Trading: A Moral Hazard? | Podcast Episode #307

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.

0:31
Mallory would swing trading the stock market. This is Step Aside 307. And this is gonna be a good episode man. We’re going to probably touch on some touchy subjects, I guess you could say. And explore some areas of trading that maybe we haven’t ever really addressed in the past.

0:48
And this one’s going to come from a guy in Australia. He’s given me a good Aussie name to call them by. He said he wants to just be called Barry, so Barry, the solid Aussie name. He gives me a pretty long email here, but I always encourage people listen to the old whole email and the reason why I read these in Emails, some of it, you may say to yourself, hey this isn’t really applicable to me but oftentimes, they are and more ways than we realize because it’s good for you to hear the stories of Traders.

1:15
Just like yourselves that are struggling that are having questions that are trying to fight their way to profitability and success in the stock market. And so, the more you can hear these stories and learn from them and learn what I have to say about them, the better off, you’re going to be, it’s more experience and more knowledge that you’re acquiring for yourself.

1:33
So very rights. Happy 23 Ryan. My name is Barry and I’m emailing you from Down Under and Australia. Feel free to shorten this email. If it makes it onto your show. I’m not going to shorten this email. I’m gonna keep it the way it is. He says, it’s been a wild ride, so I’m sure the details will be entertaining to you first.

1:51
I just want to say thank you for everything. It’s incredible to me. That guy who’s been doing this for 30 years and yet still is humble and kind enough to share his knowledge and wisdom with other people. So from the bottom of my heart, thank you. Well, thank you very. I appreciate those kind words and you know, you always feedback on this show. So, oftentimes gives me a lot of motivation to keep doing this.

2:08
When at times, I really don’t feel like doing it. He goes on to write, you have turned my trading Journey on its head with your principles of risk management trade, what you see, manage the risk, and let the prophets, take care of themselves because of this, I believe that I will continue in the stock market for many years to come. I am a 31-year old guy, happily married with a young family, and another baby on the way, man, those babies foof.

2:28
There’s some work. I’m 42, man. And I can’t even imagine having to raise a baby at this point. I work a 9. 25 federal government job, helping people with a disability coming out of prison. Well, that’s a nice job also, deliver pizzas on the side, where I listened to your podcast and the car, my first experience trading with or X was in my early 20s, I had two thousand dollar account and blew it in a few months, I had absolutely no idea what I was doing, but I did have a pretty fun story early on.

2:55
I accidentally opened a short position on the New Zealand dollar and the Yen I then must have completely forgot about it. No stop loss on my dad, my brokerage did not give me the option to trade in different positions sizes or I Couldn’t work it out on my own so I was literally all in on this one trade with my two thousand dollars.

3:10
I woke up the next day with an eighteen hundred dollar profit and immediately closed the trade with a profit. I was completely startled and had no idea what had just happened. I rang the broker to ask if this was some sort of mistake but they all said good job, turns out that I happen to have a short position on the same day that the Asian stock market happened to crash.

3:29
Reckless, beginner luck. I then proceeded to do the same thing with another currency pair, paid no attention to the chart, with no stop loss, blew my entire account on the next trade and hit margin. Not good. Safe to say I then gave trading a miss for about a decade. I’ll say this. Sometimes that beginner luck is the worst thing that happens because we actually start to think that we’re good at what we’re doing.

3:49
I mean, right here, you can tell he got really lucky, happened to put a short on the New Zealand dollar and the Yen the same day that the Asian markets crashed, and he made up almost 100% in his portfolio, but it was that confidence, that misplaced confidence, that led him into his next trade to lose the $3,800 that he acquired and to have to stop trading for a decade. So, between those two trades, he was right 50% of the time, but what did he not do? He didn’t manage his losses. So that’s why I always say that ability to trade successfully doesn’t come from winning stock picks. This guy was right 50% of the time, but the success from the stock market comes from the ability to manage your losses because that’s going to define what your profits are.

4:27
Like if he had just taken that $3,800 and he had taken maybe a 20% loss on it, still a huge loss, but in the grand scheme of things he would have still had over $1,000 in his account in profits and lived to trade another day. Told you this is a long email, but it’s definitely a good read here. Fast-forward to 2022, and I decided to give trading another go.

