Trading Against Hope | Podcast Episode #44

0:00
Hey everybody, this is Ryan Mallory with my Swing Trading the Stock Market podcast. Today, we’re going to talk about trading against hope. So many times I’ve talked about how important handling your emotions are in the stock market. If you really want to find your flaws as a human being, if you want to see where you’re having some emotional issues at, start trading stocks because I guarantee you you’ll start learning things about yourself that you never knew, how you view money, how you handle loss, how you handle greed, and so emotions play such a huge and pivotal role in our trading success and being able to maintain those emotions are critical.

0:36
Now. I don’t know if you’ve ever done the Myers Briggs test before, but it’s really good to do that because you do learn a lot about your personality and how that can actually relate to trading. But for me, I took it and I’m an INFP, so I’m considered to be introverted, but, uh, it’s like barely an introvert.

0:53
I was kind of like on the fence there. The N is for intuitive. The F is for feelings instead of versus thinking. So, do you have more of a feelings based logic or, or a thinking type logic. And feelings, believe it or not, I, I was kind of surprised by that, but I do have more emotions than I, than I realized, but I’ve done this thing a long time ago.

1:13
It’s not like it’s like a new revelation for me, but it was good for me to know that I may feel the emotional side of trading much more. And so that has been something for me to have to work on over the years, and I’ve gotten pretty good with doing that and to where the emotional side of trading doesn’t affect me all that much.

1:30
I had a hard time with the aspect or the idea that instead of being like a thinking person, instead of being an INTP, I was an INFP. I was like, man, I’m not, I’m in a thinking type profession. I use my brain every day. I’m using numbers and all that stuff.

1:46
I don’t have a feelings based, uh, result on the Myers Briggs test, but I did, and uh I’ve probably taken it like 30 or 40 times to try and get it. Away from the INFP thinking that somehow it might change, but it doesn’t, it still stays at INFP. So I guess I’m the sensitive type, right.

2:03
We hear about emotions in the market. We hear about the greed and the fear factor, the greed of needing to make a lot of money and that getting you into trouble to not take gains when you should or to not book a loss when you should when it’s small and manageable. And then you have the fear about the fear of trading, the fear of missing out, the fear that you may take a loss on a trade.

2:24
And ultimately be proven right. So you can’t handle the fear of, of ultimately being right, but taking a loss in the near term because you had to follow your stop loss or your trading strategy. So those are the two main emotions that we deal with as traders. But there is a third emotion, and that one is hope, and hope is something that from a basic human standpoint is good to have.

2:46
Have a hope for tomorrow, have a hope for life, have hope for a good marriage, or have a hope that your son or your daughter will turn out to be a good, decent human being, or you hope that your favorite sports team, not called the Miami Dolphins are going to win a Super Bowl because let’s, let’s face it, the Miami Dolphins are never gonna win.

3:05
I. I, uh, when Dan Marino left, there, there went my dreams and hopes of anything ever remotely positive happening with that franchise, but. We have hope and hope plays an integral role every day in our lives, but hope in the stock market is a bad thing.

3:23
Now, we can hope to be a good trader and we can hope that. Overall, we’ll do well in the market, but when we start applying hope to our trading strategy and to our trades itself, that’s where we get into a lot of problems. So, hope creates an expectation in the market.

3:42
Hope creates an expectation that we place upon the market. We hope that the stock market will go up tomorrow because we’re long on the market. We hope that the stock market will go down because we just shorted the heck out of it. That’s us putting expectations on the market.

3:58
That’s us wanting to say this is what the market needs to do, and then what happens when the market doesn’t do that. It goes down instead. Let’s say it drops 2 percent when we’re hoping that it’ll go up. Does that shatter our. Paradigm of how we view the market, does that shatter our reality.

4:15
So hope creates expectations on the market, but the market, you see, does not care about expectations. The market does not care about you, and it does not care about the hope that you want or have placed on the market to do what you want it to do. And we see this a lot too with dollar watching, and I tell people, don’t look at the dollars.

4:36
Don’t look at how many hundreds of dollars or thousands of dollars that you’re up on a trade, because what happens is when you start doing that, you start thinking about how you’re gonna start spending that money, what you can do with that money, and then if you start losing that money, you start thinking, man, I just lost an iPad’s worth of money.

4:52
Oh man, I just lost my child’s first college tuition, uh, first semester of college tuition there. You start. Personalizing the loss, you start personalizing the victories, and that’s all rooted in hope, and you don’t want that. You have to take the hope out of your trading.

5:08
You can’t be thinking, OK, I’m up 10 percent on Apple right now. Should I sell it. Should I get rid of it. Well, if I sold it now, man, I could really buy that, that four wheeler that I wanted, or I could, you know, get that new car. Alright, sure, from a human standpoint, that actually sounds.

5:26
Like it makes sense, but from a trading standpoint, it doesn’t because you’re using hope as a basis for what you’re wanting to make a decision on with your trade in Apple. And, and here’s the thing, is that deciding whether to buy or sell a stock based off of how much money you have in your account or how much your stock is up, that’s a bad idea.

