Why Dollar Watching Ruins Good Trades | Podcast Episode #527

0:02
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. Learn what it means to trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, letting those winners run wild.

0:19
You can succeed at the stock market and I’m ready to show you how. Hey everybody, this is Ryan Mallory with shareplanner.com. Swing Trading the Stock Market. In today’s episode, we are going to talk about not watching the dollars on your trading account.

0:36
Stop watching the PNL when it comes to trading because when you do that, it makes your trading very, very personal. Now, this is a subject that I would say that is pretty important to me. It’s something that I live by every single day, but I don’t know if my core message that I have been trying to push with traders has made a lot of headway.

0:59
Because what I see on social media in, in just in traders in general is just like a infatuation or a fixation on the dollars that they’re making with the trade. And I, I get that that is part of like especially on social media advertising.

1:16
They want to tell you about the dollars and it almost reaffirms my message about how bad it is to to follow the dollars or to watch your dollars on your trade because that is exactly what the marketing people will will focus on. And why is that? It’s because dollars are emotional to you dollars and what it represents becomes very, very personal.

1:39
So the, the, the key message that I’m hoping that I can get across on today’s podcast episode is that the percentage movement describes the stock. OK? That is, that is what we want to think about. The percentage movement describes the stock, the R multiple that means how much reward you’re getting for the amount that you’re risking describes the trade.

2:02
And the dollar or the profit and loss on a trade describes what the result personally means to you. And these are three different things and we have to keep them separate when it comes to our trading. And that latter one, the dollar amount or the profit and loss, that’s the one that really messes up traders, causes them to make bad decisions and just causes them all around to do the worst thing for their portfolio.

2:27
Now I want to give you a, a scenario, OK, this is an important scenario. Take Apple going back in the late June, there was an announcement that that they were raising the prices on their iPhones and pretty much all the product lines.

2:43
Now, let’s say before that announcement came out, you have been in the stock for a long time. Let’s say you have bought it at 200. OK, I don’t know the last time it was at 200, but let’s say you bought it at 200 and you were, you saw it go all the way up to 293 and you’re sitting on a, a good chunk of profits here.

3:00
And you also are following your technical analysis very well. But you get this crazy announcement that they’re going to be raising the prices, which isn’t kind of all that crazy. Everybody’s raising prices these days and makes life pretty unaffordable. But the, the, the profit you see completely drops.

3:18
You might have been, you know, up, you know, $10,000 and you saw it drop, you know, down to 9400, you know, or whatever it might have been. But it was a, it was a good good chunk of change that you lost. What what we have to remember as traders is, is that the dollar amount that you’re down on a trade or that you’re up on a trade has no relationship with the stock market, has nothing to do with your trade either.

3:43
That’s something that you have to figure out before you ever get into the trade. So when it comes to Apple, you’re seeing the stock trade at 293. All of a sudden some news comes out, not that great a news, market hates it. And you see it go from 293 down to 273 and you’re like, OK, I’m out, I’m out.

3:59
I’m not dealing with this. This is a huge breakdown. But according to way you were trading, that wasn’t even at your stop loss. Let’s say your stop loss was 270, and so it goes down to 273, doesn’t hit your stop loss. There’s no reason to get out of it. There’s no breakdown on the trade. But you look at and you’re like, OK, be time to get out.

4:18
Don’t have a valid reason for getting out early. And sometimes there, there can be valid reasons for getting out before your stop losses hit. Plenty of reasons actually. But in this particular case, there wasn’t. And so you get out, you’re feeling like, OK, you know what, I made a really good, good trade there. And then the following day and the days that follow, and this is happening right now with Apple because in late June, they announced their product price increase.

4:42
It dropped all the way down from like 293 down to 273 and about 3 weeks later it’s trading at 333. So it went from 273 all the way up to 333. Now you may say, well, the guy still made a lot of money on the trade and that would be true. And, and most of the time people won’t think too much about the fact that he sold at 273 because they will say, well, he got in at 200 and he did really good.

