Blowing Up The Account | Podcast Episode #406

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.

0:16
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 in today’s episode.

0:36
Man, I kind of hate it because it’s a sadder episode. It’s not something that I feel necessarily good about talking about, but it’s one of those topics that when I have an opportunity to discuss it, it’s definitely worth not wasting that opportunity.

0:46
So got an e-mail from a guy, long term listener, and his emails have been a really good source of discussion on this show in the past. He’s always provided some really good questions and some unique questions that haven’t been discussed before.

1:00
And so I’ve always appreciated his perspective and his thoughts and the things that provoke him into emailing the show and asking a question.

1:08
So I got another e-mail from him today and I was thinking, OK, probably another good question here, but what was the question that I was hoping for?

1:15
It said, dear Ryan, this is the subject. Dear Ryan, my trading career is over.

1:21
And he writes, he says, hey Ryan, loyal listener here, wrote in many times before, and I’m sadly here to say that I’ve given up and withdrawn all the money from my account today.

1:28
The Trading Beyond Your Means episode that you did recently came out at a very appropriate time. I felt like you were talking to me.

1:35
I saw a buddy of mine turn $3000 into $13,000 in two months with options, and it gave me the itch to get rich quick. Kind of rhymes, he says.

1:46
I overleveraged myself on a bunch of trades, overtraded, and lost $17,000 in two weeks.

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This is after promising myself to follow my trading rules and stick to my plan for New Year’s resolution.

2:00
Needless to say, I did not stick to my plan for long. There is something about my personality that just doesn’t mix well with trading.

2:09
I get into this thing called the gambler’s mindset where if I lose, I can’t stop trading and I try to make my money back by overleveraging myself.

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It also makes me cut my trades early and panic sell just before the pop.

2:20
I’ve lost $50,000 over the course of four years in my trading career and came to the conclusion that I just don’t have what it takes.

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I’m getting a little emotional writing this because I really had the dreams of becoming a swing trader, but apparently I need new dreams now.

2:35
I have a newborn baby and a two-year-old to take care of, and I just can’t be losing money like this.

2:43
I think this has something to do with the fact that I’m good at business, and in business, the harder that you work and the more that you work, the more successful that you will be.

2:54
With trading, it’s the exact opposite. You need to do less to be successful and my brain just doesn’t work that way.

3:00
Thank you for everything that you have done for me and for others. You have taught me so much about trading and in turn taught me so much about myself.

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I wish all the success to everyone else out there listening. I know that if I was more disciplined and actually followed my rules, I could have been successful, but it just was not in the cards for me.

3:15
All the best to you and your family. I wish you many profitable years of trading ahead.

3:20
And that’s how the e-mail reads. I didn’t give him a redneck name because it does sadden me. I don’t want to make light of what he’s talking about there.

3:26
But this isn’t the first time that I’ve got an e-mail from somebody that’s blown up their account. I’ve seen them in the past and it always saddens me.

3:34
And I would say every time it comes back to discipline—discipline when you’re trading in the markets—because a lack of discipline will lead to this eventually.

3:46
Now, I do think it was accelerated some when he tried to keep up with the Joneses, per se. He saw a friend of his turn $3000 into $13,000.

3:55
He’s like, wow, you know, if I’m trading with $20,000 then maybe I can turn that into $80,000. And so he starts to aggressively trade and then he loses that money.

4:04
But up until that point, maybe he had turned his $20,000 since the beginning of the year into $21,000. He was up 5%. That’s a good thing.

4:11
He’s doing the right thing there. He’s not trying to overleverage himself. He stayed within his means. He’s not getting undisciplined.

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But when you’ve got the person next to you that’s making crazy amounts of money in terms of the return that he’s getting for what he’s risking, it’s hard not to take notice.

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And say, well maybe he’s on to something or maybe I could be doing what he’s doing and I would be making all this money.

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What we don’t know is the individual who turned $3000 into $13,000—what’s he going to be doing a month or two from now?

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Will that same trading strategy work for him? Probably not.

4:47
More than likely, the dude that turned $3000 into $13,000 will turn it into $0.00.

4:52
The reason why I say that is because the bigger the reward that you seek after, you’re also taking on a pretty significant risk as well.

