What’s a Good Return? | Podcast Episode #409

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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.

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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.

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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 comes

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from a guy who in the trading block, he was asking me the other day about returns in the market, like what’s a standard return that a really good trader should seek after?

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And it was one of those questions where I didn’t necessarily wanted to to write it out. I wanted to make a podcast after it because I one, I think a lot of people have that questions like

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what should I be aiming for in terms of return per year? And so today’s episode comes from a guy, we’re going to call him Homer for a good Florida redneck

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name, even though it’s a little bit more Simpsonish than it is redneckish. But any case, I’m from Florida.

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We have some crazy stuff that goes on down here and I’m embracing it. So give him the guy the name Homer Homer writes.

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Hey, Ryan, I would like to hear about your thoughts on returns per year for a great swing trader in the stock market.

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I saw if you’re making 40% per year, you are considered one of the best traders around. Is that true or is it much higher?

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Assuming that they are not trading penny stocks, of course, and discipline trading with proper risk management.

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Sincerely, Homer. Well, he didn’t actually, but it was just a post, but he didn’t actually say sincerely.

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But I’m going to say sincerely anyways because I wanted to just reference Homer again. Any case, if you go to my website and it’s blazoned on multiple pages on shareplanner.com, there’s

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three points that I highlight with trading. One is plan your trade #2 is manage your risk and #3 let the profits take care of themselves.

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That is really my mantra when it comes to trading. All I care about is managing the trade.

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I plan it out, then I manage it, and if I do it right, the profits will take care of themselves. Now, that doesn’t mean that you only manage your trade when you have a sell off to the downside.

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I saw that a guy criticized me indirectly for these three points. He’s like, oh, if you’re going to say let the profits take care of themselves, then you’re

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essentially saying you don’t have to manage the profits. And that’s not what I’m saying.

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Managing risk is managing risk regardless if you’re in the red or if you’re in the green. I actually think that it’s harder to manage the risk on a winning trade than it is on a losing trade

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because on the losing trade you already have it preset where you’re going to get out. When you’re making money on the trade that’s going to change.

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You don’t want to loosen it. You don’t want to expand how far down you’re willing to let a stock to go or reverse against you.

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But on a winning trade, you have to raise that stop loss something. You have to take profit.

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So it’s actually harder to manage the risk on a winning trade than it is on a losing trade. But you know, the guy was like essentially mocking me and saying, oh, I can’t believe somebody would

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say let the profits take care of themselves. No, profits take care of themselves because you’re managing the risk whether you’re winning or losing on the trade.

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So with that being said, what is a good return?

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In this particular question, Homer was saying he’s heard 40%. If you can do that year in, year out, you’re making a great return and also you’re a great trader.

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I would say yes, you’re making a great return and you are a great trader. The problem is, is do people consistently make 40% every single year?

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By and large, no. Returns are going to fluctuate on a year to year basis.

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I think one of the biggest mistakes and we’ll get into it more, is that traders go into each year saying this is how much money I want to make by the end of the year I want to make this kind of

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return. I got $100,000 in the market and I want to make $40,000 on it and I wanna have a 40% return.

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But that can be a real disaster in the making without even realizing it. And now there’s other people out there and you’ll find them all over the place on Twitter.

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They’ll say, oh, I had a 4000% return. 40%’s peanuts. But let’s humor them a little bit and, and just say, OK, you had a 4000% return.

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Are you making a 4000% regularly or was it a one off event? Cause more than likely if you’re making like 4000% in a year in the stock market, you were taking an

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incredible risk that did pay off, but it was an incredible risk that could have gone incredibly bad. And it’s very unlikely because we as traders will have losing trades that if you’re aiming for crazy

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returns that you’re not going to eventually blow up your account entirely. Let’s say you had 4000% returns for 10 years, you were running a very risky trading strategy, but

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for 10 years you got it. But then on the 11th year you blew up your account.

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What does it matter what you did the 1st 10 years? If you blew it all up in the the 11th year?

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It doesn’t matter at all. Trading and being successful is 1.

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Staying in the game. That’s like baseline.

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What is necessary to be a successful trader #2 is managing the risk. And when you do that, the profits will take care of themselves.

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And the reason why I say it in that order and why I say profits will take care of themselves is because far too often when it comes to trading, we just focus on the profits.

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We think that what we’re trying to do is make profits. No, Swing trading requires that you manage the risk that you manage the trade.

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And so a 40%, yes, it is a good return. Yes, it would make you a great trader.

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But is it attainable to say every single year I’m going to make 40% regardless, regardless if it’s 2018, regardless if it’s 2022, regardless if it’s 2008 or 1999, 2002, 1001, 2002, 2003.

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The issue here is setting a benchmark saying that you have to get this or you’re not successful. Are you not successful if you make 39 or 38% that somehow are you coming up short?

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Let’s say the market was only up 15% that year, but you made 38%. Would that not have been a successful trading year?