5:04
But in the grand scheme of things, should he have sold if it if it didn’t breach any technical levels or if there wasn’t a reason from a technical standpoint that the market cares about for getting out, then he made a bad decision there. And and I’m not saying that as traders, we’re not going to make bad decisions.

5:20
I make, I make decisions that I’m looking back and like, maybe not the best decision. But what we want to do though, as traders is get better at it. We want to make less bad decision. We want to make more better decisions with this Apple decision here. There was an emotional reason he saw, you know, you know, a, a, some, a sizable amount of profits come out of his portfolio.

5:43
He’s like, I’m ow, I don’t like that anymore. And then three weeks later, he could have been sitting at 3:33 with a, with his position rather than 273 and completely out of the trade. And that’s what happens to a lot of traders. They, they look at a dollar amount, you see an unrealized gain that means something to you.

6:02
And then the stock pulls back and you’re like, I’ve just lost a lot of money. You feel as if you’ve lost the amount of money that is pulled back, even though you’re still up on the trade. You feel like you’re losing money and you exit to protect the remaining profit. And so the stock never violates a setup and later resumes going right back to 333 like Apple did.

6:24
And so the central question here that we have to ask ourselves is what changed in the stock and what changed only in your account. Now, I give you the Apple example and there may have been valid reasons to go ahead and get out. But I’m just giving you an example of a person, you know, a make believe scenario with a person that was in Apple and had a certain stop loss didn’t violate any of his reasoning for getting out of the trade, but he got out anyways.

6:49
That’s what I’m trying to explain here. I’m not attacking him by the sold back then, because there’s a good chance that if I was in it, I might have sold it too and I would have had a valid technical reason for selling it. And then it goes right back up again. But what I was I’m just trying to say is that that in this particular situation with this person here, he was making a decision based off of the dollars.

7:07
And that’s the whole purpose of this podcast episode is to not watch the dollars. And here’s the thing that you want to remember. Protecting profits is not wrong. I fully believe that. I fully believe that you take profits along the way, you take partial profits. But changing a trade solely because the the PNL on the trade becomes uncomfortable is a problem.

7:30
And so at the dollar amount change or the current dollars that you’re up or down on train on a trade is not an exit signal. What we want to do is come to grips with the fact that the market does not know your PNL on a trade.

7:48
It doesn’t. So when Apple goes from 273 to 333, you’re talking about a 20% move right there off of its lows. And it’s 20% for every market participant. One trader may make $20, another trader may make $2000, another maybe 20,000, another make millions, maybe 20 million, right.

8:09
But the stock doesn’t know that. It doesn’t know that. It doesn’t know your position size. It doesn’t know your account size. It doesn’t know your entry price, your monthly income goals. And you know, a lot of people get messed up by creating those spreadsheets. And you know, I’ve talked about that a lot in previous episodes about not making those spreadsheets, but it doesn’t know how much you lost last week.

8:28
It doesn’t know what kind of winning streak or losing streak that you’re in on. It doesn’t know you know what it’s going to keep you from being able to pay if it keeps going down or if what kind of doors that opens up for you if it keeps going up. So the percentage move belongs to the stock.

8:44
So that 20% that that’s a move that’s indicative of the stock, but the dollar result belongs to the trader. And so as traders, we try to take what matters to us and put it on the market. And that’s where we mess up ourselves in the stock market here, especially as swing traders.

9:01
So we, we want to think about it in different ways, price and percentage, that’s what the stock is doing. And then we want to look at the R multiple and that is how the trade is performing relative to the planned risk. I, I touched on it just briefly in the beginning of this episode, but essentially the R multiple is if you get into a stock at $100 and you have a a stop loss of $95, then the your first R multiple on the reward side is making up making what you would have lost had the trade gone against you.

9:36
So if it goes from 100 to 105, that’s a $5 gain. You risked $5 on that trade by putting your stop loss at 95. So that’s a 1R multiple. If it goes up to 110, you’re now up to Rs, OK, or two or two times the amount that you risked on the trade and it keeps going up higher like 115, that would be 3 * 120, that’d be 4 times.

