So to summarize all this stuff, because I’ve covered a lot, don’t trade with money that you can’t afford to lose, OK? That’s gonna keep the emotions out of your trading. Ideally, it’s good to save up for a swing trading account instead of reallocating money that you might have saved for retirement or money that you had set aside for your children’s education or a new car or paying for your mortgage.

21:23
You don’t want to use that money. You gotta have your swing trading money as disattached as possible. I would rather make a little bit of money on a small account than lose a lot of money on a big account. That’s just how it works. At least on a small account that you’re making a little bit of money on, you can keep building that over time, but it’s much more difficult to come back from a big loss on your biggest account that comprises of all your money. You don’t want to do that.

21:52
If you enjoyed this episode, I encourage you to leave a review for me. I always appreciate those things. I can’t tell you how much they mean to me. They’re like the bread and butter to what I do. It helps sustain the show because it creates a bigger outreach, helps me with the ads and everything else. The ads help support the show.

22:16
So I really hope that you guys can continue to listen to the ads and to support the show and continue to leave those 5-star reviews and make sure to send me emails, ryan@shareplanner.com. I do get them and I have them all filed away in a folder and I try to get to every one of them. I really do and make sure to send me your emails. I love your questions and they help sustain the show too. So take that into account as well. Thank you guys, and God bless.

22:48
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23:13
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23:39
All the best to you and I look forward to trading with you soon.