Episode Overview
How does a swing trader manage the risk and book profits consistently when dealing with fractional shares in the stock market? If you are trading with a small trading account, is it better to focus on lower priced stocks? In this podcast episode of Swing Trading the Stock Market, Ryan Mallory will discuss strategies that can help with fractional shares and swing trading with a small account that allows you to take partial profits and use stop losses.
Available on: Apple Podcasts | Spotify | Amazon | YouTube
Episode Highlights & Timestamps
- [0:07] Why Trading Small Accounts Requires a Different Approach
Ryan opens the episode discussing the unique challenges traders face with limited capital, such as managing risk, using fractional shares, and maintaining discipline. - [1:09] Listener Question on Fractional Shares
A listener named Hank asks about using fractional shares with a $1,000 budget and whether to use mental or hard stop-losses. - [4:30] Why Stock Price Matters With a Small Account
Ryan explains why focusing on stocks under $60 is ideal when trading with limited capital and the need for partial profit-taking. - [6:17] T2108 vs MFI: Breadth Indicators Compared
An in-depth look at TC2000’s T2108 versus TradingView’s MFI and how to interpret breadth in market rallies or sell-offs. - [17:41] The Problem With Mental Stop Losses
Ryan shares the risks of relying on mental stop-losses, especially for new traders who may lack the discipline to exit bad trades.
Key Takeaways from This Episode:
- Start With Stocks Under $60: This allows small accounts to trade full shares and take partial profits effectively.
- Avoid Mental Stop Losses: Mental stops require extreme discipline and are risky for beginners.
- Use T2108 for Market Breadth: It’s a trusted indicator to see how many stocks are participating in a rally or sell-off.
- Trade Within Your Means: Don’t force trades on expensive stocks just because they’re popular; manage your risk first.
- Recalculate Position Size After Big Gains or Losses: Adjust sizing only when your portfolio changes significantly, not for every small fluctuation.
Resources & Links Mentioned:
- Swing Trading the Stock Market – Daily market analysis, trade setups, and insights by Ryan Mallory.
- Join the SharePlanner Trading Block – Get real-time trade alerts and community support.
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Full Episode Transcript
Click here to read the full transcript
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 Mallory with swing trading the stock market and.
0:34
You might notice that I’m not just doing it this on audio anymore. I’m doing it with video, I’m doing my podcast on doing video podcast now, so if you’re listening on Spotify, you can actually see the videos now on Spotify as well. You can also see it on YouTube. It’s a really cool feature that I’m trying to roll out.
0:49
I’ve tried it in the past, it didn’t quite like it as much, but give it another shot here. I think this is going to be one that sticks this time. One of the things I always worry about is that I might not as be as personable when I feel like I’m in front of a camera. Some And I’m doing the podcast and it’s just audio. I’m just kind of just slouching down in my chair, just chit chatting with you guys, but this time around, we’re going to make it work.
1:09
So today’s podcast episode, we’re going to be talking about fractional shares how to trade them. How do you stop losses with them? What shares should you target? If you’re working with like say a thousand dollar budget, do you just go hey I’m going to use Mental. Stop losses because I can’t use hard stop losses on fractional shares or do I lower the price on the kinds of stocks that I’m going to to trade.
1:31
So we’re going to talk about that in this episode. So for the purposes of this episode, I never like to use people’s real names because I know, ever know if they really want to have their real names used, so I just give them a good Florida, redneck name. So for this episode, we’re going to go with the name Hank and Hank writes, hey Ryan, I discovered your podcast a couple months ago, while looking for guidance, and using technical analysis for swing trading, your short episodes made it all palatable, and I’ve been able to race through a ton of them, I haven’t completed a full Listen through all of your episodes.
2:02
I still got about 100 episodes but I still have a lot of questions and comments for you. That’s actually crazy that he’s gone through so many of them. He still has 100 episode. I think this is episode 3 34, so there’s a bunch of them out there so he that means he’s gone through 234 when which is crazy.
2:18
So number one, you’ve mentioned the t21 08, a lot but that’s specific to TC 2000 trading software. I use tradingview and discovered that mfi, which is the percentage of stocks over the 50-day moving average. Just thought I would be useful and give you an alternative to the T20 108 if you didn’t know about it yet.