9:58
But we’re looking at it in our multiples of how much we’re risking that. That is how the trade is performing relative to what you risked. Now, the dollar and the PL. though, that is what it means to you personally, and that’s what gets us into trouble. So the key take away here is, is that the, the price is public information, but your PNL that’s private information.

10:20
So don’t take that private information and throw it at the stock market. You know, when, when you go to a family get together and people say, you know, hey, how, how, how you doing in the stock market? What do you say? Oh, I’m up $10,000 Most of the time you don’t usually when you start talking about specific dollars, that’s not really relevant to anything because you could be up $10,000, but you’re trading with a, you know, $100 million account.

10:45
Great if you are, but that $10,000 doesn’t mean much. So what do you say you you tell them I’m up 10% or I’m up 20%. OK, now that that gives some perspective because regardless if it’s a $10,000 account or a multi $1,000,000 account, you know, 10, twenty, 30% means something.

11:01
And so it meet the percentages mean something to somebody else, but it’s not so much the dollar amount except unless you’re just trying to flex on somebody. Now I actually go through the risk reward and our multiples and stop loss planning quite a bit, as well as trading psychology and my training course, the self-made trick trader.

11:21
You can go to shareplanner.com, click on trading Academy and you’ll see that course there. You can purchase it. You get all my other training courses as well, plus three months in the in the trading block. But it’s a really good course that captures about 30 plus years of my trading experience in the stock market. And with it, you’re going to find out everything that I know about the stock market.

11:41
I’ve I’ve put about four years into developing this course. I wrote it, I edited it and I made sure it was just the way that I wanted it to be, to be able to convey, you know, how to become a self-made trader. And in it you’re going to get 25 hours of video training.

11:58
And in that 25 hours you’re going to learn everything from the beginning stages of becoming a self-made trader or a swing trader. And then from there, you’re also going to learn all about how I scan for stocks, how I create watch list trading psychology.

12:13
You’re also going to get into how I go from the scans in the watch list to identifying trade setups plus where I put the stop losses at taking partial profits along the way, analyzing the trades and and figuring out what you did right, what you did wrong. It’s the entire package.

12:28
And so check that out self-made trader at shareplanner.com. Highly, highly recommend getting involved with that training course. So we’ve talked a lot about watching the dollars on different accounts like Schwab, They, they have options.

12:45
I’ll let you start it out. I’d never look at my, my trading account dollars. I don’t, I don’t look at it from a trading standpoint. I don’t, you know, from a trade to trade standpoint. I don’t look at it from the overall how many dollars I am up on the year. I don’t want to see the dollars. And the reason for that is because when I do that, I’m going to make it personal.

13:05
A trader doesn’t see if they’re up $2000 on the year. They don’t see, you know, the dollars as it pertains to the market because it doesn’t pertain to the market. It only pertains to themselves. So they’re only seeing it as a mortgage payment, a vacation that they were always dreamed of taking.

13:22
Maybe it’s to Italy or whatever, a previous loss being recovered, new account highs, proof that they’re succeeding, money that they just don’t want to give back to the stock market. And once that profit has been mentally spent, not physically spent, but mentally spent, an ordinary pull back on a trade can feel like the market is taking something away that they they thought that they already had.

13:43
And so you, you get into this like peak profit and loss trap and you, you’ll hear me talk about the meat and potatoes and a lot of my trade trade podcasts here, my swing trading podcast. And I always talk about how don’t try to get out at the very top.

14:00
Don’t try to get at the very bottom. Try to get in, get the meat and potatoes of a stock market move. And the same thing can be said about your trades too. Don’t think that you’re going to get out at the very top because usually there’s very rarely in fact, do you get out at the very top. There’s going to be some additional upside that you may have missed out on or it’s going to pull back and you get out and and you made a decent game, but it wasn’t as much as you could have made.

