Position Sizing Exploring The Risks Of Having Too Many Swing Trades Open At Once | Podcast Episode #39

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 in and out of a complex ever-changing stock market. You will learn to trade better trait smarter and profit bigger.

0:26
Now, let’s go trade. Hey, This is Ryan. Mallory, doing another podcast with you here today and I want to speak to you guys about position sizing. How do you approach position sizing in the stock market? Should you be 100% long when you’re bullish?

0:43
Should you be 100% short when your bearish? Should you be completely out of the market when you’re not quite sure where the markets actually going? Those are good questions. I feel like that for most Traders, it’s one of those extremes to wear on bullish. So I need to be 100% or more.

1:00
Maybe even two hundred percent in them, you know, going into margin to the long side and the opposite end of the spectrum, you know, when your bearish. Yeah let’s go ahead and get super bearish and put all the chips in the middle and make the bet that this markets going to support a huge sell-off.

1:19
Now, I don’t, I don’t subscribe to either of Those beliefs. I think that you have to test the water. There’s an old saying that says, if you test the water with both feet, you go straight to the bottom. I believe that you test the water a little bit. You don’t just go pylon positions.

1:35
There’s so many days and I would say, even most days where there’s so many more trades that I would have liked to have made that I didn’t make. And in hindsight, I wish I would have made it, but it when you’re in the moment, you’re not sure where that markets always going to go with a hundred percent certainty. So, what I do is I, I like to build my positions in my portfolio up through time not right in the exact moment where I feel like I should be super long so it’s okay to have a portfolio that’s not 100% bullish or 100% bearish.

2:08
It’s okay to even have a mixed portfolio. Let’s say maybe your 60/40 or 70/30 in One Direction or the other. That’s okay too. Because what you want to do is make it okay to wear if your Wrong on the markets direction and you have a whole bunch of positions that you’re not going to get creamed for it.

2:27
And so often early on in my career it was either a super right or super wrong and you don’t want to do that. Because what happens is, those losses are so much harder to make up from. So what I like to do is is that I like to build up my positions through time.

2:44
So that when the market does turn on me, I’m not just taking losses on my Capital. If there is a pullback, I’m taking a little A bit less profit instead. So what I’m trying to say there is that I’ll Build You Up one position. Let’s say, I have a portfolio for Simplicity sake of $100, and I had a position to it, and it goes, my portfolio value goes up to 110.

3:06
And and while I’m still riding that, that one trade, I add a couple more traits and and those two trades combined, with the first one, gives me about 30 dollars in profits. Well then all of a sudden, the market pulls back. And instead of giving back my original capital, I’m given Some of that $30 that I made.

3:24
So it might only be like $15 that I walk away from but I’m still walking away with profits. Now at $100, let’s take the example again and give you a more negative scenario. Let’s say I have a portfolio and again, for Simplicity sake. It’s, it’s $100 value.

3:40
And I think that this Market is going to go straight through the roof. And so, I take all $100 and invested in ten positions of ten dollars each. Now, in the original example, I I gave you, I gave you one position at $10 and then I added a couple more positions at ten dollars each to.

3:58
So I was really only like 30 percent capitalized, right? But in this situation I’m very bullish and I want to put all $100 to work right out of the gate. So what do I do? Well, I find myself to And Trades that I like, I go ahead and buy them and then I sit back and watch the market support my belief that it’s going higher.

4:19
But then it doesn’t, it doesn’t do it at all. And what happens is that all of a sudden, those positions, they go down. Let’s say 20% each and now all of a sudden I only have a portfolio that’s worth. $80.

4:36
Now, had I had done that one, one position at a time thing that I told you about in the very beginning. Well, that that one position would have taken a loss and then I would only be down to Dollars in a hundred dollar portfolio. So like I would still have 98 dollars.

4:52
That’s a big difference than only being left with $80 and then in order to get from 80 back to 100, I have to increase my portfolios value by 25% even though I only lost 80%, that’s how math works. Works on losses, you have to actually make more back in order to make up for those losses.

5:09
So, yeah, the way I the first example I describe it’s not super sexy or anything. It’s not exciting, it’s not adrenaline-pumping, but over the long term, having that kind of approach where you’re scaling into your positions. Over time as they become profitable, is such a better approach to the market.

5:25
And that’s the reason why for me for the longest time. Now I consistently and profitable month after month because I don’t I don’t wager everything on what I think the it’s going to do or not going to do. I don’t trust myself enough, right? And if I’ve been doing this for a long time, and if you’re new to this, and you’re trying to trust your instincts, or trust your analysis, let me tell you, man.

5:47
You’re going to lose a lot of money in the stock market at some point. And it’s not going to be very painful and for those who just got done, you know, licking their wounds from, October through December, yet you lost a lot of money. And I’m willing to bet that a lot of you had heavy positions on, because you felt like that the Mark was going to keep going higher and higher and higher, and that you’re just going to keep making more and more money.

6:09
And then you see a 20% decline off of the highs. That was quite a shock to the system for a lot of people. And in that 20%, pull back in the market wasn’t wasn’t equal among all the stocks and when you had stocks that were losing 50 and 60 percent during that time, and if you were long and you weren’t using stop losses or using any risk management, then?