2:38
Number two, I spent a few weeks paper tray. And, but I found, I was taking bigger risks since it wasn’t real money. That I was trading with taking 124 risk ratios with a 5% or even up to a 10% stop-loss. I started slowly doing trades with real money and found that I wasn’t as willing to risk as much money on each trait.
2:55
Eight, while learning the ropes. I’m only using about $1000 to minimize My overall losses. While I hone in my technical analysis, I noticed really quickly that, although, I can buy fractional, shares, I use Fidelity. I’m not able to play, stop losses or stop orders on those fractional shares.
3:13
If I’m also trying to keep my position size around 8 to 12 percent of My overall portfolio size to manage risk. I see three possibilities. Number one, trade fractional shares use Mental, stop losses, and keep Position size. Correct. Number two, full shares on lower priced stocks, use hard.
3:31
Stop losses, and keep my position size. Correct. Number three, trade full shares use hard. Stop losses in used larger position sizes so far. I’ve been doing the third option with a Rin ratio of about 40 percent. What would you do in my shoes? Speaking of position sizes, you see that you usually use 8 to 12% position sizes, on your trades.
3:51
Are you re calculating the percentage each time that you’re entering a new position based on? The total portfolio including unrealized gains or losses. For example, if you started with a hundred thousand dollar portfolio with thirty thousand dollars of unrealized gains on top of that for a hundred and thirty thousand dollars is your next entry going to be 8 to 12 percent of the hundred thousand dollars that you originally started with or the hundred thirty thousand dollars.
4:13
Thanks for all you do Hank. Good question. I think there’s actually a lot to talk about in this particular podcast episode because I think he’s really covering a lot of things that a lot of people have to deal with and they’re trading and that is Trading with small account. What do you do? What do you do when you can’t buy more than just a couple shares?
4:30
Because let’s say you’re trading with a thousand dollar account, and you’re trying to trade, I don’t know, let’s say you’re trying to trade 20% of your account or 25% of your account, and you can only buy like one share of Microsoft that’s kind of hard. That’s really difficult because you’re not going to be able to take partial profits along the way.
4:48
And from my understanding, I don’t think a lot of companies like, you just like sell partial shares of your stock. So I don’t know if they’ve come up. With an alternative for that. But from what I understand you can’t do that. You can’t buy or sell shares. You just can’t sell partial shares out at. Like let’s say for instance, you have five shares of a stock and you’re like, I’m going to go ahead and sell a half here. I don’t think you can do that. If I’m wrong, let me know down in the comments that I’m wrong. I would be really curious to know if there’s actually a brokerage out there that does that, not all brokerages, even do, fractional shares, but Fidelity does. They’re not a bad outfit.
5:20
I have them. But what I’m going to do here is I’m going to go through all these questions here. There’s some sub-questions on this particular podcast episode. So one of the first things that he asks that kind of stands out to me. He says you’ve mentioned T 2108, he uses this thing called MFI which is the 50-day moving average. The percentage of stocks trading above the 50-day moving average. I use the T 2108 on TC 2000, whereas, he uses TradingView. The one on TC 2000 tells me the percentage of stocks trading above their 40-day moving average. Is there a big difference in that? Not too much.
5:54
I think you can still get similar readings out of them. Now if you’re talking about 40-day moving average versus the 200-day moving average, they are not the same, there’s sometimes where they look the same, but they don’t always act the same because 200-day moving average is a much longer-term indicator or moving average, than a 40-day moving average. 40-day’s a little bit more of your midterm type of moving average.
6:17
When you get to like five and ten day moving averages, that’s more of your short-term. So, yes, I think you can use those pretty much interchangeably. They’re not going to be exactly the same. But why I use T 2108 instead of any of the other ones, primarily is just because that’s something that I’ve just grown used to over the years.
6:35
I don’t necessarily need to go outside of something that’s worked for me very well. And so what I use for T 2108. I really don’t care too much about it except for when there’s a major divergence on there or when it’s at extremes. So right now we’re seeing major divergences on the T 2108 where you have the S&P 500, you know, challenging the highs from last August.
6:58
You have the NASDAQ that is blowing through the highs from last August and making 52-week highs. And you have very few stocks that are actually participating in this rally. The rally continues to get narrower and narrower with less and less participation. So that stands out on the T 2108 because it’ll show me like, hey only 35% of stocks are participating in that. As of Thursday of last week, only about 35, 36 percent of stocks were participating. Now it jumped, because there was a big rally on Friday and I think it jumped to like over 50% or something like that, but overall it tells me that okay.
