How Much Money Should You Put On A Trade | Podcast Episode #62

0:07
Learn to trade stocks successfully. Learn to profit consistently. I’m Ryan Mallory and on my weekly podcast I’m going to teach you the ins and outs of a complex, ever changing stock market. You will learn to trade better, trade smarter, and profit bigger.

0:26
Now let’s go trade everybody, this is Ryan Mallory swing trading the stock market. Let’s do another episode today, shall we? I do it every week. So I guess it’s kind of become expected, right? Every Wednesday, I usually drop a new podcast for those who are tuning in for the first time, talk about things about the stock market.

0:46
You know what I keep saying? I’m going to get get some guests on here pick their brains because I think that would actually be pretty good too for people to actually hear from Other traders besides myself got a number of people who want to be on the show. I think it’s just really me so far that that’s really not done a very good job of of getting that going.

1:05
I think a lot of it’s just the technology. I got to research it, you know, I don’t know, you know when two people are in different locations, how do you do the podcast towards? Pretty seamless, pretty easy to do. Any case I’m going to figure all that out and and I got a I got a pretty good list of people who I would enjoy having on the show talking to them and everything else.

1:24
I think it would be really good. Like I said, to hear from somebody besides just me about trading successful traders, I think would be a definite solid for this podcast in particular. But today I want to talk about how much you should allocate to your trades, how much you should allocate on each particular trade.

1:43
I get this question probably. I would say this is probably the most frequently asked question that I get via e-mail, chat, direct message on Twitter in the chat room, e-mail, you name it. I get this question all the time and I’ve talked a lot about it and and podcasts in the past.

2:01
But I want to kind of dedicate another episode just to this topic here because I do think it helps a lot of people with just as a refresher, because I want you allocate to a trade really gets you in a lot of trouble if you don’t do it right. What I usually get in the question is how much money do you allocate per each trade?

2:18
Like dollars. Like, do I put 10,000, Do I put 100,000? Do I put $1 billion on a single trade? No, I don’t. I don’t even have that much. I wish I might be doing something different than a podcast. I don’t know, maybe I’d still be doing a podcast if I had a billion dollars.

2:34
I kind of enjoy this. I enjoy the feedback hearing from people you know how it impacts. So probably still do the podcast, but no, I don’t. I don’t trade a billion dollars on a trade. It’d be nice. I don’t trade $1,000,000. But in any case, how much, how much do I trade for trade? And the other one is how much?

2:50
What percentage wise and people who are being a little bit more modest will say how much percentage wise do you allocate to each trade? That’s usually the better way to go rather than asking me how much I put on a single trade from a dollar standpoint. But both questions really, it’s, it’s a deeply personal question really, because when they ask me, they’re they’re looking for my insight because they want to take what I’m doing and apply it to their own trade.

3:14
But really, it’s deep. It’s deeply personal. It’s about what you can handle. It’s about what you can do. So if I say I put 10% on a trade, well that might just be for that account, right? It doesn’t take into account that I might have four or five other accounts, ones for longterm investing, ones for day trading, ones for 4X Bitcoin, whatever.

3:30
I don’t have that many accounts. But I’m just saying though, I mean, you can have it. So, I mean, people ask me, you know, how much do you allocate for trade? I mean, I could say 10%, I could say 20%, but that doesn’t really mean anything because it’s not really taken into account the entire picture of the person, whether I say a percentage or a dollar amount.

3:47
It really doesn’t help the person to ask me that because it’s not going to help them in the long term. If you try to copy, just based off of what I do, I don’t think that’s a good approach. My personal belief has always been you should trade what you’re comfortable with.

4:03
If you’re trading 10%, you’re not comfortable with it. You shouldn’t be trading 10%. Maybe consider 5% for trade. If if 10% you just don’t take it serious enough then maybe up it to 20%. There’s there’s a balance there that you got to find as a trader and and then until you find that I don’t. I don’t think you’re going to find that that sweet spot in terms of return that you’re looking to get from the market because you don’t want to be too lacks a day school and you don’t want to be too stressed out and fearful of of what you’re doing with your trades.

4:28
So you have to trade what is comfortable to you. If you’re up, you know, in the middle of the night checking futures because you’re stressing about what what the markets going to do because of the position sizes that you’ve taken on. That could be a problem. If you’re 120% margin, yeah, that’s that’s a lot of positions and that’s over allocation.