4:46
Everybody around me, including family, were investing in crypto and doing well, but I decided to stay out of it. Then crypto crashed. Ironically, this piqued my interest in trading again, as I thought, if only these people were trading crypto instead of investing, they could have made some great profits even on the crash. So I opened a crypto-only investing account, but instead of investing, I decided to trade it. After a start with this,

5:06
I decided to go back to trading other assets as crypto wasn’t as wild as I thought it would be after the crash happened. So I opened another brokerage account, this time with eToro in August of 2022, with the absolute bare minimum of drum roll please $50. This is for a few reasons.

5:21
Number one, I was struggling financially with the interest rates rising, so I decided to put only my birthday money into it. Number two, I am much more risk averse than I was before. Number three, I thought this was the smartest thing to do, as I wanted to learn how to trade properly and be able to make mistakes. I have since put more birthday money into it, and my account currently stands at $119 US dollars.

5:40
I have made a total of 405 trades since August and was down 71.21% in 2022. Pretty bad, I know. At the start, I was trading everything and anything with maximum leverage so forex, crypto, CFDs, stocks, commodities, indices. I didn’t know what fundamental and technical analysis was.

5:58
I didn’t know how the stock market works, what support and resistance was. I didn’t even know what a long and short position was. I didn’t know what risk management meant. You name it, I had no idea what I was doing, but I was determined to work it out and to do it well. See what I mean? There’s a lot of people that get into the stock market and they absolutely know nothing about what they’re doing and that’s okay.

6:16
I would say the majority of us do that, even myself, but that’s why this podcast, then there’s other podcasts, I’m sure, that are out there as well, are good to listen to because they help you with this kind of stuff. Then I learned about technical analysis from a guy on YouTube. He was a scalper, but he actually had some very good sound strategy principles.

6:32
He would trade off of a 4-hour chart with a 10, 20, and 200-day exponential moving average crossover. I thought, this looks simple enough, so I started to use moving averages and their crossovers to start. Then heard about a guy at my work who does swing trading and recommended a podcast to me as well.

6:48
After hearing about swing trading from this podcast, I started doing it and kept doing it ever since. I started listening to your podcast end of last year, and I loved it. I am quite a few episodes deep. I’ve learned risk management is the main thing that keeps you profitable in the stock market. My strategy now is trading stocks only with the top-down approach, without leverage.

7:06
I trade $3 long-only positions. My account isn’t big enough to trade indices or ETFs. I trade off the daily chart and a 30-minute chart to move my stop-loss up to intraday support levels, taking partial profits along the way. I look for pattern breakouts, keep moving averages on the chart as a FYI.

7:22
As I’m aware that all technical indicators are subsets of price and volume, and moving averages only matter if the stock has a history with it. To start, I had alerts for when the stock hits the 200-day moving average, although I don’t just trade off of this anymore. I participate in the Australian and Hong Kong Stock Exchange,

7:38
also the Paris and British Stock Exchange. US stock exchange is on at 11:30 p.m. for me, so I don’t participate in it. I try to keep my risk position sizes to a maximum of 7% risk, but usually they are 4% and under, and for a minimum 1:2 risk-to-reward ratio. I try to trade in general direction of the market.

7:57
Thankfully, this year, I’m happy to say I’m up 1% on the year, and I can only put this down to proper risk management. I’m always learning, but I’m proud of how far I’ve come. No doubt that I will be able to manage the risk better this year and be profitable. All right. Now to the questions.

8:21
Now to the questions.
Number one: When you trade a top-down approach to the markets, do you follow the indices and ETFs to see the overall direction of the markets before looking at an individual stock setup?

8:36
Number two: I’m a Christian. I’ve been told that while investing is biblical, trading is mostly speculative and therefore against the Bible. What are your thoughts on this? Also, what about building wealth in general? I know the Bible warns against the love of money. How do we reconcile the stock market with the Bible?
God bless,
Barry.

8:52
See what I told you? I told you we’re gonna probably get into a touchy subject for some people. That number two is a good question, and some people might not like me crossing into that area of trading and morality. But hey, this is a podcast and I try to answer all the questions that come along, and this is one that actually intrigues me a lot.

9:08
So I want to do that, especially as a Christian myself. So what are we drinking today? I feel like I need a drink after reading that email. It was a long one. What am I drinking on this podcast? I am drinking Shinobu, another Japanese whiskey. It’s 43 percent alcohol, 86 proof.

9:24
So pretty light on that front, but kind of going to sip on this one throughout the episode. I’ll let you know my thoughts towards the end.
Now let’s get into Barry’s email here. So we’ve already talked about the beginner’s luck, so we don’t need to really address that any further. But then he gets back into the market in August 2022.