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I would say it would’ve been an amazing trader year, but if you set a benchmark for 40%, it’s not. Now here’s a good one.

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Let’s say the market’s down 30% on a given year and you make 5% on the year. Was that a good year?

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5% might not seem like much. I mean, right now you can get 5% from U.S.

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Treasuries, but I would say it was a successful year. You did a good job, market’s selling off.

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You found a way to make money in 2022, market was down over 20%. I was up over 20%, didn’t make 40%.

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Was that necessarily a bad year? No, it was a great year.

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I loved that year. And that was 2022, a year where the market was selling off yet still able to make a profit.

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And something else I would tell you to do is check out swingtradingthestockmarket.com. Yes, this is my companion to the podcast.

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swingtradingthestockmarket.com will take you to SharePlanner where you can choose from three different plans.

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But for the purposes of this podcast, swingtradingthestockmarket.com will give you all of my stock market research each and every day.

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That’s going to include bullish and bearish watch list that’s sent out each Sunday night of the stocks that I find that are bullish versus bearish.

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Also gonna get daily watch lists, plus later that day a watch list review of how the watch list did and and my thoughts on each one of those.

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Also, you’re gonna get big tech updates on all the biggest ones like Meta, Amazon, Apple, Netflix, Google, Microsoft, Tesla, NVIDIA, and you’re going to get stock market updates as well on the SPY,

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the VIX, the Russell 2000, NASDAQ 100 and some other stuff. So really good value.

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Check it out. You’re supporting the podcast in the process.

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Now getting back to Homer.

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How different is it setting a yearly goal versus what you’ve probably heard me talk about in other podcasts?

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And that is avoiding the spreadsheet mentality where, and this is something that a lot of new traders do, they’ll get into trading, they get up like 5 or 6%.

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They’ve had a few good trades.

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They start to feel like they are a natural at it and really good at trading, perhaps a prodigy.

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And the first thing they start doing is creating a spreadsheet saying, OK, if this is what I do on every trade going forward, if I make an average of 5% on every single trade, I’m going to be a millionaire by noon tomorrow.

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That’s a little bit of an exaggeration, but that’s what people do though.

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They create these spreadsheets trying to show how rich they’re going to be at some point down the road.

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And really when we’re setting a target goal for what we want to do in the given year, that’s kind of like a subset of creating a spreadsheet saying how rich they want to be in so many years by making this kind of return on the market per every trade that they take.

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So setting a goal for 40% in a given year when you have no idea what the year’s going to hold is a is a bad idea.

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And, and let me give you a couple examples here.

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What if the first six months of the year you find yourself up 40%?

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You just, you hit it out of the park. You had a couple of stocks you weren’t expecting, they doubled or tripled and you had a couple of

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other really good winners.

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And you find yourself up 40% halfway through the year.

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Do you stop or do you keep going?

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Maybe you keep going and the second-half of the year is really bad.

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You have some really bad trades and all of a sudden you find yourself only up 10% on the year.

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Or maybe you could see yourself up 80 or 120% on the year.

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But what do you do?

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Do you stop trading or do you keep on going?

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You blew past your target.

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You keep on trading, but if you start to drop back down and let’s say you go in the, over the course of the next six months, you go from 40% to 50%.

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Now you’re feeling really good.

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You’re like, man, I’m blowing past my goals.

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But then all of a sudden you have a drawdown and you find yourself only up 30%.

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What are you gonna do?

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Are you gonna start acting like you might do on an individual trade where you’re not being disciplined with your trade setups and all of a sudden you’re trying to get back up to 40 by doubling down on losing trades because you can’t take any more losing trades because you don’t want to eat into your existing profits?

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Mentally, it’s not a good thing because you’re setting an objective that the market could care less about.

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Here’s another scenario that I would present to you.

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What if you are up 35% on the year and you have one week to go before the calendar year is over?

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It’s late December, celebrated Christmas, you’re in the slow part of the trading year, Family wants you to go somewhere.

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You’re like, Nah, I’m behind in my goals here.

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I got to go. I got to go trade.

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I’m at 35% on the year.

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Market’s only up 17% on the year, but I got to get to my 40% or it’s a failure.

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So what do you do?

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Are you going to start pressing your trades at that point?

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Are you going to start saying I got to do whatever it takes to get myself to 40% and at risk of blowing up all of the progress that you’ve made over the like last 11.9 months?

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Is that really what we want to do?

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Because you’re setting a target.

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If you don’t meet that, you fell short of your goals.

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So are you gonna start pressing those trades at the end of the year even though you’ve had a great year staying disciplined, or you’re gonna enjoy the final week off because, you know, your family’s asking you to spend some time with them and everything else?

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The reason why I bring up these two different scenarios is because they’re completely opposite of each other, but they both represent a breakdown and discipline.

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What got you to a certain place was not worrying necessarily about the 40% because you were on the journey, you were experiencing it along the way.

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And then once you get to the target or once time’s about to run out in achieving that target, are you going to start becoming undisciplined in your trading?