4:45
If you’re 120% long, yeah, a lot of people do it, love people, love the margin that you got. Those, you know, scammy prop trading firms all over in the Caribbean and everything else where people will put down $5000 so that they can get $25,000 in addition to that 5000.

5:03
So they can be above the pattern day trading rule dude. I mean if you lose $5000, it’s not going to be spread out, you know, you know, $1000 between you and and the 4000 being taken off of the 25,000 that you were loaned.

5:21
It is not going to happen that way. You’re going to lose all $5000. They’re going to still keep the original investment. Don’t fall for these prop firms. These prop firms are dangerous. I used to get hit up all the time by these prop firms and I’m not going to say any names. I don’t even know if they’re still in business even for they’re probably not. They’ve probably been busted up by whatever you know, agency that that smoked them out or whatever.

5:41
But they always ask me, oh, we can give you a dollar per trade that every customer you send us you’ll get a dollar for every time they make a trade or you know, they see SharePlanner or they see I have a subscription service, they went in on it, man.

5:57
I’m not doing that. I’m not going to, I’m not going to just not. I mean, it’s scammy. It’s not right. It’s not good. It’s not it’s not how you earn the trust of the people that that come to your website to be trying to stick them into a brokerage firm, a prop firm, really not.

6:14
I don’t even consider them a brokerage. They’re they’re offshore there’s they’re scams. But anyways they used to hit me up all the time and they give people these like crazy allocations that that’s what they’re proposed to do and and then they want me to like try to convince people who come to share pointer to sign up for them on the back end.

6:31
They would like want to give me a few bucks for every trade. I’m not doing that. I’m never going to do it. I’ve never have done it and I never will because it it’s taking advantage of people. I mean people are coming into these proffers because they want to get past the day trading rule or they want to believe that okay, if I put $10,000 down, they’re going to give me another 90,000 to go with it.

6:52
I can trade and I can keep all the profits and as they they see themselves, you know, grow in the account by 30% by the end of the year, 130. And all of a sudden, oh great, I just grew my own personal account from 10,000 to $40,000 because I used the 90,000 that they gave me to make a 30% return on the market.

7:10
And boom guys, that that that’s crazy talk right there. You can’t trade like that. That is so over leveraged. Your emotions are going to be shot. They they will not function if you do that. Nobody makes it in those prop firms. All they’re doing is just trying to get, you know a new crop of people so they can blow out their their accounts too.

7:31
They know. They know those people aren’t going to trade with them forever. They’re just trying to blow out their accounts. That’s all they’re trying to do. So stay away from the prop firms. And the reason why I bring it up is because it’s a great way to over leverage yourself to allocate too much money to a single trade because you’re using other people’s money and they’re not going to be the ones that lose their money first, You are going to be the one to lose your money first.

7:51
My next point that I would say about position sizes is that position size cannot create emotion for you. It cannot be an emotional thing when I make a trade. If I make a trade in something like shop, which by the way, just to toot my own horn, close that sucker out today.

8:10
I think I bought it at like 357, closed it out at 399.1% trade today. I liked it. OK, just give me that moment to just kind of toot my own horn a little bit here. But I did. I enjoyed that track I got. I still have Twitter in the portfolio. I think it’s up about 4%. Starbucks, which isn’t done Jack squat for me yet and that’s it.

8:28
I got 2 trades right now and a lot of that has to do with what what I’m comfortable with from an emotional standpoint because if I start adding four or five, six more positions to the portfolio, this market, it’s not in a good situation right now. Yeah, We’ve rallied this week and at the tail end of last week and it looks like all is going to be fine going forward, or so it appears just today.

8:50
But you got a guy on a on a cell phone that’s tweeting things out and you got Jackson Hole on Friday and you got headline risk with North Korea and you got trade wars with China and you have recessions with Germany. And there’s a lot of stuff that can go wrong between now and the time that the market opens up tomorrow morning.

9:06
And I’m taking my gains. I booked them. I know that for August where the markets down, I’m up. That’s a good thing. So the reason why I’m not in a lot more trades right now is because I know that it’s it’s not ideal for me and my emotional disposition.

9:23
It doesn’t mean that I have emotional problems. It’s just being in touch with the my understanding of how I react in certain unpredictable scenarios where I feel like okay, I’m not going to add more positions to My Portfolio. Now I got one trade that’s very profitable currently not not called shop, it’s Twitter.

