Trading on Principle | Podcast Episode #434

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 shareplanner.com’s Swing Trading the Stock Market.

0:34
In today’s episode, I got a really interesting topic. Now it’s on the topic of trading off of your principles, off of your morals, maybe not even so much morals at times, because I think there can be differences in morals and principles.

0:47
So morals can be more like, you know, hey, I’m a married man, I’m not going to cheat on my wife. That would be a good moral principle to have. Or one might be, I’m a kid going to school.

1:03
I’m not going to cheat on my exams. That would be a good moral principle. But then there can be others that are just maybe not so much moral principles, but almost like principles based on philosophies.

1:13
For instance, I believe in a government that doesn’t spend more than it brings in, that runs a balance budget, that pays for its own bills that doesn’t, you know, that kind of stuff.

1:26
And I’m not honestly, I’m not trying to get political at all, but I’m trying to give you an understanding so that that would be more of like a philosophy or a belief, but maybe not so much a moral hazard.

1:36
Because if you believe that it’s OK for the government to spend above and beyond what it brings in, it doesn’t necessarily make you a bad person. Because pretty much every president has done that for as long as I can remember at least.

1:48
But not necessarily every U.S. President has been morally compromised as a result. So that can be more of a philosophy or a belief system.

1:53
So the reason why I bring all that up is because we’re going to talk about having principles with your trading. And is that a good thing?

2:01
And I’ll talk about the differences some in the philosophies versus moral principles as well. So today’s e-mail, golly, I’m, I’m already getting thick in the weeds here and I haven’t even read the e-mail yet.

2:14
So today’s e-mail comes from a guy. I don’t give away people’s real identities. I always come up with a good Florida redneck name because I’m from Florida and I’m a redneck.

2:23
So I give them a redneck name. Today’s is going to be Dirk. Dirk, not dirt as in like soil, but Dirk, Dirk and Dirk emails the show with the following the subject line.

2:37
I got to read the subject line. Usually I don’t even do that. Usually it’s just like question for the podcast or whatever, which is fine.

2:39
But this guy, he starts it off like it’s a storybook subject line.

2:47
Seeking advice when principal Trump’s profit in trading. I guess if you were doing it like a movie clip, right?

2:53
It’s like seeking advice when principals trump profit in trading. Find out this summer when one trader starts mounting up insurmountable losses when it comes to trading on principle. Kind of a holy guy. You can tell it’s a Friday evening that I’m doing this podcast. However, that’s the subject line seeking advice when principal Trump’s profit and trading.

3:18
And then he starts off with deer swing trading the stock market podcast team. That’s a big assumption there because really by team he means me who records it and then Mason who actually helps me do the editing on it. So it’s really a team of two. It it, there’s nothing special about it. But any case, not to get caught up in the weeds here, but he he writes.

3:38
Dirk, of course, writes. I’ve been an avid listener of your podcast for some time now, and I find myself in a situation where I desperately need your insight and advice. For the past year and a half, I have been consistently maintaining short positions in the market, driven by a conviction that a significant correction was imminent. Despite the markets continued upward trajectory through 2023 and into 2024, I’ve stubbornly held on to these positions.

4:00
Watch my losses mount with each passing week. What started as a trading system has morphed into a matter of principle for me. I find myself unable to close out these positions, not because I believe that there will ultimately be profitable, but because admitting defeat feels like a betrayal of my moral convictions. I know this isn’t rational.

4:21
I understand that the first rule of trading is to protect your capital and that the market can remain irrational longer than I can remain solvent. Yeah, I’ve definitely said that a bunch on this podcast. So he’s definitely a listener.

4:31
He goes on to say, yeah, I can’t seem to shake this need to be right, even as it is costing me dearly.

4:38
Getting long would be repulsive to me. Yikes.

4:42
My questions are for you. Have you encountered a similar situation in your trading career?

4:47
If so, how did you handle it? What strategies do you recommend for separating emotional attachments from trading decisions and your experience?

4:53
Is there ever a case where holding on to a long position on principle can be justified, or is this always a losing strategy?

4:59
How do you suggest I start rebuilding my trick in psychology after such a prolonged period of losses?

5:05
I’m at a crossroads where I need to decide whether to continue down this path of principal driven losses or to swallow my pride and to reassess my approach entirely.

5:09
Any guidance you could offer would be immensely appreciated.

5:17
Thank you for your time and the valuable insights you provide through your podcast. Sincerely Dirk guys, there’s a lot to unpack here.

5:25
Cool. OK, so he has four questions and I got, I got questions of my own, but I’m going to try and answer it.

5:31
So he says, have you ever encountered a similar situation?