9:46
There was one thing that was kind of interesting to me that he didn’t find that crypto was as wild as he was hoping for it to be. And I think a lot of times we’re looking for that as traders, especially a lot of new traders. They want the action, they want a lot of big price movement. And I know sometimes in the past I’ve been guilty of that, but the more risk, the more volatility that’s in a stock, the more difficult it is to manage the risk.

10:01
The more difficult it is to predict the direction. So, another thing I noticed too 405 trades since August, down 71 percent and a couple hundred dollar account I guess that’s a lot of trading. 405 trades is a crap ton, especially with August, September, October, November, December that’s five months.

10:18
Five months, 405 trades. I mean, I think last year I might have placed not even a couple hundred trades the entire year. So one of the things I would encourage traders if you find yourself just constantly trading or the need to have to actually be trading something and eagerly looking for something to trade start asking yourself,

10:35
Am I just trading too haplessly? Am I trading too aggressively? Because if you’re trading 405 trades, unless you’ve got a really good strategy that’s proven, that’s worked for you over many years, I would say that you’re overtrading and being way too aggressive.
But one of the things I like I mean, he goes through and nails almost every one of my major bullet points that I would say represent Swing Trading the Stock Market.

10:52
Like taking partial profits along the way, like managing risk and letting profits take care of themselves, and treating a plan and planning out that trade before you ever get into the trade. And a lot of bullet points on moving averages, in my approach to it.
So it’s really good. He’s listened to a lot of the shows. And if you haven’t listened to all these shows, I would encourage you to go back and listen to them.

11:10
This is the 307th one, right? So there’s tons of them out there. They’re pretty much all evergreen unless they’re about like a major market event, and then I feel like those might be specific to a specific time in the market. But overall, these will be episodes that’ll be still worth watching and listening to, I guess, not watching 30 years down the road.

11:28
Now, one of his questions here before we really start getting into the controversial stuff, is when you trade a top-down approach, do you follow indices and ETFs to see the overall direction of the market before looking at an individual stock setup?
No, I don’t.

11:44
So the strategy says, follow the direction of the overall market. So the S&P 500 is my main lead. Then I’m starting to look at the sectors that are driving the S&P 500 higher or lower, and then the industries within those sectors. And then I start to look at individual stocks, right?

12:01
That’s how the approach goes. But I’m also always keeping track of individual stocks, marking up the charts, knowing that if this trade setup becomes valid, I’ve already pretty much got all the parameters in place. So I’m always looking at individual charts. I don’t wait until I say, “Okay, the market’s going up, the tech sector’s going up, semiconductors are going up. All right, let’s find a semiconductor stock.”

12:19
Usually, no. I know Nvidia might be setting up or AMD might be setting up or LRCX or KLAC. And I’m like, okay, now that I got the beginning parts taken care of in terms of market direction, sector and industry movement, I usually always have an understanding of what stocks are already driving those.

12:40
And I’ve already done the technical analysis on it. So I don’t think you need to necessarily wait to do the technical analysis and research until you understand the market dynamics and the sector and industry dynamics. I think you should be also doing that side by side. So that when you do have a good edge from a market, sector and industry dynamic, you’re ready to take those trades and you’re not all of a sudden doing just fresh research on them.

12:58
And speaking of research, make sure you guys sign up to swingtradingthestockmarket.com. Guys, this is where you’re going to get all my videos and tons of ideas each and every day sent directly to you. We’re talking about updates on big tech, the market indices like the S&P and NASDAQ 100, Russell 2000.

13:16
All right, we answered number one. Let’s go to number two: the love of money. I am a Christian. I’ve been told that while investing is biblical, trading is mostly speculative and therefore against the Bible. What are your thoughts on this? Also, what about building wealth in general? I know that the Bible warns against the love of money. How do we reconcile the stock market with the Bible?

13:35
I’ve had a lot of conversations with pastors over the years, and some of the conversations have been pretty interesting. I think sometimes with the stock market, just like with new investors and new traders, they don’t quite understand everything that they’re doing just like Barry here didn’t realize that he was shorting the Yen on the same day that there was an Asian market crash. He got lucky, but he didn’t realize what he was doing.

14:05
And so I think sometimes a lot of people who will speak about the morality concepts behind the Bible and shorting or the Bible and trading and I throw shorting in there because I’ve actually had somebody tell me before that shorting is sinful, it’s wrong. And it’s not. There’s nothing that says shorting the stock market or putting on a trade that goes against the stock market by selling first and buying back later at a lower price is sinful. It’s not wrong.