7:23
Is this a broad-based rally? Is this very narrow leadership and that’s what it’s doing in this particular instance. The other time that I really like to use it is when there’s a significant market sell-off and then you start to get towards like a three or four percent of stocks trading above their 40-day moving average.
7:51
That’s usually when you start to see some short-term bottoms, at the very least. If you go back to October of last year, yes. What we were at sitting at like less than ten percent of stocks trading above their 40-day moving average, we’re in single digits and that’s usually a good sign that we’re getting into a short-term bottom.
8:08
So really any time you start to get into these single digits, oftentimes on the T 2108 it’s trying to find a bottom in the market. So I also use the T 2107 and that’s the percentage of stocks trading above their 200-day moving average.
8:25
I don’t rely on it as much but I don’t mind using it from time to time in conjunction with the T 2108, on the TC 2000 software again. Like what Hank was talking about, TradingView has its own. I think even StockCharts has its own. Most of your platforms will have a version of this whether it’s the 40-day or the 50-day or something in between.
8:47
I don’t even use the 40-day moving average really for anything else. I don’t like have it on my charts. I just really just use it for that particular indicator. The next question he asked me, he says I’ve spent a few weeks paper trading but I was taking bigger risks since it wasn’t real money and that’s what I always tell people is that the transition going from paper trading to real money is very real.
9:07
It feels very much different because when you’re seeing losses, when you’re going in a full-time trade, I don’t care if it’s a small amount of money that you’re trading with or money that you don’t feel necessarily emotionally connected to. When you go from fake money to real money, it feels different. It hits different. And when you take a loss, it doesn’t feel like, I mean it’s not Monopoly money at that point, so I get what he’s talking about when he says that my risk tightened up dramatically when I went from fake money or paper trading to real money because all of a sudden he’s going to find out what his risk profile is at that point in time. I always think it’s better to try to find out what your risk profile is by starting really small, where you’re not risking as much, maybe you’re only risking, like, two or three percent of your capital and you’re trying to build it up to see.
9:52
Where’s your tolerance at? He mentioned that, you know, I usually trade bit about eight to twelve percent, it’s usually more like between 10 to 12 percent on most cases, but I found that out just by learning over the years. If I go up to 15 or 20% it feels different. I don’t like the fact that I don’t have as much control over my emotions when I get to those levels.
10:11
So I don’t trade it. Those levels. I trade in that, that 10 to 12 percent range, where I can control the emotions, where I control the feelings and I don’t go beyond that. I know my limitations, and we’re going to expand upon that a little bit more on question 3, but I’m going to leave that there for right now.
10:28
He also is dealing with the issue of partial shares. So what I did is I looked at my stock screens, I have a must watch list. This is your, I think right now, there’s about 99 stocks in it. Sometimes there’s more. Sometimes there’s less just depending on how I feel about the stocks and the list, but right now it’s about 99.
10:45
I need to get it up to 100 just so I can round it off some, but I looked at the stocks that are trading at $60 a share or less. Why did I say $60? Well, guy for instance, he’s given me the example of trading with a thousand dollar portfolio. So if he’s trading with 12% on each trade, you’re looking at $120 per trade.
11:04
If you’re looking to take partial profits along the way, if you’re trading a $60 stock, that means you can at least get into a full position and then take partial profits half when you start making some decent profits and then, you can take the other half to close that out. Still being able to take partial profits along the way.
11:20
So that’s where I came up with $60 a share. But when I look at it, this is a list of 99 stocks that I trade. There is 37 stocks that you can trade out of my list and I wasn’t really targeting this list based off a price. I just ordered it per price per share.
11:36
And so you have, for instance, you have Roku trading at 60, you have Shopify trading at 60 and then you also have SMAR that is a software company. Traded it plenty of times in the past, trading at 49, you have SLB. That’s Schlumberger, that’s an oil company. You have Wayfair that is a retail company, Citigroup.
11:55
That’s a bank, you have eBay. That’s another retail company or per online company. You have Roblox. You have Uber, you have PFE that’s Pfizer’s. So you have health care. Then you have U. That’s the stock symbol for Unity Software.
