How To Recover From Extreme Trading Losses | Podcast Episode #338

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.

0:33
In today’s episode, we’re going to talk about recovering from extreme losses, a lot of you guys, you find this podcast, or you find this YouTube channel, because you’ve experienced a lot of extreme hardships and your own personal trading. And as a result, you’re trying to find a way to make up those losses. And I think that’s really the wrong mindset to have trying to get back the money that you lost.

0:53
And I know that sounds crazy because what’s the other option, you just keep losing money? No. But there’s a different frame of mind that you got to have when it comes to trading and it’s not about getting revenge on the markets or recovering the losses from Bad trades that you had in the past. So today’s email comes from, a person, we’re just going to call her Lady X.

1:09
She signed it X gonna call her Lady X. So, any case, Lady X writes, hi Ryan. I enjoy listening to your podcast has been very informative. I wish I could have come across your podcast and the early days of my trading, I started trading during the pandemic and late 2020. I got into crypto and gained eight thousand from my initial investment of fifteen thousand dollars.

1:29
I just followed analyst comments on my trading platform that I used. I was not familiar with the stop losses, but I am now my crypto assets though. Ended up dropping from 1,000 to one hundred dollars. Before I learned about stop losses, my initial 23,000 dropped to 10,000.

1:46
Is there any hope, still, for me, what would be the best approach? Given? I have very little left from each of my six crypto trades. Thanks, Lady X. Now. Good question, there’s a lot to unpack there because I think so much of what’s going on here as a mental thing, but it’s also a preparation aspect going into each of your trades.

2:05
How do you recover from extreme trading losses? Now extreme is a very relative term because for some people they start off with two thousand dollars and they lose a thousand dollars of it and that’s considered, you know, extreme in their eyes. Whereas somebody else might start off and they’re making, you know, ten thousand dollars on each trade and they lose a thousand dollars on a trade or lose 10% on their trade and that might not seem as extreme to them.

2:28
It’s probably a very bad trade but it’s not extreme or it may be that, you know, a stop loss of 45 percent results in a thousand dollar loss. The point is that extreme trading losses is a very relative term. It fluctuates from person to person but what you want to think about is that it’s not about recovering the losses.

2:47
It’s about beginning again, starting again coming at it with a new approach, a more disciplined approach, a more methodical approach, you can’t look at trading with every future trade that you take as like, I got to get my money back. Yes. At some point if you manage the risk and you can get yourself in a good profitable trades manage the risks wisely then yes, those profits do get recovered over time, but that can’t be your thought process.

3:11
You can’t be looking at every trade as I need to get this money back from this next trade or from these next couple of Trades because the very strong likelihood is you’re not going to get it back from that particular trade, and if you just focus on trying to get your money back, you’re going to make worse trading decisions, you’ll start doubling down.

3:28
You’ll start getting more desperate because your mindset is only on getting the money back that you lost. But it’s not like your money’s just floating out there somewhere waiting. Waiting to be recaptured, waiting to be brought back home into your bank account. It’s gone. It’s in somebody else’s bank account. It’s been transferred from your bad trading decisions into somebody else’s bank account.

3:46
Who made a better trading decision. Maybe it was a lucky trading decision but it still had a better outcome. So you have to look at it from where you’re at and beginning again looking at each new trade as an opportunity to improve your capital from where you were previously at. We look at trading when we’re starting off and we in this particular instance you started off a 15,000 and that’s point A and then she added eight thousand dollars to it.

4:11
She got all the way up to 23,000 that’s your point B and then she lost 13,000 dollars, taken her all the way back down to ten thousand dollars. That’s her Point C. And so when you get to Point C with a nasty red loss, what you’re trying to do is get back to point B.

4:29
That’s what people are thinking that they’re I’ve got to make that money back. That’s going from point C to point B. But when you get to that point where you’ve taken on some heavy losses and you’ve had extreme losses in your trading and you realize that what you’re doing is not working and this wrong and that you need to change. Then all of a sudden you have your point A, your back at Point A trying to get to point B and point B.

4:50
Being the increased, the gradual increase of your profits over time by making good consistent trades from one trade to the next always managing the risk taking profits along the way. But if you’re stuck on being at Point C, trying to get back to point B, you won’t get there. You have to begin again.

5:06
You have to see yourself at Point A trying to increase your profits over time, not worrying about what the point B was before. You’re trying to get to a new point B, you’re trying to build that ten thousand dollar account. Now, not the 23 thousand dollar account that it once was it’s now ten thousand that is your point.

5:23
A also something that I think that helps all Traders out is swingtradingthestockmarket.com, it’s available on YouTube. It’s also available by going to swingtradingthestockmarket.com. If you want to access it through YouTube, you can just click the join button down below via Spotify or any of the podcast platforms. Check out swingtradingthestockmarket.com, you are going to get all of my market research each and every day that’s going to include updates on all the indices, the big tech stocks that are just running wild right now in the market.