5:00
So if I go into a trade and I’m saying, OK, I’m going to buy this stock, it’s crazy volatile.

5:07
It’s got like a beta of 10 or something. You know, let’s just say it’s just wildly volatile and I want to make 500% off the trade.

5:14
You think I’m going to do that with a three or a 4% stop loss?

5:17
No, that 3% gyration in the stock won’t even matter. It’ll probably be the spread on the bid and the ask.

5:23
But there’s so much that this guy talks about in this e-mail that I need to cover.

5:31
You know what, I’ll give him a name just because I don’t want to keep referring to him as the individual or that guy.

5:36
I’ll call him Sam. Sam’s a good name. I’ve never met a Sam that I didn’t like.

5:40
So Sam makes a lot of good points without realizing it. And one of the things that I would say is he overleveraged himself.

5:47
He saw somebody turn $3000 into $13,000 in two months and then he proceeded to lose $17,000 of his own money trying to replicate that guy in two weeks.

5:57
And he admits to overleveraging himself. Why did overleveraging lead to his demise really in trading?

6:03
That’s because your position size is so very important. I’ve done a bunch of podcast episodes on it.

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So if you aren’t familiar with position sizing, go and listen to those podcasts because position sizing is going to determine a lot of the emotions that you feel on the trade.

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If you’re trading everything that you have in one trade, do you think the emotions are going to be higher or lower than your emotions on a trade where you only have 10% of your portfolio in on that trade?

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It’s gonna be a whole lot more for the person who’s putting his entire portfolio into that position.

6:35
It’s gonna be a whole lot more, guys, a whole lot more. And it’s gonna be exponentially more emotions that you’re gonna feel.

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It’s not gonna be like, hey, if I double the size of my position, I’m gonna double the emotions.

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No, you’re probably gonna like 10X your emotions. You go full blast, you’re probably going to 100X your emotions.

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It’s exponentially more. And I think that’s what a lot of people don’t realize when it comes to trading.

6:59
They always feel that hey, you know what, I’ll be able to handle it. I can handle it.

7:02
It’s almost, and I see it probably more with men than I see it with women in terms of this discipline breakdown where I think it becomes more ego driven.

7:11
Like as guys we don’t like to admit that we’re all that emotional.

7:14
So when it comes to trading, we’re thinking to ourselves and we even fool ourselves. We’re not gonna get emotional.

7:20
I mean, back in the day before I got a handle on my position sizing, I used to break mouses and keyboards and everything else.

7:27
I mean, I have a closet full of broken keyboards. I keep them just because I thought one day I might make some wall art out of it, but I never have.

7:32
Anyways, your position size is going to largely dictate your emotions, and emotions will trump your discipline.

7:38
We want to be disciplined traders, but you can’t be a disciplined trader if you’re an emotional trader.

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If the emotions are running high, it’s far more likely that you’re going to ignore a stop loss, or you’re just going to double down, or you’re going to make some really bad trading decision.

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In essence, your discipline in the market is really only as good as your emotions and how you’re able to control them.

8:02
If your emotions are running wild, your discipline’s going to be horrible. And how do you control your emotions?

8:08
One of the best ways to control emotions is how much are you putting on each trade.

8:13
Like I said, if you put 100% of your portfolio on a single trade to where it is, let’s say you go like, out-of-the-money options, even expiring next month, yeah, your emotions are going to be wild.

8:24
You’re not going to be kind to your spouse. You’re probably going to be rough on your kids.

8:28
If you’re not married or without kids, then you’re probably going to be a difficult person to be around with your friends.

8:34
One of the things that I try to tell my kids, I always try to explain to them how important it is in terms of who you choose to hang out with.

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If you hang out with people who are making bad decisions, you’re more than likely going to make bad decisions with them.

8:48
If you’re hanging out with people who are making good decisions, you’re going to make usually the better decision because friends and people that we hang out with have a huge influence on us.

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If I look back in my life, the times that I was making good decisions, I was hanging around good people.

9:05
When I was making bad decisions, I was hanging around bad people.

9:10
As simple as that. And I have this expression that I say to them and I didn’t come up with it.