5:35
This is his first question. Have you ever encountered a similar situation in your trading career?

5:39
If so, how did you handle it? Yes, I definitely have.

5:41
I think there was a time in my trading career, especially early on, I would go back to maybe 2006, 2007 where I felt like there was a need to want to be right to where I I needed to show people that I could be right. And you see a lot of that today, honestly.

5:56
You see it on Twitter, you see it on stocked with, I love stocked with, I love Twitter. How those things are free, I don’t know, but they’re the best site.

6:03
I love going to them. But you see a lot of it on those sites though, where people feel this need to be right.

6:10
I don’t get it. Trading isn’t about being right.

6:12
It’s about being profitable. I’ve been right before, but not profitable and I’ve been profitable when I’ve actually been wrong.

6:18
Does that make sense? Sometimes I was actually wrong about the trade, but it was like a a sudden blip.

6:23
Maybe there was a positive news piece in which I was able to get out of the trade on, on that momentum and then it quickly fell back down to earth and I would have taken a loss if I would have held it 5 minutes longer.

6:32
I’ve had this. So I was profitable, but I was really actually wrong on the trade.

6:35
And then there is times where I thought I was going to be right on the trade and I was ultimately right on the trade, but I got out before I actually saw that I was right originally when I got into the trade.

6:49
So I can be right and also be unprofitable, but be wrong and also be profitable. I know that sounds a little bit crazy, but it’s true.

6:56
And so there’s a lot of people on social media that want to be right. And I don’t think that they realize that being right and being profitable are two different things.

7:03
That really when we are trading, we are trying to be profitable.

7:12
And I think one of the big problems, and this is seen in his second question, which says, what strategies do you recommend for separating emotional attachments from trading decisions?

7:23
And that would be understanding that morals and your or convictions in your trading are probably the worst thing that you can hold onto. If you have this conviction that the market has to crash, that there’s no way that it can keep going up but you.

7:29
And so you keep shorting the market and the market keeps going up.

7:33
Market doesn’t care about your convictions. It doesn’t care about your morals.

7:37
Now there is a place for morals and trading. So like there’s a, for instance, like a company Rick, Rick and I don’t know a ton about it, but from what I understand about it is Rick, it’s like a lot of your strip clubs and all that stuff and adult entertainment.

7:51
But I don’t trade it just because it bothers me to do that because it’s something that there’s a lot of married men that go to these things and and they’re ruining their marriages and doing it.

7:59
And so the idea of me putting money into it, especially as a Christian, doesn’t bode well for me. But then there’s other people that could say, well, Ryan, you just swing traded TAP.

8:08
That would be most in Coors Brewing. Or there’s DraftKings which is gambling DKNG, or there’s MJ which is a cannabis ETF.

8:19
Honestly, here’s the thing. I think if it’s a moral hazard to you then then that’s probably something that you should listen to.

8:29
If it’s something that bothers your conscience, that’s something to be aware of.

8:29
But I do think there’s a difference between strip clubs and stuff ruining a marriage and setting a horrible precedent for your family versus investing in a beer company, which a beer in itself is not bad.

8:39
It’s drunkenness that can really wreck you and and ruin marriages.

8:43
Same thing with DraftKings. I mean, I play fantasy football.

8:45
If they told me this year that they were going to do a $10 pot for fantasy football, I’d throw $10 in it with no problem.

8:51
That’s an entertainment value. But if they said, hey, let’s throw $1000 into it and I was like, no, peace out.

8:55
I’m out of the league. And I’ve been in this league since like what, 2000, 2003 or so?

9:00
I mean, I’ve been in there a long time. These are people I went to college with.

9:03
But if they wanted to do that, no, then all of a sudden it becomes a little bit more of a moral hazard because I’m just gambling money away on something I know I’m not going to win.

9:10
I’ve been in the league the whole time and I have never won. And fantasy football, I suck at it.

9:14
And then there’s like MJ, right? And I’m not trying to explain things away here because if you’re on the opposite side of the fence saying, well, I think that’s a moral hazard, then then that’s fine.

9:20
But something like MJI would also be OK with because I do think that there is like medical uses for cannabis that can be beneficial, right?

9:30
Especially if you’re somebody’s on their deathbed and they’re suffering, it can be beneficial.

9:37
Do I think it’s great from a recreational standpoint? No, I think it, it kills brain cells.

9:41
So we can have moral convictions. But then there’s like philosophies, right?

9:46
Whether, you know, the market can go any higher, you know, from an economic philosophy, you can say there’s no way it can keep going higher.

9:53
Or people can have another one where it says, well, laissez faire economics suggests that it can go higher and that the Federal Reserve is proving that on a daily basis.