14:23
And you will hear so many people say I was up as much as $10,000 on that trade and I gave it all back. And I’m like, I’m so mad. If I could just get back to that place, I will be fine. But but that’s, that’s the PNL trap, OK. That’s where the position you’re up $10,000, it pulls back down to where you’re only up $2000 and now the trader thinks that he’s lost $8000.

14:46
But the trade is still profitable and the original thesis may be intact and there still may be more upside. Just like what we were talking about on the Apple trade that somebody got out at 2273 for no reason when it could have gone right back up to 233 or 333.

15:03
The highest unrealized gain is never a guaranteed payout. And so we got to quit comparing our, our, our trades to what the peak was. Get the meat and potatoes of the trade. That’s why I talk about taking partial profits because it helps you get that meat and potatoes and all the times more than the meat and potatoes, because there’ll be many times where you start taking profits.

15:23
Maybe it’s a third and another third, and then all of a sudden the stock falls apart. And then, you know, that blaster might even go red. But you, because you took profits along the way, you were able to capture some of those meat and potatoes so that that you did better than what you should have done had you been just all in and all out. So the other trap that we get ourselves into because we’re dollar watching is the break even trap.

15:44
You won’t be as obsessed with the break even trap if you don’t tie dollars to it. And if you’re not watching your dollars, you’re not as likely to get caught up in it. But we want to move things up to break even. We want to move. It’s fine if you move it up to breaking, but there needs to be a rational reasoning for it. If there’s if you get in at $100 and it goes up to 110, you don’t move your stop loss up to like $100.01 just because you want to make sure that you come away with at least one penny per share of profit.

16:10
That may be that there was a better stop loss at 9950. OK, yes, if it goes back down to that level and hits it, you’re out. But let’s say it goes down to only 9975, then goes right back up to 120. Then all of a sudden you’re killing yourself for getting out at break even for that one penny per share because you just had to mentally get out with a with a win.

16:31
That’s that’s not a good position to find yourself in. So the bad things that these that the dollar watching creates as many OK, taking profits too early. The trader exits because this is enough money for me. I don’t want to be greedy.

16:47
You hear Jim Cramer always talking about, you know, what is it? Bulls make money, bears make money, pigs get slaughtered. Don’t be a pig. Sometimes the market makes it OK to be a pig. It keeps running and you’ll, you’ll see, you know, like especially with Micron, what we’ve seen, even though it’s way down right now off of its all time highs, but you’ll look at like Micron or SanDisk and WDCI mean I there’s, there’s trades that take place like I’ll get into it.

17:16
I’m not expecting for the stock to run 50%, but it does. That’s not my goal. But if I’d say, well, I have to get completely out at my target price because I don’t want to be greedy or pigs get slaughtered. Well, you’re just giving up a a free opportunity to market may have given you.

17:31
Now that doesn’t mean that you’re you should be greedy when the market selling off. It’s like, no, I’m going to get my target price out of it and your stop loss is getting hit and you’re like, no, but that’s that’s a bad thing. That’s a bad version. Agree, but if the market wants to give it to you, so be it. Again, it doesn’t know where you got in at.

17:46
It doesn’t know where your target prices are at. Those are things that we’re putting on the market and they’re good things to put on the market, you know, stop losses and and and so forth. But when it’s wants to keep running, you don’t want to be the person that takes profits too early just simply because you remember Jim Cramer saying pigs get slaughtered.

18:06
So the the other thing too, that dollar watching causes they see the dollar amount that they’re down and they don’t want to lose that dollar amount. So they widen the stop loss or they add more to it, hoping that they can just get back to to break even and make it make a profit off of it and break even.

18:23
I mean, like back to the original, you double down. Let’s say you get in at 100 and then it goes down to 95. You double down there. So then your average price is 9750 and you’re just hoping that it can go back up to 100. So you can make a couple percentage points on it, on the overall trade. So where does dollars belong And what do we watch instead?

18:41
So hopefully listening to this podcast episode today, you have a good idea of why I’m really bent against a dollar watching. And we, we love talking about dollars. We love talking about because it’s because it does give us a flex, right?