14:21
And I’m a person that takes the Bible at what it says. You know, I believe in Jonah and the whale, you know, in the Old Testament where Jonah was swallowed by a whale. He was in the belly of a whale for three days. I’d also believe it if it said Jonah swallowed the whale and the whale was in the belly of Jonah. I believe in what the Bible says, essentially, right? It’s the Word of God. But I also don’t believe in putting stuff in there that’s not actually in there.

14:38
So when it comes to the love of money, that is something that a lot of people struggle with. But so many of the dynamics of what I’m teaching you about the stock market and about trading has a lot of times biblical principles. For instance, the love of money:

14:55
Proverbs 13:11 “Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.”
1 Timothy 6:10 “For the love of money is the root of all kinds of evil. It is through this craving that some have wandered away from the faith and pierced themselves with many pangs.”
Hebrews 13:5 “Keep your life free from the love of money and be content with what you have, for He has said, ‘I will never leave you nor forsake you.’”

15:13
Three verses right out of the gate talk about the love of money. It’s also why I tell you don’t dollar watch. Why? Because dollar watching has tie-ins to the love of money. When we’re in a trade and we’re looking at it, we start the dollar watch. We start to think about what we can do with that money. “Hey, I can go get a PS5 with those profits in the trade. Hey, I can go get my car insurance paid for. I can pay off the rest of the car.”

15:35
Why do I talk about not doing the dollar watching? It’s because of the love of money. Because we love money, we have emotions that are tied specifically to money. And when we start doing that and we start dollar watching, then all of a sudden we’re not making decisions that make sense from a swing trading standpoint and from a systematic standpoint. We’re making trading decisions based off of our love for money.

15:55
I’ve always said this too: that if you really want to know your perspective on money, start trading and investing because trading and investing will definitely teach you a lot about yourself and a lot of the, from a Christian standpoint, the sinful behaviors that are associated with the love of money. The Bible also talks about not being greedy for gain:

16:15
Proverbs 15:27 “Whoever is greedy for unjust gain troubles his own household, but he who hates bribes will live.”
I get contacted by prop firms in the past. I just had one last week want me to push their prop firm and they’ll give me money for every trade that takes place from a person that signs up for their prop firm through me. I won’t do that.

16:31
Why? Because that’s a bribe. I’m not going to deal with bribes. And I will never deal with prop firms. And I will never be bribed to do that kind of stuff. And “whoever is greedy for unjust gain troubles his own household.” What is so many people in the stock market for? They’re greedy for gain.
Yes, I get it I want to be profitable as a trader as well.

16:47
But then you start looking at the WallStreetBets crowd, the WSB folks, getting into GameStop, getting into AMC, getting into penny stocks, pump and dumps. What are they doing it for? Because they’re becoming greedy for gain. And I think the more systematic and strategic that we are in our trading where we’re not looking to become rich off of a single trade…

17:04
I don’t ever expect to get rich off of one trade. Nor do I think that one trade is going to improve my life all that much.
Yes, I mean, if you make a dollar more, you’re a dollar richer. But in terms of drastically increasing it? No. I take profits along the way. I don’t put my hopes and dreams into a stock.

17:20
I manage the risk because I know that the stock market can work against you, and it can destroy you. And that’s where it goes back to “whoever is greedy for unjust gain troubles his own household.”
You don’t use stop losses? You’re opening yourself up to all kinds of risk. And you’re opening yourself up to troubling your own household.

17:36
How many people have lost just hundreds of thousands of dollars unbelievable amounts of greed thinking that they could always make a little bit more?
If you look at FTX, what was going on there? The dude was greedy for gain. The guy didn’t even have to work for the rest of his freaking life. And what does he do? He becomes even more greedy for even more gain.
And now he’s in jail. Rightfully so.

17:55
One of the things that I try to do a lot is commit verses to memory, and one that I’ve been working on is Luke chapter 12, verses 22 through 26. And it’s about Jesus telling his disciples, “Do not be anxious about your life, what you will eat, nor the body, what clothes you will put on, for life is more than food and the body more than clothes.”

18:11
And then it says, “Consider the ravens in the air. They neither sow nor reap, yet God feeds them. Of how much more worth are you than the ravens? Who can add one hour to his life by being anxious?” You can’t.
And that ties back into position sizing and swing trading. Why? Because when you do things undisciplined, when you do things with a bad approach, with recklessness and abandonment, you become greedy for gain. You have a love for money that’s uncontrolled, and you’re being anxious when you’re trading with too big of sizes.