12:11
You have Chewy. I mean, I could keep going on and on. GM, CSX, INT, Squarespace, Upstart Holdings. UPST, Fiverr, Penn National Gaming, that’s a casino. So there’s plenty of stocks out there and that’s just a sample out of the 99 that I follow.
12:29
Now, I also have some other scans that I follow. Let’s like, take for instance, this one here that usually spits back about three to four hundred stocks. At this point in time it’s about 335. If I sort it based on stocks that are trading at $60 or less, I have about 225 stocks that meet that criteria. That’s significant. That means there’s plenty of stocks out there where you can take partial profits along the way. Berkshire Hathaway.
12:56
For instance, I think I don’t even know what it traded at last time. Let’s pull this one up. BRK.A is trading at four hundred ninety-eight thousand nine hundred and twenty-six dollars and fifty-nine cents. It is there times? Where that stock rallies pretty? Well yeah, I mean back in October it was trading at 390,000-ish. Now it’s trading at 498,000.
13:14
So it’s rallied over the course of the past eight months but I didn’t buy it. I don’t care what kind of setup it has. I’m not buying a five half million dollar stock. It’s just not going to happen. What am I gonna do? Like take partial profits on that stuff along the way?
13:31
No, so no matter how well it does, I’m not trading it. And it’s like that for maybe somebody with a smaller portfolio that’s trading with the thousand dollars. There’s going to be stocks that you can’t include in your trading analysis and I know that stinks because sometimes you might want to trade Google or you might want to trade Amazon or Apple or Tesla, you know, but you can’t because managing the risk is about managing your capital and if you can’t take partial profits along the way and that’s part of your trading strategy.
14:04
Then I guess you just can’t do it. And I’m not trying to be like mean or mean-spirited or anything like that. It’s just, it’s simply just a matter of fact. So for me, if I’m in that situation, I’m looking at stocks trading under $60, or you can even go even further down, like that list that I was just telling you about a couple of seconds ago.
14:24
What about stocks that are trading under $40? There’s going to be far less, but you still have, I don’t know, 200 stocks that meet that criteria. Just on one of my scans. 335 return. So and look, I don’t trade under $10, why?
14:40
Because I don’t like the risk and I get that same mentality. Can apply to stocks that are trading beyond what you can afford to trade and trade effectively. If you can’t trade it effectively, don’t trade it. It doesn’t matter if it’s Apple or Google, if you can’t take partial profits along the way to manage risk.
14:56
And that’s part of your trading strategy, then you can’t do it. For instance, me, I don’t trade anything under $10. Why is because the volatility there is not something that I can afford to take on. I don’t like it. It really messes with my stomach. So, I don’t do it. I know a lot of people love.
15:12
Trading those things. I definitely don’t go into penny stock world. I think penny stocks are absolutely crazy and I would not sleep at night if I was trading with penny stocks but, you know, it’s not crazy. swingtradingthestockmarket.com, this is going to be the website if you’re listening to this on Spotify and watching this on Spotify, you can be listening or watching or both, I guess.
15:30
Well, I guess if you’re watching it, you’re also listening to it, but go to swingtradingthestockmarket.com, you get all my stock market research each and every day. If you’re listening to me on YouTube, you can also do it by just clicking the join button on the YouTube channel and you’ll get taken right to that page. But with it, you’re going to get all of my stock market.
15:48
Research each day that’s including my weekly watch list of bullish stocks. It’s also including my daily watch list of stocks that I’m specifically looking at. You’re also going to get updates on the big tech stocks of the most intriguing charts that I come across as well as updates on the overall market. So, I highly encourage you to check it out again on YouTube.
16:07
Hit the join button on Spotify. Go to swingtradingthestockmarket.com. Now that I got that little plug out of the way. Going forward on this, he gave me three options of what he’s trading. He’s trading bigger position sizes, which doesn’t sound like to me based off of his email. He really wants to do that but he’s doing it so that he can trade and use hard stops.
16:26
I like the idea of using hard stops, but it might mean that you have to trade, you know, in a range that you can afford. Again, I don’t like going into $10 stocks. I always tell people, you know, I don’t think that trading under $10 is a good idea. Not that there can’t be a stock trading at 9.50 and it provides a good trade setup and you jump into it and it makes sense but just like kind of a rule of thumb, you know, I tend to just filter out all the stocks under $10. But that doesn’t mean stocks from $10 to $60, that there isn’t some really good opportunities out there because there is. He talked about using mental stops because if he’s trading fractional shares you can’t use a stop loss on those.