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And if you’re not, then are you OK with not achieving your target?

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Do you see what I’m trying to say here?

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There’s like this circular logic that can really mess with your mind some.

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Now, one of the things that a lot of people like to ask me on almost every trade that I take, what’s your target price for this?

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And I’ll call it a target price, but it’s not really a target price because what I’m using say a quote UN quote target price.

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What I’m really looking at is where’s the potential for this stock to go before it runs into any major resistance.

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That’s why I come up with a reward to risk ratio. Once I’m in the stock, I could care less about the target price.

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I don’t even know what the target price is after I get into the stock because it doesn’t matter. What I’m worried about is managing the risk, not about whether or not the stock gets to the target

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price or not. The target price is what I use to justify whether or not I’m going to get into the trade.

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Once I get into the trade, market doesn’t care about my target price. It’s going to do what it wants with the stock and I have to respond accordingly.

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If it goes way beyond the target price, that’s great. I probably won’t even know it.

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If it falls short of the target price, that’s fine too. It there was a reason for me to go ahead and get out before it ever reached the target price.

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So what’s the alternative to setting goals for the market? When I came into 2024, did not have a goal.

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When I came into 23, did not have a goal. 2022, didn’t have a goal.

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What is the objective then as a trader in terms of what we hope to achieve?

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I’ll tell you, it’s to take what the market gives you just to take it. You go back to football, OK.

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I love using football illustrations because I, I like football a lot. I played it growing up, would have been in the NFL if it wasn’t for such and such injury.

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No, no, not one of those guys. But I was a six foot nothing guy that weighed $1.40 in high school.

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There was no potential for me. But talking about football here, one of the great quarterbacks of all time, and I do OK, Dan

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Marino’s the greatest quarterback of all time. I know 99% of you will disagree with me on that, but in terms of pure passing he was.

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But in terms of probably the greatest quarterback of all time based off the Super Bowl wins and just absolutely doing so much with so little.

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Tom Brady. OK, Tom Brady, one of the things I remember, especially with the Wes Welker years when he that was

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he had Randy Moss and Wes Welker. I pretty sure they played on the team together, but Wes Welker often times would get way more

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receptions, a ton more receptions than Randy Moss because they would be out there double covering Randy Moss as he was trying to go along.

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He was running the fly patterns. He was trying to go for a touchdown almost every time.

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And often times he did score touchdowns. But Wes Welker is the person who kept the drive alive.

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He was the one that was running down the line of scrimmage and picking up A2 yard pass and turning it into six or seven yards and he would pick up over 100 catches per season on a regular basis.

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Wes Welker was really good. He kept the drives alive.

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If Wes Welker and his receptions represented trades, he was consistently profiting in the stock market and as a wide receiver, he was consistently picking up yardage.

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Randy Moss. Yes, you might hit some home runs by throwing to Randy Moss and one of the best wide receivers of

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all time, but what was Tom Brady likely to connect with more Wes Welker or Randy Moss?

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Probably Wes Welker because he was running shallower routes and he was consistently getting open and

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able to turn, you know, a couple yards into 7 or 8 yards, keep the drive alive on 1/3 and five, he would give you 7.

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Randy Moss probably would be triple covered. So often times Tom Brady was falling back on Wes Welker because that was what the defense was giving

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him. Defense wasn’t willing to always give him a 60 yard touchdown pass to Randy Moss, but when it came

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to Wes Welker, they were willing to get beaten by Wes Welker by giving up that six or seven yard pass because they were too afraid of giving up that 60 or 70 yard touchdown.

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So Tom Brady was taking what the defense was giving him. And in the same way as traders, we have to be willing to take what the market gives us.

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Some years when you add up all the trades, it may be 40% that you make on the market.

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Other times it might only be 10% or 20%.

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But we have to be willing to take what the market gives us and hopefully we hone our craft every year to be able to take more and more of what the market gives us.

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Because yes, every trader will tell you they left something on the table each trading year.

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If I would have done this one a little bit better, oh man, I, I went through this bad phase where I was hopping out of trades far too quickly.

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If I would just give them a little bit more time, stuck to my plans a little bit more, I would have done much better.

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Yes, we leave points out on the field and to use another football term.

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So as traders, we have to continue to hone our craft to be able to maximize what we take from the market.

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But what we don’t want to do is act like we have to come away with 40% every single year.

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Sometimes it might be 60 or 70%, sometimes it might be only 10%.

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But guess what?

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The market went down 20%.

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That’s a pretty darn good year.

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So think about that.

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If you enjoyed the podcast, if you enjoyed this episode, make sure to leave a five star review with whatever platform that you’re listening on.

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And also check out swingtradingthestockmarket.com.

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I also want to hear about your questions.

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I want to know what’s bothering you as a trader, what you want to get better at.

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If you have any questions, please feel free to e-mail me at ryanshareplanner.com. All the best to you and I look forward to trading with you soon.