Big Positions in Small Accounts | Podcast Episode #176

0:07
Hey, I’m Ryan Mallory, and this is my Swing Trading the Stock Market. 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 with Swing Trading the Stock Market, and today’s episode is about small accounts with big positions. We’re going to tackle an email from a guy that I’m going to give the Florida name of Chester.

0:45
Chester is the name for this episode. As I’ve said in multiple episodes before, I don’t use people’s real names. I never know how people feel about that, and just so that they remain anonymous, I give them a good Florida redneck name being that I am from Florida and live in Florida.

1:02
Chester’s a good name because I had a dog growing up named Chester. I think it ran away, never saw it again. Good riddance because the dog was awful. He just was a mean old cuss. Anyways, small accounts, big positions, Chester writes. Hey Ryan, hope all is well in your world.

1:18
First off, I want to start by saying I love the podcast, and I think you’re doing an amazing job. I started listening about a year ago, starting in May. I am relatively new to swing trading since May, but I’ve always been interested in the stock market. I actually started getting into it when Robin Hood first came out back in 2015 and became a Robin Hood bro before that term even existed.

1:38
Anyways, my question is about trading with my small account. I have been doing relatively good since I first started in May and I am currently up almost 100% since I started swing trading. I did this not in the most smart way, but I am glad that it has worked out so far. Well, I’m glad that it’s worked out for you too, but if you’re being undisciplined and you’re trading, the last thing I want to see is for it to work out poorly for you, because I mean, whether you’re trading good or trading bad, I don’t wish ill on anybody.

2:05
On the road till now, it has taken many huge swings in my favor and against me to realize that I need to be tighter on stops and more disciplined when it comes to trading. I started being more disciplined on my risk reward and always listen to my stops. I’ve also gotten good on accepting the fact that I am going to lose many trades and know all I can do is put myself in the best situation I can be in.

2:26
Now the question for me is position size. You think it would be better for my small account of around $6000 to be focused on 1 to 2 trades to where I can have more capital in those or be in multiple trades where I don’t have as much capital in each stock.

2:43
The reason I ask is because what has worked out for me so far has been to be in multiple positions and in smaller size in those positions, but ever since February, the strategy has not been working out for me. I feel like I can be in fewer positions with bigger sizes, control the risk, and let the winners fly.

3:01
I want to hear from your personal opinion on what you feel like would be the strategy for me. Wish you all the best from a fan and all your work. I am in the trading block and subscribe to Patreon. I appreciate everything that you do and hope you’ll be around for the long haul because I can listen to your podcasts all day.

3:17
Well, good news, I do plan on being around for the long haul. I have no desires or plans to stop what I’m doing. Any case, thank you, Chester for that email and for the bourbon today. I’m going old school here. I’ve reviewed Jack Daniels, Tennessee Honey, the Green App, the single barrel, which is funny.

3:36
I don’t think I gave her actual rating for the single barrel, so I might go back and do the single barrel, which I really like the barrel proof single barrel, very strong, but it’s pretty good. But for this episode, I’m just going original Jack Daniel’s old number 7 whiskey, 40% alcohol, 80% proof.

3:53
Now, the first question is, is this Jack Daniel’s a sipper? This particular kind there. Original format? No, it’s not. I don’t even like it that much. My first experience with it was with a jack and Coke out in Las Vegas when I first started getting introduced into the bourbons and into the whiskeys.

4:10
This is one of the first ones because that’s what pretty much everybody always has. You tell somebody you want a jack and Coke, this is what they’re gonna give you. I didn’t think much of it at the time. I kind of like the Jack and Coke cause I like Coke and it made it a lot easier to drink, but now that I’ve been able to see some of the better stuff that’s out there like the whistle pig and the Blantons and the Wellers and the eagle rare and the buffalo Trace.

4:32
This stuff doesn’t hold a candle to it. I give it a 4.4. Again, not a sipper, it’s got a little bit of a vanilla smell to the nose, strong rye taste, very little depth to the taste. Finish is a little bit bland, maybe like pine nut, peppercorn, but it just doesn’t excite you enough.