10:01
Now, what’s ironic is I’m doing this on a day where, or really on a week where the market is just absolutely been hammered.

10:09
So the guy that wrote me this e-mail, he might be like, I take it back. I I didn’t need to get out of anything.

10:14
So, but anyway, it’s too late. You already sent me the e-mail.

10:17
It’s a great e-mail, even though that the market is absolutely been train wrecked this week, even though two days prior it looked like the market was just going to go right back up to all time highs.

10:26
So it’s just been that kind of a wild trading week and I’m going back and forth between questions one and two here.

10:31
But when I first started trading, like I said, I I did feel a need to be right.

10:36
And usually that led to me being wrong. And the reason why is that I needed to have this need to be right above everybody else, to be right before anybody else.

10:45
So I would start trying to time market tops or I would try to time market bottoms when in the grand scheme of things, the money isn’t made by timing a market top, it’s responding to a market top.

10:50
The money isn’t made at market bottoms or by predicting a market bottom.

11:00
It is made by responding to a market bottom.

11:00
You see the difference, you may be trying to predict it, but it keeps going higher, so you’re going to lose money.

11:08
But when you see that the market top is in and it starts to drift lower and the charts are showing you that you’re responding to what the mark is already trying to show you the same thing with the bottoms.

11:20
Market can just keep on dropping longer than you would ever expect. And if you keep trying to catch the falling knife, you may be getting sliced to pieces in the process.

11:27
But if you wait until that falling knife is hit, until it lodges itself into a piece of wood, you might take on way too many unnecessary losses that you can never recover from.

11:33
So wait for the bottom to show itself.

11:39
Wait for it to be something that you can respond to from a trading standpoint. Let somebody else, I always tell people, let somebody else figure out where the top and the bottom is.

11:47
It’s definitely not a need for a trader to figure that out.

11:52
There’s plenty of people out there that are willing to take that bullet for you. You don’t need to be that person.

11:56
And it’s always the people too who have been calling it for the last 15 years. Oh, this is a market top.

12:01
This is a market top. And then when they finally get it, because they’ve been short the whole time, they’ll tell you, oh, I called the market top and then the media runs with it and everything else.

12:06
CNBC will put somebody on there. It’s like, oh, this person called the last five market recessions.

12:11
Well, that’s because during the last five market recessions and between all those recessions, they were still short the whole time.

12:17
Well, that’s because during the last five market recessions and between all those recessions, they were still short the whole time. OK, I can see this is going to be a loaded podcast episode here that I was just not expecting.

12:26
But before I go any further, swingtradingthestockmarket.com. Yes, check this out.

12:31
This is a link that will take you to all of my offerings that I offer on SharePlanner and with it you’re going to be able to get all my stock market research each and every day.

12:41
This includes daily watch lists. I review those watch lists at the end of the day and I provide at the beginning of each week a bullish and bearish set of stocks that I’m going to be creating my trade setups from.

12:49
So it’s really cool. Plus, on top of that, you’re going to be getting my big tech updates throughout the week and stock market updates and it’s all in video format.

13:00
So it’s really awesome. I explain everything and worth your time to check out.

13:05
And in the process you’re supporting the podcast. So swingtradingthestockmarket.com.

13:09
Here’s the other thing that I would I would want to remind somebody that’s trading on principles that feels like, hey, I’ve got to be right about this or hey, it violates my moral platitudes.

13:19
Is that the right expression? I think it is to not be short in this market right now.

13:24
And what I would tell them is that moral convictions and really what I think it is, is philosophies. I’ve already outlined, you know, staying away from certain stocks that they bother you or they trouble you from a standpoint of morality.

13:34
For instance, I’m a Christian, I’m a born again believer.

13:40
There’s some stocks that I won’t go near. Used to be able to trade Playboy.

13:44
I don’t think you can anymore, but back in the day you could. I wouldn’t do it, just not my cup of tea.

13:49
But when you’re trying to say, OK, the market should go down because of different economic philosophies that you have, you’re really trying to assert these philosophies into your technical analysis.

13:58
Because swing trading is about technicals, day trading is about technicals and momentum, right? I mean, so is swing trading.

14:03
Swing trading has a heavy component of momentum as well. So it’s really about the time frame that you’re looking at the two from.

14:09
So technicals and momentum. But if you start trying to put philosophy in there or you try to put fundamental analysis, that stuff may not be realized for years, may take forever for it to realize that.

14:15
And so if you’re trying to get it to recognize it in the immediate time frame that you buy the stock for a swing trading position that should only last you a few positions, you’re really fighting a losing battle because it may take years for it to unfold.