5:47
Plus, you’re also going to get my weekly bullish and bearish master watch list, updates and daily watch list. The stocks that I’m looking at each day for potential trades. Lots of videos really good stuff. Check it out. You’re also supporting this guests in the process. So the next question, once we realized that it’s not about recovering losses.

6:06
It’s about beginning again, starting where you’re at making better trading decisions, then we have to ask us, what is our Y in trading? Why do we trade? Why are we trying to make that next trade? What are we in it for? Is it for the hype? Is it for the fomo for the fear of missing out? Is it for all the rage? Because that’s what you’re seeing on the news.

6:23
Lady X talked about how she was making her trading decisions, based off of what the analysts were saying on TV, based on what she was seeing on the internet. Well, I hate to break it to you. These people, they don’t have your best interest at heart when they’re going on the television. They’re talking about a particular stock.

6:38
They’re not telling you about that stock, because they want you to make money from it. No, nobody goes on there and says, hey, I’m going to tell you all about these trades. I got these really good trade ideas because I want everybody out there to make money. These blowhards that go on cable news networks at night and tries to tell you to buy buy buy or sell sell sell.

6:54
They don’t care about you, they care about the ratings, they care about how well their portfolio is going to do as a result of trying to recommend it, they’re pumping. Yes. And I know I have things that I sell on my website as well, but at least I’m telling you, this is what I’m giving it to you for there is the a general understanding that says, I’m giving you my research, I’m giving you all my analysis.

7:12
I’m giving you my different trade ideas that I come up with, and return for a set amount of money. But not these people on CNBC, they try to act like these great kind-hearted people that really want to see you do well. And the reality is, they don’t, they really don’t care, they don’t care. If your portfolio does great or it does horrible.

7:30
They’re going home and they’re going to eat at that five-star restaurant later that night without a care in the world for how good or how bad that you’re doing. So when you’re following these people, they don’t have your best interest at heart. They don’t care how well you do. And so it would make sense that we don’t follow those kinds of people.

7:47
But the why in our trading, the hype, the rage, the fomo fear of missing out, the fear that this is the big new thing, and I’m not going to have a piece of it. Like, what we’re seeing with AI right now, what we saw before with the metaverse, what we saw before with web three and what we’ve seen before with NFTs and crypto. Why do people get into it in such massive numbers because they’re so afraid that they are going to be the only ones that don’t make money from it and that’s stupid because in the end, it’s not about the hype.

8:17
It’s not about the fomo what we really need to be meticulous about is ignoring that kind of stuff and focusing on good risk management on looking for quality trade setups that follow a strong reward at a risk that is manageable for us.

8:33
So, once we figure out the why then we had to have the plan, how are we going to get there? How are we going to make a meaningful move over time from point A to point B? That’s got to be including taking profits along the way and the profits are going to be far more than the risk that we take on or the losses that we incur along the way, because there will be losses, you can’t go into it and thinking that I’m not going to have losing trades because you will guaranteed it.

8:56
At least 50% of the time if you’re lucky. So how are we going to do that? Should be a huge focus for us. How are we going to make sure that the risk is being minimized? If we hold on to these trades until they completely blow up. Why are we even trading? Because those blown up trades are going to make it where you have no shot at success.

9:14
So you got to take them quick, you’ve got to take them fast and you got to take them before they get out of hand, the losses cannot be uncontrolled. Now, on the flip side, the profits have to be controlled as well, but you want to give them as much room, as much opportunity to run.

9:29
So one of the best ways to do it because here’s what the big fear is for a lot of traders, they get into a trade at $100. It goes up to $120 and they take profits at 120 and they see it go to 200. That’s the big fear and that happens that’s going to happen when you get out of a trade, it doesn’t matter to the stock, whether you’re in it anymore.

9:45
What it’s going to do is it’s going to go up or it’s going to go down over time, it doesn’t have to validate the fact that we got out of the trade, so it needs to tank now. Instead, what we want to do is try to maximize the most out of every move that we get into. One of the best ways to do that is through taking partial profits along the way.

10:05
If I’m getting into a trade and then I’m just getting completely out of the trade at this particular point in time. There’s a very good chance I’m not going to be maximizing my rewards along the way. So what I do is I take partial profits, you can take a quarter percent, you can take a third percent, you can take a half percent, but what it does is it’s taking risk off the table.

10:23
Allowing you to let that stock continue to run as far as it possibly can. And then yes there’s going to be a pullback at some time and you’re going to get stopped out. Almost every trade ends with bitterness. In fact that even a good trade when you get out it’s like man, I hate having to be out of that trade.