4:52
There’s very little death. The color on it’s fine, but it just isn’t a good sipper. I, I would not buy this stuff to drink again. So let’s dig into what Chester has to say here. Now he makes a good point here. He says, I started trading with a small account. I’m up 100%. But I kind of did it the wrong way.

5:08
And as I’ve said in other podcasts, I like digging into some of the comments that are being made in the email that they’re not necessarily intending to be addressed or asked as a question, but the words that they say kind of give away some shortcomings as a trader.

5:26
First thing I would say is even if you get lucky and you recognize the fact that you got lucky on some of your trades, it doesn’t mean necessarily that your expectations for what you should get out of your trades in the future are going to change all that much. It’s great to want to do risk rewards and to use stop losses and start managing the risk much more tightly, but you’re also going to struggle with the idea that you’re not going to always be up 100% year over year over year.

5:50
There’s gonna be more challenging atmospheres like right now we’re in a very challenging atmosphere. And so I think reading through this email and it’s entire. He has a small account, $6000. He spread it across multiple positions. And now he’s struggling since February.

6:06
And since February, the market has not been good. It’s been a very bad market. I, I say it harkens me back to 2015 when the market was very difficult, very sideways, very little price movement to take advantage of. And that’s kind of like what we are in right now, but a lot of new traders, people who are new to the game, they’re not accustomed to this kind of stuff.

6:21
They don’t have a reference point that they can look back on and say, hey, you know what, this kind of stuff does happen. You just gotta go with the punches a little bit, get out of this very stagnant market that we’re in right now into greener pastures, whether that comes in the form of a pullback or a rally, both scenarios can be taken advantage of.

6:42
What’s very difficult is when the market’s not going anywhere at all. So, Chester here needs to make sure that even though they recognize the fact that the trading was very undisciplined, way too big a swings, they got to make sure that they realize that when you start tightening up the risk a little bit, there could be an impact to the reward side of the trade and more likely there will be because you’re playing it from a little bit more of a rational standpoint of, hey, I’m not gonna try to blow up my account to all $6000 that I’m trading with.

7:11
And so those expectations have to trade as well. So that’s just like one little point that I wanted to make here is that just because you recognize the fact that you’re a little bit undisciplined and you’re trading and you need to bring in some stop losses and some tighter stops doesn’t mean that you’ve adjusted your expectations for trading either.

7:27
So make sure if you find yourself in that situation that you’re adjusting your expectations as well. And the other thing that makes this market right now very difficult is the constant rotations in and out of sectors and industries. One day it’s like energy and industrials that are leading the way day after day after day, and then a few days later, all of a sudden, the rotation out of those sectors are very strong and it’s going back into tech and discretionary in healthcare, and then that lasts for one or two days, and then all of a sudden it’s right back into energy, industrials and financials and materials.

7:58
So it’s like this back and forth, back and forth, and it’s very difficult to sustain any kind of real breakout or any real good move in the stock market as a whole. The other question, and this is really what he wrote me about Chester here, he says, because I’m struggling here with smaller position and my smaller account, maybe I should just go to bigger positions in my accounts because what’s going on here is that Chester wants to continue to make big gains and I don’t think he’s adjusted his expectations accordingly yet.

8:26
That’s why I keep bringing that up. But let’s say you have a trading strategy and you’re right, 66% of the time and you’re trading with a $6000 account and you’re gonna say, hey, I’m gonna trade bigger here. I’m only gonna trade two stocks at a time. I’m gonna put $3000 on each position.

8:41
Well, you’re right, 66% of the time, there’s a good chance that that first trade and the second trade that you make against that $66,000 you’re only gonna be 50% right. And then that third trade you make, you’re going to be matching your historical return from a win standpoint. So if your first two trades, one’s a winner and one’s a loser, you’re really hurting yourself if you had instead said it, you know what, I’m gonna trade 3 positions at $2000 apiece, but I’m gonna be right with 66% of my capital rather than 50% of my capital.

9:09
You follow me? More. Your capital will be making money rather than just doing two positions and only being right on 50% of your capital. So going bigger doesn’t necessarily help you out at all because you have to turn more of your capital to get that winning ratio.