14:33
Look, if you would have told me that the debt that we have added as a country since 2008 until 2024 here would have only given us a recession like what we saw for five weeks in 2020 and the 2022 sell off, I would have been laughing at you.

14:46
Like there’s no way we’re at $35 trillion, it’s impossible.

14:51
But here we are. We’re at $35 trillion and the market’s not that far from all time highs.

14:56
In fact, it’s just gone absolutely bonkers.

15:03
So if I was trading based off of that saying, OK, there’s no way we can sustain this kind of debt, we’re going to go into hyperinflation, etcetera, then guess what?

15:11
I would have been losing a ton as a result of my moral convictions.

15:11
So I think here what Dirk is really struggling with is the fact that his philosophies, his principles do not align with the time frame in which he’s trading for.

15:21
Because swing trading is about technicals. It’s not about PE ratios or macroeconomics.

15:27
It’s really not. That stuff can lead the market tops and market bottoms that are tradable for us to react to.

15:34
But in order to say, OK, the market is going to respond negatively to this economic factor or this stock is going to start selling off because it’s too overvalued, let me just show you exhibit A NVIDIA.

15:45
That sucker’s pulling in more earnings from future years than any other stock probably that’s ever existed, at least in the large cap realm.

15:56
In your experience, is there ever a case we’re holding onto a losing position on principle can be justified? Or is this always a losing strategy?

16:00
Absolutely not. What are we trading for in the first place?

16:04
Are we trading to be profitable or are we trading to show our moral superiority? Let me tell you before I would waste my money on principle in the stock market, I would take that money that I’m pretty sure I’m going to lose by trading in such a manner.

16:17
And I would be giving it to the hungry kids in Africa or to an orphanage that desperately could use the funds, because that would be a much more principled approach to losing money.

16:26
At least at that point you’re helping some kids get some food on their table, and in the process you get the same tax deduction that you would from losing in the stock market.

16:36
So no, no loss on principle is justified.

16:45
It’s really a losing trading strategy. So you have to take that out.

16:48
And the final question, and this is pretty important. How do you suggest that I start rebuilding my trading psychology after such a prolonged period of losses?

16:57
One, turn off the news.

16:59
The news is probably not doing you any favors. If you were listening to the news, turn it off because I think there’s too many traders that have that on while they’re trading in the day.

17:04
I can’t have it on.

17:07
I don’t. If I have the TV on while I’m trading, it’s probably on Rambo, Rocky, or Star Wars because I don’t have to pay attention to those because I’ve seen them so many times.

17:13
Or Meet Joe Black.

17:17
I love that movie too. That’s kind of random, but that’s one of my favorite movies of all time.

17:21
But I’ll have it on those movies if they’re like on cable television or whatever, and I’ll just have them playing in the background because I can literally watch the movie without having to put my eyes on it.

17:30
I don’t know if that’s something to brag about or not.

17:33
Probably not, but some of you guys are in the same boat as me, so don’t act like you know you’re morally superior in that area.

17:40
But here’s my question that I would ask to this person. Are you expecting the market to make sense?

17:45
Because the market does not make sense most times, especially when you’re looking at it through a short term lens, the market does not make sense.

17:51
Just this past week, SPY. SPY had a heavy sell off on Tuesday and then it rallied at one point 115 points.

17:59
S&P 500, I should say, S&P 500 rallied like 115 points at one point during the day. The next day it gives up like 90 points and then the following day after that it drops over 140 points.

18:11
It’s not going to make sense guys.

18:13
Just on Wednesday, this thing was acting like it was going to all time highs. Now we’re talking recessions and 50 basis point rate cuts.

18:19
The market’s not going to make sense in the short term. So you can’t apply that to your trade.

18:24
So turn off the news, stop expecting it to make sense. And then the question that I would ask him in response to #4 would be, what would it mean to you if you went long and were profitable despite not believing in the reasons why you were going long?

18:32
Let’s say that you don’t think the stock market should go up, but you still go long on it anyways and you’re profitable. What would that mean to you?

18:44
Would you be upset by it?

18:46
I mean, if you ask me, I wouldn’t be upset by it.

18:49
No, absolutely not. Because in the end, my job, when I’m trading, my goal is to be profitable, not to take a stand.

18:57
And I think that’s where like the Wall Street Bets crowd gets it all wrong. They’re like, hey, we’re going to go jump into GameStop. We’re going to jump into Hertz, we’re going to jump into AMC and all these other crappy stocks.

19:10
And we’re going to get long on it because we’re going to stick it to the man.