10:40
You’re almost going to have like a separation anxiety when you get out of some of your trades because they’ve been good, so good. You, you hate to wake up the next day and that stock not being in your portfolio because you’ve been married to that stock.

10:59
And so you’re putting yourself in a bad position to where because it’s way outside your risk tolerance, you’re not going to follow a stop loss because you can’t afford to take that kind of a loss on a trade. So you need to know it. For some people like myself, I like to target trades that are about three to five percent stop losses.

11:17
Sometimes I might even scoot it up a little bit beyond five percent, but that’s an area where I’m comfortable with. I don’t do 10% and I don’t do 15% stop losses because my risk tolerance doesn’t allow for it. And based off of my style of trading, it doesn’t allow me to have a good reward risk ratio either.

11:33
So then we’ve talked about the why, we’ve talked about the plan, what are the expectations, what are the expectations? Because I would say with Lady X, the expectation is I want to get back to twenty three thousand dollars from ten thousand dollars in my account right now. Is that the right expectation? No, because we just talked about, we can’t look at going from point C back to point B.

12:00
Retracing, we got to look at point A and we’re trying to move forward now to a new point B, to a new opportunities of consistent profit building and minimizing the losses. Is the expectation for your trading riches? Because a lot of people get into it because they want to get rich.

12:16
I get hit up all the time from people that I might have known in high school or somebody that I knew in college and they’re like, hey, I wanted some good stock picks. Well, why do they want the good stock picks as if I’m like a, you know, a genie in a bottle here, that can just, you know, grant you three stock pick wishes. Why do they do it?

12:38
Because they want to get rich. They want a big payday, they feel like that there’s like some kind of like magic to this kind of stuff and there’s not, it’s just risk management. And what’s the other thing? Lifestyle. People want a different lifestyle. They want a bigger home, better car, fancier clothes, of course. I mean, I don’t really care too much about the clothes considering you know, I’m wearing one of these Costco shirts pretty much on every one of my podcast episodes and a pretty worn out hat.

12:54
I don’t care about that, but yeah, I like nice cars, I like a nice house, sure, but my trading can’t be based on that. Once you start to lose sight of the expectation, what is the expectation for me? Mine is consistent profit taking, going from one trade to the next without blowing up the account, with keeping the risk tight at all times.

13:10
And yes, I do believe that my account will grow over time as a result of doing that, and it does. But if my expectation is to get rich or to have some kind of lavish lifestyle, that is funded by this. Well, then all of a sudden, my focus is on something different than making trades. My expectation is the lifestyle that it creates or the riches that you hope that comes your way, but that can’t be it because then we’re not going to trade well.

13:33
And so, when we find out the why and we figure out the plan and we figure out what is our expectation, then we have a focus and that focus becomes not about the money, not about the riches, not about the lifestyle. Not about fancy clothes. But it becomes about the trade, it becomes about the process because trading is a process.

13:49
You buy stock ABC then the next trade’s DEF. The next trade after that GHI. And yes, I’m just going down the alphabet there. But what I want you to understand is that trading is about going from one trade to the next. Who cares about what three or four letters are associated with the symbol.

14:10
What we’re following is the technical analysis behind the trade, the opportunities, the reward, the risk, what is going on with the sectors that it’s trading in and the industries that it’s trading in. Using a top-down trading strategy. We want to be focused on one trade to the next. Not trying to meet a bill. Not trying to focus on the lifestyle that it might create for us.

14:32
We don’t want to be chasing into the hype in the fomo. We want to focus on the process one-for-one trade to the next. Not letting the losing trades ruin us, keeping those losing trades less than meaningful, because they’re not impacting the bottom line.

14:49
That’s what we want to do in our trading and if we do go through a drawdown, we want those drawdowns to be shallow and drawdowns do happen. But they have to be shallow drawdowns. We can’t be so reckless where trades where we’re taking on ten to fifteen percent losses on just tons and tons of trades or we’re just letting all of our losing trades just continue to run wild against us.

15:07
No, we got to keep the risk tight. We got to keep it minimal and we got to focus on taking that next trade managing the risk maximizing the profits. If you enjoyed this podcast, and I hope that you did, make sure to like and subscribe to my YouTube channel.

15:24
And if you’re listening to it on Spotify or on Apple podcast, make sure to leave a five star review. I really do appreciate those, they do mean a lot to me. So make sure to check out swingtradingthestockmarket.com. If you have any questions that you want to include on this podcast, send me an e-mail ryan@shareplanner.com. I do read the emails, I promise you. I do. They go right to my inbox. I read them. I try to make podcast episodes out of every one of them.

15:52
So do that. Check out swingtradingthestockmarket.com or just click join below. Thank you guys. And God bless. Thanks for listening to my podcast. Swing Trading the Stock Market. I 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.

16:17
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 and Instagram and Facebook where I provide unique market and trading information every day. 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.