9:15
It was actually Charles Spurgeon, famous pastor. I read one time he had said bad company does a man real harm.

9:22
For if you lie down with dogs, you will get up with fleas.

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So I always tell the kids, it’s like you lie down with dogs, you’re going to get up with fleas.

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So don’t take lightly the people that you hang around with.

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I also think that some people have attributed it to Benjamin Franklin, that saying.

9:39
But nonetheless, why do I bring that up when it comes to trading?

9:43
It’s because in the same way, if we’re going to trade with large position sizes, don’t be surprised when your emotions become out of check.

9:50
Don’t be surprised when you can’t control them, and don’t be surprised when you can’t control your disciplines.

9:55
Don’t be surprised when you become a very undisciplined trader, because that’s what’s going to happen when you trade with too large a position sizes.

10:02
If you start getting greedy, your position sizes are going to get too large.

10:06
Your position sizes are going to be so large that you’re not going to be able to control your emotions.

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And as a result of not being able to control your emotions, your discipline is going to be horrendous.

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And that’s what’s happening here. That’s what happened here with Sam.

10:15
And also I’d like to take a moment to tell you about Swing Trading the Stock Market.

10:19
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10:23
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10:26
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10:41
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10:53
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10:57
So back to Sam and what he’s dealing with here.

11:01
Here’s the thing, it is very hard to come back from a situation like this. Very hard.

11:05
Because when you experience such loss, financial loss, you’ll say to yourself, I’m never touching that again.

11:10
And he even alluded to it.

11:12
He says, man, I wanted to become a good swing trader, but I’m just not cut out for it.

11:16
And so there’s a good chance he’ll never swing trade again.

11:18
Should he never swing trade again? I don’t know.

11:20
I mean, that’s really up to the person.

11:22
But many traders have been here before.

11:24
Many traders—you look at like Jesse Livermore, you look at so many other ones that became successful long term—had to blow out their accounts.

11:33
And they came back too because it was a passion of theirs.

11:36
I think of an experience that I had. Gosh, this is probably almost 20 years ago.

11:41
In any case, one of my friends—I’m not going to say his name—but he called me during the day and he’s like, Ryan we got to get in on this real estate boom.

11:49
Now get this, this was before the 2008 bust.

11:52
And he’s like, I found a good property. Holy cow, this property was not that great.

12:00
But at the time, property prices were soaring and yeah, you kind of could justify, yeah, I could see where maybe we could build a house.

12:06
We’ll build a spec house. We knew some people that would let us build the house under them.

12:10
So we’re essentially like the general contractors of it. We’re hiring all of our own people and everything.

12:14
First off, the house took forever to build.

12:16
We did a lot of the grunt work ourselves, a lot of sweat equity that we put into the house.

12:21
I think at the end of the day we had like $275,000 into this house.

12:24
It was split between three people, and I think we sold the house for about $200,000 at the end.

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So we each took a $25,000 loss.

12:32
To this day—now did it sink me? No.

12:36
At the time, that was painful. That was very painful, but I still feel it.

12:41
And to this day I’ve never bought a house outside of the house that I currently live in.

12:45
I moved about three years ago and when I did I sold the other house.

12:48
Probably would have been a good rental house, but I sold it and I bought a new house.

12:52
We moved into that, but to this day, outside of my main home that I live in, I have not felt comfortable investing in real estate.

13:00
I don’t even really like REITs and it doesn’t really have anything to do with that, but it’s just that I don’t really like to trade it.

13:06
I feel like it’s almost—not necessarily cursed—but I don’t have the confidence to buy and sell homes or to rent them out.

13:13
I really don’t want to deal with tenants, and after that experience, I never came back.

13:18
Now, if I had sold that house for a profit—even maybe if it was a tiny profit—I probably would have done it again after 2008.

13:25
I could have scooped up some houses, right? I mean, a lot of people could.

13:29
I think we all look back on 2008, man, I wish I would have bought like 10 homes or something.

13:33
That would have made the difference for life.

13:36
But at the time, there was a lot of fear.

13:38
A lot of people had been experiencing losses. There was a lot of short sales. There was a lot of foreclosures and nobody wanted to do it.