16:53
I mean, there’s people that use mental stops and they use it effectively, but they’re very disciplined in what they do. They understand the risks in it. It scares me with somebody that’s just starting off trading that if they incur a couple losses where they’re very disciplined with taking their stops. And then when they see the, because this is going to happen, you’re going to get into a trade. You’re going to get stopped on, you’re going to see it.
17:23
Go right back up and it’s going to frustrate you. You’re going to get upset. And then you’re going to say, they’re stealing my shares, somebody’s taking my shares. So then you start using mental stop losses. And so if you get in the stock at $100 a share, and it goes down to 95, and that’s where your mental stop is, you’re going to be like, okay, let’s just see if it bounces here, maybe it goes back up from here. Like it’s done in the past. And then all of a sudden, you find yourself it’s trading at 94. So now you got another one percent loss, that’s been tacked onto the trade and you’re thinking to yourself, if I can just get to 95, I will get out. No questions asked. Then it goes to 93, 92, 91. You’re just thinking to yourself what have I done. I’ve just blown this whole thing up. It sounds dramatic. It sounds like chaotic, but it happens. It happens to so many traders and it probably happens in a far more worse fashion than what I just laid out there for you. But that’s why I don’t like the mental stop losses.
17:58
Could I get away with doing mental stop losses? Not to like toot my own horn, but I’ve been doing it long enough to where I’m pretty confident I would be disciplined enough to take the stops. So yeah, I think I could do it. Do I do it? No, because I just don’t think it’s, you know, I want to stay as disciplined as I can in my trading at all times. So if I’m trading with a thousand dollar account and I’m wanting to put, you know, $120 on each trade, then what I’m going to do is I’m going to target stocks that are $60 or less and then I’ll take half out if I can get into a stock that, let’s say it’s $30.
18:39
If I can get into a trade that’s $30 a share. Then yeah. I’ll be open to taking quarter positions in terms of partial profits, but I’d definitely as a new trader would stay away from using mental stop losses because it’s just so easy to justify. I’m going to wait a little bit longer and then when you do that, you get your head handed to you.
18:57
Then finally, the last question he asked me, speaking of position sizes. You say that I usually use 8 to 12 percent sizes in your trades. Are you recalculating that percentage for each time you’re entering into a new position based off of the total portfolio, including unrealized gains and losses? So, essentially what he’s asking is like, do I recalculate it every time that my portfolio increases in value or decreases in value? Because if it goes, you know, from a hundred thousand dollars to
19:22
Gosh, I can’t hold on to a freaking pen at all in this episode, but if you go from like, let’s say, you’re using a hundred thousand dollar portfolio and it goes down to fifty thousand dollars and you’re trading, you know, twelve thousand dollars on each trade but now you’re all of a sudden got a fifty thousand dollar portfolio. Yeah, I mean that’s probably a reason to scale back and the position sizes.
19:42
Now if I go from a hundred thousand to a hundred and one thousand am I recalculating at that point? No. But when it starts to get significant like if I get to $110,000 I would probably recalculate at that point or $120,000. Yeah, so to answer his question in his example of a hundred thousand dollar portfolio, I would probably wait for like significant milestones to probably recalculate it. Some people may be different, they’ll probably have a spreadsheet and that’s fine too. I’m just telling you my personal preference. For me, I just usually do it after I reach milestones in my account and I recalculate it.
20:14
So it could be that I’m trading one trade at 12%. I have a really good winner and the next trade’s kind of like 11.9% position size and I’m okay with that. And with that being said, I’m going to wrap up this podcast episode. If you enjoyed this episode listening to it on Spotify or Apple, leave me a star review. If you liked it on YouTube, give me a like, subscribe to this channel. I appreciate you guys following and supporting me, it means the world. Send me your questions. ryan@shareplanner.com. I want to hear from you guys and want to know what you guys have to say. I will try to my very best to make a podcast episode out of it.
20:47
Most of them do turn into podcast episodes. So keep sending them to me. Make sure to check out swingtradingthestockmarket.com or go to YouTube and just click the join button down below and you can also get all my stock market research each and every day.
21:04
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21:21
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