6:27
Yeah, you got hammered for me. Me, I didn’t have a lot of positions on towards that top end there and so when the market did pull back, I made that money back and I was able to get short on the market and actually make some profits to the downside. So, You want to build up your portfolio over time.

6:47
And let me tell you this having good solid executed trades and managing them appropriately. As far better than any kind of aggressive trading approach that you could ever take on because aggressive trading is going to cause you to take unnecessary amounts of risk versus looking for the trades and the right opportunity with the market.

7:06
And, and basically willing to take trades at the markets willing to give you is going to result in a far, far greater return for your We’re fully over the long term and I know that Everybody Wants To Be A Millionaire tomorrow. I mean, if you saw some of the emails that I get from people, you would realize that they’ll subscribe to the swing trading Trading Block, right?

7:26
And, and I don’t get a lot of people that unsubscribe from it, but I but every once in a while I do, and some of these things that people will say is like well I don’t feel like in fact yesterday, I got one from somebody saying that. I feel like that I should be twenty or thirty percent this month right now and you’re only up.

7:44
A few percentage points this month. Well, I don’t know what to tell you. I mean, the thing is, is that okay? Yeah, I could, I could do that. In hindsight I could have done 20 30 percent But I would have had to have been so incredibly aggressive in the face of incredibly.

8:00
Over an incredibly overbought Market situation that the risk is not worth that kind of reward instead where I’m going to be making my prophets, throughout the course of the year. Throughout the course of a lifetime, is being consistently. Right on the right side, the market, whether it’s the short side or to the long side, but that’s why a month after month, on profitable is because I’m building up my portfolio over time when the market pulls back and I’m like, I’m on the wrong side of the market for that. take you lured a well then it’s not going to take a lot for me to get back on the right side of the market for me to not take on a multi-day or multi-week losses here to where I’m just, you know, Taking a beating at the hands of the market.

8:40
No, instead, I’m constantly able to adjust and shift to the sentiments of the market and I’m not getting overly aggressive unless the market allows me to get more overly aggressive. So let’s, let’s say that over time, I can build up a portfolio, it’s using 10% person position.

8:56
I can build a portfolio that allows me to get 100% long. I welcome that. Okay. But it’s going to take a very solid Market in order to do that. And it’s some positions that really stay on over the long term in order for that to be be accomplished. But if I get 100% long at some point in the future, it’s going to be because there’s a lot of profits that I’m sitting on along the way.

9:15
So that the market does have a two or three percent correction one day, I’m not giving up near the Lion’s, Share of my profits. And so remember, when you take on big positions, you’re setting yourself up for big mistakes. You’re setting yourself up for big losses. I mean, you see it with hedge funds all the time.

9:32
They blow up, why? Because they take too big of positions. You can’t take those bigger positions. You can’t take positions that are going to wipe you out instead if you build up your profits if you build up your Capital over time. Okay. If you take a hit it’s not going to wipe you out.

9:48
It’s not going to make the your – for you. It’s not going to even make the month probably – for you but you have to Be willing to steadily, increase your portfolio in the direction of the markets going. But not all at one moment. Because when you do it at one moment, you risk, incredible emotion.

10:05
You put at risk, incredible amounts of capital that at a moment’s notice. The market sells off, you’re going to lose a lot of money. And then, of course, you put the emotions back into it. So don’t do that build through a trend build through a market sentiment.

10:20
And and then when you get into bearish markets look, you don’t have to get 100% A short. I rarely get more than fifty percent short and a bear Market. Why? Because the Snapback rally is so extreme typically. And we saw that in late December that you can have an 11:00 Point rally one day.

10:38
Now, right now while we’ve been going higher for the last eight weeks, are we going to see an 11:00 Point rally here? No. No, that happens at bottoms of markets after Extreme selling. So when you see the extreme selling in a bear Market, don’t don’t go Full Tilt and get Two percent sure on the market.

10:55
Because if you’re caught on the wrong side, it is going to be an absolutely awful day of trading for you because 11:00 Point rally on the Dow or you know 100 and plus Point rally on the S&P 500, that’s that’s nothing that you want to be caught short on.

11:14
So and as always, it’s kind of like Bob Barker at the Enterprises, right? He’s a stoploss always use a stopwatch use hard stops. They do save you quite a bit of money over the long term. They keep your emotions out of it. Yes they stink at times because like even today I got stopped out of emn right I was as long as I got stuffed out for like a point eight percent loss, okay?

11:31
The loss isn’t a big deal but it’s what sometimes you feel. You will see what the market especially when there’s a lot of debt buying involved you get hit in the early morning and it goes right back up. Then happened to me today but that’s okay though, because I’m protecting If it’s along the way, that’s going to be it for today.

11:47
If you have any questions, feel free to email me ryan@shareplanner.com q and God bless. Thanks for listening to this week’s podcast That Swing trading with Ryan Mallory. I’d like to encourage you to join me in the SharePlanner Trading Block where I navigate the financial markets every day with Traders from around the world.

12:07
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12:33
If you have any questions, please feel free to email me ryan@shareplanner.com or call the office at 321-522-6733 all the best to you and God bless.