9:41
And then I also have Starbucks, which is like slightly down right now, not much. And I’m comfortable with that. If we tank tomorrow, Okay, I’ll give back some profits probably in Twitter. Starbucks, I don’t know, it’s been bucking the trend lately, kind of like your McDonald’s and your chipotle’s and so forth.

9:58
So there’s a chance that it could actually used to be flat or slightly lower or even possibly in the green. I don’t know. You know, it depends on what, where the money goes for a safe haven. Starbucks is a good one for that. But that’s what I’m comfortable with right now. My, my position size equals what I’m emotionally capable of handling and that’s what you have to do when you’re trading.

10:17
So if it means that you’re putting $10,000 on a single trade or 10% on a single trade or maybe it’s $20,000 on a single trade or 5% on a trade, whether you’re looking at it from dollars, percentage standpoint, it has to be a position of what you’re comfortable with, what you’re okay with handling.

10:34
Now I think you should probably look at it from more of a percentage standpoint because it gives you the fuller picture of your overall portfolio. But you can do the same thing from a dollar amount. If you have a $20,000 portfolio and you’re comfortable with putting $4000 on each trade, that’s great. That’s really good.

10:50
I mean I, I, I I’m not going to have any issues with with your approach there. I think it’s all about what you’re comfortable with as a trader. And if you let’s say $20,000 is all you have to your name, then maybe $4000 isn’t the right thing. Maybe trading with $20,000 isn’t the right thing either.

11:07
But if you have $100,000 to your name and you have an account that has 20,000 in it and you’re then you’re probably okay trading $4000 on a single trade. So again, it has to be a situation to where the position size that you choose isn’t going to be a very emotionally stressful thing for you.

11:28
So when you trade, trade for balance, don’t put all your money into one sector, you know and and this isn’t quite like about talking about capital allocation, but I do think it is kind of in that same regard because you’re choosing how much that you’re going to put in specific sector.

11:52
The software stocks, the semiconductors, your Internet companies, they can go on some terrific runs. Just look at shop right? Or Twitter. However, I can’t put all my money in that sector. I mean, you could have a sector downgrade, you could just have a huge event with Apple that drags all of all of the tech sector down.

12:11
So in that same note, just as much as you want to choose the percentage of money that you allocate to a specific stock, you also want to be careful about how much money you allocate to a specific sector paying for some balance here. You know, maybe, maybe you are top heavy on technology and that’s not the worst thing in the world.

12:28
To have more of an emphasis on technology, that’s fine. You know, maybe maybe it’s 30% technology, 20% discretionary, 25% staples and another 25% healthcare okay, that’s fine you’re you’re a little bit more top heavy in the technology or maybe it’s even 50%.

12:46
But don’t do 100% and time is your friend. You don’t have to go from zero to 100 in your allocation if you’re 100% cash because you just got stopped out then and then you wait for the market to bottom and you think it’s bottomed and then all of a sudden once it does bottom, you decide okay, I put 10% of my capital on each trade.

13:04
I’m going 10 positions long right now. You don’t have to do that. Just maybe maybe test the water with two or three positions if you need to see how those respond. If they do well in the market, acts like it wants to keep on rallying, then add another position. That’s what I did. That’s what I did here recently here in the month of August, you know, the market started showing signs of bottoming.

13:22
I covered my short position. I went long on shot. I didn’t add anything else after that. And then the next day I added some Twitter okay and they’ve been doing good. And then I’ve added some Starbucks. Starbucks has just not done anything yet. But and then I didn’t add anything today because I wanted to give my, my, my trades a little bit of room.

13:39
The market seems like it’s more in a choppy pattern right now where it doesn’t know if it wants to completely break out or go back down to the downside. So I’m like I’m going to hold off. I’m going to let the market show me what it wants to do first before I. So I’m using time as my friend. I’m going to let the market show me what it wants to do before I start adding more exposure.

13:57
Finally, I’d say this too and we’ve, we’ve touched on it a little bit, you know whether to base your position sizes off of a specific dollar amount or a percentage of that of your portfolio. But I would also say this too is that you want to think less about the dollar and more about the trade.