13:44
And then if you were on the wrong side of a real estate investment, last thing you were probably looking at doing in 2008, 2009 was, hey, let’s go buy another spec home.

13:53
So just like it’s been hard for me to go back to want to make an investment in a piece of property, I can see where it’s going to be hard here for Sam to want to come back from trading stocks.

14:03
And I hope that if he does that, he emails me so I can make a podcast episode of it because I think it could be a really cool episode.

14:09
But I’m not necessarily encouraging him. He has to want to do that at some point.

14:13
But many traders have been here before, and it’s usually the idea that you’ve experienced what it feels like—and it’s a horrible, horrible feeling—experienced what it feels like to blow up an account.

14:22
I’ve blown up an account before. We’ve talked about it in the past.

14:25
But knowing that feeling, knowing what it was like when you saw all that money disappear from the dot-com bubble, it taught me that I had to manage the risk.

14:33
Otherwise, it doesn’t matter what kind of run-up we have in a market.

14:36
If I can’t manage the risk, I’m bound to lose it all at the first major sell-off.

14:41
A lot of people had that happen to them in 2022, and that wasn’t even close to what we saw in 2008 or during the dot-com bubble.

14:47
But oftentimes, some of the best traders come from extreme loss, taking it on the chin in the stock market, feeling what it’s like to lose a ton of money in the stock market.

14:56
You also end up learning how fallible you are as a person.

15:00
How much money can control your emotions. How much money can lead you to ruin.

15:06
And those aren’t bad lessons to learn.

15:08
It stinks that oftentimes it has to come at the expense of massive loss.

15:13
But I would say that I have learned more about myself trading stocks in terms of how I can be fearful, how I can be greedy, how I perceive money, the handling of money, as a result of trading the stock market.

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Because if you don’t get a handle on it, you’re bound to have some heavy losses if you don’t get a handle on your discipline.

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And the only way you can do that is by understanding your emotions that drive you.

15:37
And the best way to be able to manage your emotions is to not be putting yourselves in situations where you’re having extremely wide stop losses or huge position sizes or you’re doubling down or tripling down, not setting limits, not managing your trade and having a plan for your trade before you ever get into the trade.

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Those are the kind of things that you got to have in place in order to be successful at trading in the stock market.

16:03
Those are the kind of things that you got to have in place in order to be successful at trading in the stock market.

16:09
So as I wrap this up, remember position sizes guys, that’s one of the key elements here and especially for Sam.

16:16
Position sizes is going to control your emotions and the emotions are going to determine whether or not you’re able to be disciplined in the stock market.

16:24
And like I tell my kids, you lie down with dogs, expect to get up with fleas.

16:29
And then the same way, if you take some really crazy positions, if you trade without discipline and you trade with emotions that are just running rampant, don’t expect to have good results.

16:38
These things are hard to come by.

16:41
Told you about my whole real estate example and how it was difficult for me to come back from that, and I’ve yet to even ever buy a spec house or another piece of property.

16:49
Ever. Doesn’t mean I won’t, but I haven’t yet.

16:52
But for those who do come back, particularly with the stock market, ’cause that’s what I really know, it has given them a better appreciation for risk management and how fallible you are.

17:03
If you enjoyed this podcast episode, and I hope you did, consider leaving me a five star review on whatever platform that you listen to me on.

17:10
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17:16
Probably should have said them first.

17:18
And check out swingtradingthestockmarket.com.

17:21
Also, just like Sam here, explained to me how difficult of a time it’s been losing the amount of money that he’s lost.

17:27
I want to hear your stories as well.

17:29
Maybe it’s a story of success, maybe it’s a story of frustration.

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Or similar to Sam, it’s a story of extreme loss.

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I want to hear about it because there’s a lot that we can learn from you and there’s a lot that perhaps you can learn from me in terms of what I might perceive as the problem.

17:42
So send me your stories. ryan@shareplanner.com. Thank you and God bless.

17:50
Thanks for listening to my podcast Swing Trading the Stock Market.

17:53
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17:59
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18:07
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18:13
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18:20
If you have any questions, please feel free to email me at ryan@shareplanner.com.

18:23
All the best to you and I look forward to trading with you soon.