5:43
That’s a horrible idea. You have to trade based off of the charts off of what the charts are telling you, what the market conditions are, what the sector and what the industry is telling you. And then a lot of people, when they get drawn into the market, they get drawn into the market out of hope, and they get into penny stocks, and they’re told by these charlatans that, oh, you can make tons of money off of trading penny stocks.

6:03
You can start with 500 dollars and have 2 million dollars in, in 5 weeks. And that is such bull, OK. It’s crap. You can’t do that, and penny stocks will ruin you. It will ruin you as sure as the sun will come up tomorrow. They will ruin you. People do not make fortunes off of penny stocks.

6:21
It just doesn’t happen. They make fortunes off of you buying the penny stocks and then being in it before you got into it and then them selling you their shares as you’re buying the stock, and they’re booking the profits before you have even had a chance to watch your first moment in that new penny stock.

6:36
So don’t get into penny stocks. It is a fool’s game. But why do we do it. We get into it because of hope, and it’s the easiest one to sell. You can buy 10,000 shares of the stock trading at 0.011 cents per share, and it creates a level of hope and excitement.

6:51
It’s like, oh my gosh, I can have all these shares of the stock, and if it goes up one penny, I can retire tomorrow. That’s hope. Hope is bad. Not in life, but in the stock market, hope is bad. People don’t use their stock losses out of out of hope.

7:18
They hope that by not using it, they can stay alive in a trade and that even though they might have been stopped out had they followed a stop loss, that it’ll reverse course and go back up to all time highs. Is that a good thing. Well, they’re hoping, and what do we say about hope. Hope is a bad thing when it comes to the stock market.

7:36
Get rid of hope. Trade against hope. Don’t forego simple, easy risk management of a trade because of hope, because you hope that it’ll come back up. I mean, think about it too, when you start talking about your trading strategy or when you’re talking about somebody about your day in trading, think to yourself, how much do you use the actual word hope.

7:55
Yeah, I really hope the market can go up this week. Yeah, I really hope that this stock will turn around. It’ll give you a good idea of, of how much of an influence your emotions have on your trading. Now, I get that in the simple course of dialogue, like in the Trading Block, I was like, man, I’d really like to see Netflix turn around today or wow, I really hope that we can get onto a good role this week.

8:19
That’s OK. All right. That, that’s kind of simple talk, but when you’re basing your hope and your Your outcomes on the emotion on hope alone, that’s not a good thing. Because in the end, what we’re trying to say is that the market must provide you with what you want.

8:36
What I want, the market must give. We can’t be doing that, OK. And another thing that I always see, spreadsheets.

8:53
So this will happen a lot of times. I’ll get a person who’s new to the Trading Block and SharePlanner and I’ll have a good week and maybe they’re up a couple percentage points that week. So then they create a spreadsheet for themselves, and I’ve seen these things and I’ve seen a lot of them.

9:09
They’ll say, OK. Tell me if my math is wrong, but if I can get 2 percent a week for every week this year, I’ll have like 2000 dollars now into 15,000 dollars or 20,000 dollars.

9:29
Or if I start with 25,000 dollars it’ll be worth 250,000 dollars. And I’m just shaking my head. It’s like, oh my gosh, this is not a good thing here, guys. But people do it and what they’re doing is they’re creating a mathematical outcome rooted in hope because guess what, if I made you 2 percent 1 week, I’m not necessarily gonna make you 2 percent next week.

9:46
I may even be down next week because that’s a part of trading is there’s ups and there’s downs. There’s good months, there’s bad one. Actually, I don’t have too many bad months, but, uh, it’s been a long time since I’ve had a bad month. Hopefully, I’m not saying something that’s gonna result in a bad month this time around, but overall, I, I tend to have pretty good months.

10:10
But on a week to week basis, I was down last week, OK. But if you’re trading and you’re rooting your trading strategy based off of hope or you’re creating a spreadsheet that says, OK, if I can make 10 percent a week or 5 percent a week or 2 percent a week, every week or 2 percent, I’ve seen them where they say if I can make uh 1 percent a day, I will be a 300 plus percent or 400 plus percent.

10:25
I don’t even know what the compounding is on it, OK, but it’s crazy. And so people get all worked up about this stuff and, and they’re, they start getting these like millionaire dreams of like, OK, I can turn this 5000 dollars into a million dollars by the time I’m 30 years old or, or what.

10:44
It’s just crazy, OK. But it’s all rooted in hope and you can’t do that stuff. You can’t keep these spreadsheets that try to forecast into the future as if you’re gonna be able to consistently predict each week or each month’s gains. You just can’t. So, don’t do that. In essence, what am I talking about here. I’m talking about getting emotions out of your trading.

11:02
Greed, fear, that’s been talked about a lot. Hope, not, not always talked about that much, but it’s just as devastating of an emotion on your capital, on your trading, on your decision making, and we don’t want that, so. All right, that’s gonna be it for today. If you guys have any questions, feel free to shoot me an email, ryan@shareplanner.com.

11:02
Remember, keep those emotions in check. Greed, fear, hope, all normal human emotions, but you gotta keep them out of the trading atmosphere. Take care now.