18:34
So I always tell people, you’ve got to decrease your position sizes until there is an emotional impact that’s negligible. But if you can’t get to that point, you’re going to find it very difficult to ever succeed in the stock market.
And you go and look at life in general. Everything in life is a gamble. If you’re buying a house, there is a gamble there that the house will increase from where you bought it at. If you buy multiple houses to rent them out, you’re taking a gamble that those houses will increase in value and that you’ll be able to rent them out.

18:52
In fact, I would say the approach that a lot of people are taking with renting houses right now is extremely dangerous extremely reckless and far more crazy than even buying a GameStop and YOLO-ing your money into that.
Why? Because they’re leveraging money upon money by buying house upon house upon house.
I’m not saying everybody’s doing that. If you have an Airbnb or if you have a rental but I’m saying there’s a lot of people out there that do do it.

19:08
I’ve had people also tell me that I shouldn’t drink bourbon on the air. And I don’t think that that’s necessarily a bad thing either. I’m not getting drunk. Just like if I’m eating food, I’m not getting obese. I take care of my body. I work out regularly. I do not drink a ton, and I can’t remember the last time I was drunk.

19:23
So what I would probably say here I know I might be getting out into the weeds on some of this stuff, getting into gluttony and drunkenness but the point is, does the Bible have anything against drinking? No. It has something against drunkenness.
Does it have anything against eating good food or even sugary foods or desserts or pastries? No. But it does have something against gluttony.

19:40
And I think even with trading do I like to gamble on a cruise ship or go into a casino and pull the lever and hope that I’ll be that one out of 100 that wins, or one out of 1,000 that wins a couple bucks from the slot machine? No. I don’t like it. It gives me anxiety. I hate it.
Do I play the lottery? No.
I think the people who are playing the lottery regularly hoping it’ll change their life, that they will get rich off of it yeah, I do think that that’s a major form of gambling and that it’s not good. I think it’s wrong for the government to sanction it because it’s more of a tax on the poor than it is the rich.

20:16
But is it bad to buy a lottery ticket? No. Have I bought a lottery ticket? Yes. And I’ll buy it like there’s the Mega Millions thing, right? It’s like almost a billion dollars. I don’t think I’m going to buy it, probably because I won’t be in a grocery store to buy one. But if I was there and I bought one for a dollar, what would I be doing that for?

20:32
I’d be doing it for entertainment purposes. Like, “Hey, it’ll be fun to watch,” right? Do I expect to win it or care if I win? No. But it’s for the entertainment value, and I don’t think that’s wrong. But when it starts to become a lifestyle, becomes a habit, and it becomes something that’s affecting and troubling your own household that becomes a problem.

20:50
So with that being said, this was probably one of the most interesting podcast episodes that I’ve done in quite some time. Do I get into the Bible every time? No. Actually, very rarely do I do it. But this was a great question, and I thought, you know, it may not interest everybody. Some people don’t care, and that’s fine.

21:10
But I thought that hey, this guy took the time to do it. I think a lot of people probably wonder some of these things, because I’ve had people ask me about it in my own life, so I thought hey, maybe this would be a good one to talk about.
So let me know what your thoughts are. Shoot me an email if you want. Make sure to shoot me emails about your own questions because I do read them and I try to make episodes out of them all. And you can do that by sending me your emails at ryan@shareplanner.com. That’s R-Y-A-N at shareplanner.com.

21:25
And what about this whiskey that I just drank here during this episode? Yes, I was drinking it the whole time. The blended Japanese whiskey Shinobu 43 percent, 86 proof.
I’ve got to tell you, it almost looked like water when I first poured it. It was crystal clear practically.
Do I like Japanese whiskey? There’s some out there that’s not too bad.

21:41
Is this particular one bad? It’s not bad. I don’t think it’s great. It has a strong apple flavor to the nose and to the taste. A little bit of kick there at the end. A little black pepper flavor.
But scale of 1 to 10, I’m probably giving this a five and a half. 5.5. I can’t see it going any higher than that.

22:00
Also, make sure that you guys leave me a five-star review on whatever platform you’re listening to me on. I always do appreciate those. And make sure to sign up for swingtradingthestockmarket.com.

22:16
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.
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, Instagram, and Facebook, where I provide unique market and trading information every day.

22:40
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.