9:25
And before I go any further, I’ve got to tell you about swingtradingthestockmarket.com. It’s the website that goes along with this podcast. It’s really, really great, guys. So make sure you check it out. You’re going to get all of my analysis on the S&P 500. The Nasdaq 100, the Russell 2000.

9:41
Each week you’re also going to get updates each week on all the Fang stocks plus Microsoft plus Tesla, and you’re going to get my weekly watchlists, both bullish and bearish watchlists, and that’s not all, as they would say on an infomercial, you’re going to get, if you order today, no, I’m just kidding, you’re also going to get daily trade setups that I find my daily list of stocks that I’m looking to trade from, as well as some of the most intriguing charts that I see each and every day.

10:07
And here’s the other thing too, I would say smaller position sizes are more ideal when you are struggling like what Chester’s talking about here. Look, he’s saying that he’s struggling since February. I don’t think that you help yourself from a struggling standpoint by trading bigger position sizes. You actually help yourself out by trading smaller position sizes.

10:23
So the question isn’t whether he should go bigger on his position sizes, maybe he should go even smaller. And here’s the thing, you’re not hurting yourself by trading smaller position sizes. Look, it’s free commissions out there. At least if you’re trading in the United States and in a lot of parts of the world now, they’re trading free commissions.

10:39
So it doesn’t hurt you by trading one or two shares if that’s all you can afford with a smaller position size. And I think people too, they say, OK, I’m trading, and I’m not saying this is the case with Chester, but I see it a lot right now, especially with this meme stock fascination where I’m gonna put $100 into the stock market and somehow that’s gonna turn into 50,000 or $600,000.

10:58
And that’s just ridiculous. That’s so stupid. Instead, what I would tell you is that set some more realistic expectations. If you’re trading with $10,000 in your account, fine, there’s nothing wrong with that. But don’t think that that $10,000 should be $20,000 or $30,000 or $40,000 or a million dollars by the end of the year, because again, you’re trading $10,000.

11:19
You can’t be able to pull off the same kinds of returns as somebody that’s trading with a billion dollar hedge fund. You are a $10,000 trader. So set some expectations when you have your smaller accounts. If at the end of the year, You have a $6000 account and you’ve grown that account from $6000 in January to $7000 at the end of December and the market was down for the overall year.

11:43
Well, guess what? You did a pretty good job. Give yourself a pat. On the back. That’s a darn good job. But you gotta quit chasing these dollars. You got to quit chasing the fact that, oh, OK, I want to make $1000 off of the straight. Just look at trying to manage trades in a very good and consistent fashion because when you do that, your trading account will get bigger over time.

12:01
So to wrap it up, Jack Daniel’s definitely not a sipper. Also, when it comes to smaller accounts, bigger sizes don’t mean bigger returns. Oftentimes it will lead to bigger losses. If you have a strong winning percentage with your trading strategy and you’re only able to trade two stocks when you’re winning 66% of the time, well, you’re only cheating yourself because only 50% of your capital probably is going to be winning on those first two trades.

12:22
Instead, it would be far better off if you’re trading at least 3 positions because at least then and there, you’re not having to turn over your capital just to be able to get and experience your true winning rate of trading. And too, when you’re struggling with your trades, the solution is not to get bigger positions, it’s actually to get smaller positions because that’ll take a little bit more of the emotion out of the trade and let you stabilize them.

12:45
Finally, set some expectations of smaller accounts. You can’t take a $5000 account. I think you’re gonna be able to get the same kind of dollar returns that a hedge fund gets. Instead, focus on the percentage returns. What am I making off of my money from a percentage standpoint? If you take $5000 and grow it to $7000 that’s pretty good return.

13:01
That’s 40%. That’s, can’t ask for much more than that. If you enjoyed this podcast, I highly encourage you to go to your podcast platform, whether that’s Apple or Spotify or Amazon or anything else and just leave a positive review. These things really, really, really do mean a lot to me because it allows me to continue to sustain the growth of this podcast and to see its listener base continue to grow.

13:20
So make sure that you are doing that. 5 star reviews mean the world. And make sure you keep sending me your questions. ryan@shareplanner.com. I do read them all. Please keep sending those to me. Thank you guys and God bless.

13:38
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13:56
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14:16
All the best to you and I look forward to trading with you soon.