19:16
Do they necessarily like GameStop? Most of them probably never even been in a GameStop in the last 10 years.

19:21
And if they’re gamers, they’re probably downloading all their games and violating their principles anyways.

19:28
But yet here we are. They’re like Citadel Citadel this Citadel that BlackRock or you know, they’re going after all these boogeymen, but in the end of the day, they’re trading on a principle that’s not a profitable trading strategy.

19:36
And honestly, all they’re doing is helping people like Roaring Kitty get out of their positions. They’re liquidating their positions through the crowd, through the retail traders.

19:45
So don’t look at short term trading as a stake to make a moral convictions, principles or philosophies because it’s really just based on technicals and momentum.

19:55
That’s what you’re trading. And then the other question I would ask is did the principles come into play after you started taking on losses as an excuse and why you were still holding on?

20:02
I know I’m kind of cutting deep with that question, but it’s still worth asking.

20:10
And I wouldn’t be doing you any justice if I didn’t ask that question. I’ll repeat it again.

20:14
Did principles come into play after the losses started to mount as an excuse to hold on and for justification for why you were holding on? Because if that’s the case, it was never a principal trade in the first place.

20:26
It was a hunch or a belief that the market was going to go down. And when it didn’t, you felt like that you needed to stand on your principles and stay in the trade even though you started mounting up losses because in the end, it really just was making you feel better about your losing positions.

20:40
So what would I recommend instead?

20:44
I would recommend you actually exploring a trading strategy, one that doesn’t allow you to violate your convictions, your moral convictions, your philosophies and to be able to benefit off of those.

20:55
But you have to do it in light of what the market’s doing.

20:57
So if the market’s going skyrocketing higher, but you’re not going to say, hey, I’m not going to go participate in the NVIDIA rally or the semiconductors rally, that’s fine.

21:05
It’s even actually kind of hard at times to participate in it because you got to take on so much enormous risk.

21:10
But I would encourage that person to explore trading strategies that might allow him to be long on the market when the market’s going higher and short on the market when the market’s going lower and to try to find that balance.

21:19
Maybe it means only trading in stocks or dividend stocks when the market’s going higher because you’re saying, well, you know what, I think the economy is going to crap, but people still need waste management.

21:29
Still, people need mayonnaise on their sandwich.

21:31
People still need Dow Chemical or I mean, there’s tons of stocks Costco, you can explore it from that avenue.

21:39
But I wouldn’t let moral principles keep you from managing the risk if and yes, I did slam the table to say, wait, I can’t even close out yet because I actually have Speaking of moral convictions, right, I have some whiskey here.

21:52
I made it old fashioned.

21:56
So I do, I don’t do these every episode, but you know, I try to do it on a semi regular basis, but I used to do a lot of whiskey reviews in my podcast as well.

22:04
And I’ve done so many of them. I got whiskey I just really need to get rid of at this point.

22:08
But what I’ve been doing with them now is just trying to make old fashioned to find out what old fashioned does best with which alcohol.

22:15
And so I usually use Evan Williams, and that’s always been pretty good to me. But now I want to explore with all the other bourbons that I have.

22:23
Is there one that works better than the others? So for this one, I’m using Traveler’s Whiskey and it’s a 90 proof whiskey.

22:29
It’s made by the Buffalo Trace Distillery. It’s a pretty new one too, if I understand it correctly. 90 proof, that’s 45% alcohol.

22:35
I get pessimistic about it just because I think that when it gets below 100 proof, it’s going to be too sweet.

22:41
And when I taste this one right now, it is definitely on the sweeter side. Now by itself, it’s got some unique flavors.

22:48
It’s got a strong licorice flavor, which kind of takes me to like a little bit of like a Southern Comfort flavor as well, which can be very polarizing.

22:57
But as an old fashioned, it definitely doesn’t work because it sweetens it up too much and it takes there’s not enough bite to overcome the sweetness.

23:05
So I think you almost have to just completely take out the simple syrup if you’re going to make it work.

23:11
On a scale of zero to 10, I’d probably give this like a 4.8 because I just don’t think that it works as an old fashioned.

23:16
Works great by itself, but not as an old fashioned. If you enjoyed this podcast episode and now I can close this out, please make sure to leave a 5 star review from whatever platform it is that you’re listening to it on and check out swingtradingthestockmarket.com.

23:30
But most importantly, send me your questions, send me your thoughts, send me the things that are troubling you as a trader. ryan@shareplanner.com.

23:37
I do read them. I’m the only person that reads these emails and I will keep you private and your identity.

23:43
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23:49
So do that. Thank you guys and God bless.

23:52
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24:00
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24:07
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24:14
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24:25
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