14:13
If you’re in the middle of a trade and it’s going up and all you’re thinking about is the dollars or the OR the money that you’re making on that trade, you’re probably not trading with the right approach. But if you’re thinking about the trade itself, then you’re doing fine. Like for me, I’ll go back to shop today, made 9% off of it, right?

14:30
As if you didn’t know that already. Because I’ve kind of been actually to my horn more about Shop today than I really thought I would. I mean, I don’t want to come across as too braggadocious, but I guess I am. But anyways, the manner in which I handled SHOP Shop today, it wasn’t because I was looking at the dollars and I said, oh man, I’ve made a lot of money off of this trade.

14:53
I’m going to go ahead and book the gains. No, I didn’t. I was looking at it more from a trade standpoint. I was noticing that it was getting extended beyond the Bollinger Bands. The market was kind of on the upper end of a trading range. I said to myself, okay, 9%, it’s a good profit.

15:09
I’ve blown out the risk reward that I took on the trade. It also needs to probably pull back some because it is overbought. It’s outside of the Bollinger Bands. This is probably a good time to go ahead and book the gains and see where it wants to go after the trade. Just to wrap this all up, okay how much we allocate to our trade.

15:27
It has nothing to do with what I do from a percentage standpoint or a dollar standpoint. It has to be something that you were comfortable with, that your position size doesn’t create an emotional distress for you, that it doesn’t create anxiety or keep you up in the middle of the night checking futures.

15:46
You want to aim for some balance and you got to remember that time is your friend. And if you think about the dollar rather than the trade itself, then you probably are not trading the right amount of capital for your trade. You probably need a lessen at some so it becomes less of an emotional experience for you that’s going to do it for today.

16:05
I I actually highly encourage you to check out the SharePlanner splash zone swing swing training. Splash zone. It’s a great community of traders. I talk about it in everyone in my podcast, pretty much. I know. But look I’d be remiss if I didn’t because I really think that it can do you a good favor and you’re you’re trading endeavors to make you a better trader to trade side by side with somebody that that that does this for a living.

16:23
I mean this is this is my my living right here. I’m a fulltime trader. I do this every day, rarely take a day off. I probably should take more time off, but I’m not. I thought maybe about taking some time off over to for Labor Day weekend, but I decided against doing that. Going to trade through the rest of this month, probably through the whole rest of year, so you know, not take too many days off in between.

16:45
But in any case, I’m there every day and there’s a great community of traders, man. They got each other’s back. We’re always asking questions. I ask people questions in the chat room all the time. There’s people with different strengths and abilities, people who have a have a penchant for longterm investing and have a better understanding on the macro conditions of the economy versus versus what somebody might have with a specific skill set of a particular industry or a particular stock.

17:07
It’s just a really good, really good community. I mean, there’s just a huge hodgepodge of of collective strengths and abilities that that you’re really missing out on by not being a part of the swing trading splash zone. So go to shareplanner.com back slash splash zone. And actually somebody actually told me the other day that it’s not back slash, it’s just slash.

17:25
So I’ll do it both ways. I’ll do it www.shareplanner.com/trading-block. And I don’t know, maybe I sound like an ignoramus for doing this, but I really don’t know if it’s back slash or slash, but I’m just going to say slash, slash, splash zone. And it’s a little bit of a tongue twister too because you’re trying to say share pointer.com/slash zone.

17:45
I don’t know, maybe it’s just me, but I kind of think it’s a little bit of a tongue twister. But you get it. Now hopefully it sticks in your head and that you try out. It’s a free seven day trial. You really don’t have anything to miss out on. Check it out, see if you like like it, see if it’s a good place for you. I think it is. I think it’s awesome.

18:01
I’ve made some really good friends and lasting friendships in there and I hope you can check it out. Thank you. Take care and God bless.

18:19
Thanks for listening to this week’s podcast of swing trading with Ryan Mallory. I’d like to encourage you to join me in the SharePlanner splash zone where I navigate the financial markets every day with traders from around the world.

18:19
With your membership, you’ll get a seven day trial, access to my trading room, and text and e-mail alerts. So go ahead and sign up by going to shareplanner.com back slash Splash Zone. That’s www.shareplanner.com/trading-block back slash slash zone and follow me at SharePlanner on Twitter and on SharePlanner’s Facebook page where I provide unique market and trading ideas every day.

18:45
If you have any questions, please feel free to e-mail me ryan@shareplanner.com or call the office at 321-522-6733. All the best to you and God bless.