18:56
But the market doesn’t really care about the, the, the dollars. It really doesn’t. The dollars should be something that you have determined ahead of time. How much money are you willing to risk on a trade? You know from position size standpoints, from Max stop loss that you’re willing to take on a trade.

19:12
Maybe it’s a 15 or a 10% portfolio position size that you want to take on each trade and you don’t want anything more than a 5% stop loss. Then you have it in your mind about what kind of dollar risk that you’re willing to take on the trade and then your focus can be on them are multiples, but it doesn’t need to be focused the whole time on the dollars that should be already figured out before you ever get into the trade.

19:39
Now there’s some risks like, you know, gaps down below your stop losses that do happen and you can’t do nothing about those. I mean, sometimes you can by not holding through earnings, but then you know, in the in the sense of like what just happened with IBM, nobody knew that they were pre announcing earnings. So yes, you could have taken a pretty filthy loss right there, but you also want to be aware.

20:01
Of stocks that have a history of crazy announcements like that, for instance, like on IBM, I’m not going to ever trade that one again, at least not after a a a new between the the time a new quarter begins and their earnings report. Heck no, I’m not letting them do that to me.

20:16
It didn’t happen to me on this most recent one, but I’m going to learn from it and I’m not going to let that be something that gets me in the future. Now, it doesn’t mean that a trade that I make in the future. I’ve had it happen to me with Apple before, and not really a fan of trading Apple after a new new quarter begins because I don’t know if they’re going to try to warn ahead of time.

20:33
In the end, we want to want what the market wants. Now, what does that mean exactly? What does the market want? Well, what we want to do is want what the market wants. Means meaning aligning yourself and your decisions with the evidence rather than your preferred financial outcome.

20:49
Rather than what the dollars in your account are saying, you want to align yourself with what the market is doing. That means accepting the stop loss when the thesis fails because the market’s telling you something and they’re listen, even though you want the stock to recover, it may not be with that stock allowing a winner to continue when the thesis remains intact.

21:08
Like what we were talking about with Apple earlier. Even though you want to secure the money, if you’re not dollar watching, you just put yourself in a much better position to make that right decision and then staying in cash when there’s no set up, even though you want to make that make money that day. I mean, I feel like right now with the markets been as choppy as it’s been of late, I haven’t been making a lot of trades and it’s turning out to be for good reason because the market starting to show signs of being willing to break down.

21:31
So whether you’re in it’s in in the market or out of the market, you want to want what the market wants. And the markets can oftentimes tell you go to the sidelines or go short or go long and you want to follow what the market gives you. If you enjoy this podcast episode, and I hope that you did, make sure to like and subscribe to my YouTube channel.

21:49
If you’re watching it there. If you’re listening to me on Spotify or on ale, make sure to leave Vistar review. Let me know what you think of this episode means a lot to me and I read all of them and on top of that, send me your emails, your questions, your problems that you deal with as a trader.

22:06
I want to hear about those too because so many other people are dealing with the exact same things that you’re dealing with and it helps to have somebody that’s willing to answer those questions for you. So do that. I’ll make a podcast episode. I’m the only person that reads it. I won’t give give out your full name or real name for that matter. Even not even a first name give you a fake good Florida redneck name.

22:24
So make sure to do that and check out the self-made trader at shareplanner.com by clicking on Trading Academy. And don’t forget Jesus Christ. He is the way, he’s the truth and he’s the life. Nobody comes to the Father except through him. Thank you and God bless.

22:41
Thanks for listening to swing trade in the stock market. If you’d like to trade alongside me each day, I invite you to join the SharePlanner trading block where I navigate that markets in real time with traders from around the world. Your membership includes A7 day trial and full access to my Discord trading room. You can Sign up today by visiting shareplanner.com Tradingblock.

23:00
Be sure to follow SharePlanner on YouTube and X and across all major social platforms where I share unique market insights every day. And if you have any questions, feel free to reach out to me directly at ryanshareplanner.com. All the best and I look forward to trading with you soon.