Increasing Your Capital For Trading | Podcast Episode #272

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. 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 Swing Trade in the stock market, and today’s episode, we’re gonna talk about increasing the capital that you’re trading with in your account. When is a good time to do that?

0:41
What is the metric that we should be guiding ourselves with? We’re gonna talk about in this podcast here from a guy that we’re going to call Conrad. That is not my Florida redneck name. That is a name that this particular individual asked me. To call him. So Conrad writes, Ryan, I have listened to your podcast consistently since November of 2020 and can’t express how much of a favorable impact you have had on my trading.

1:05
You’re greatly appreciated. Well, I appreciate that because sometimes I, I’m probably my worst critic, so I always feel good when I’m getting. Some words of affirmation. Conrad goes on to write. He says, there are several episodes that I have listened to multiple times. I am a member of your Patreon account, swing trading the stock market, and share planner.

1:23
Some background on my trading journey. I am 54, a part-time trader, and not planning on going full time for at least 3 years. I’ve been trading for just over 2 years. 2020 was ridiculously easy. The first half of 2021 was a serious struggle. By July of 2021, I was break even from my gains of 2020.

1:40
For the last 8 months I am up 23% in my profit loss column. The last 8 months are significantly better than the early 2021. I have taken a total of 296 positions since the beginning of my swing trading career. My question is, what metrics or milestones.

1:57
Should I achieve to add capital to my account? My current balance is around 65,000. Sincerely, Conrad. And now the guy gives me an appendix and it was pretty impressive too. He gives me all sorts of stuff on his trading, his mindset, and I actually think it’s good to talk about some of these things and.

2:15
I’m going to, after I tell you about what I’m drinking here. So for today’s episode, if you remember, I think it might have been the previous episode or the one before that, I talked about Old Forester single barrel barrel strength. Very strong, strong bourbon, and I gave it a 7.8.

2:34
I wanted to give it more, couldn’t, couldn’t justify it, just a little bit too hot. I get that barrel strength are known for being super hot, but I thought to myself, let’s put it in an old fashion. So normally I use Evan Williams bottled and bond for my old fashions.

2:51
This time around though, I’m gonna substitute that out and put some old Forester single barrel. Strength in it. So when I do that, the orange citrus smells that you pick up, man, way more than I ever smelled when I was drinking with Evan Williams. So that’s a huge plus.

3:06
I love that, how accentuated, accentuated. Is that the right word, accentuated? I think it is accentuated how much it accentuates the orange smells, man, uh citrus flavors. It’s really solid. And I will say this. It’s a throat chaser still with that burn, even with the simple syrup, and I put 3/8 of an ounce of simple syrup in my old fashion.

3:26
And for those who don’t know my old fashion, it’s 2 ounces of bourbon, 6 ounces of the aromatic bitters, 2 ounces of the orange bitters, then 3/8 of an ounce of simple syrup, and then after that is when I put in the 2 ounces of bourbon, which is usually 100 proof at least. And then I put a cherry and then I stir it and I express an orange peel over it, rub the rims, and then you got your old fashioned, really good recipe, guys, I’m telling you.

3:51
So that’s what I did with that except this time I’m putting the old Forester in there. And how I would compare it it’s like putting the bottled and bond. Bourbon that I was using before, but without putting the simple syrup in there. That’s kind of what the heat was like using the old 4 6s.

4:06
Remember, this Old Forester is 64.1% alcohol, 128.2% proof. So it’s gonna be a lot stronger and definitely not one you want to drink like 3 or 4 of in a single sitting that will wipe you away. Wow. But I like to, as I’m drinking this, just how much I like the caramel flavors and some of these like hints of chocolate comes out in the old fashion.

4:25
I mean, it’s really, really spectacular. So I’m gonna say on a scale of 0 to 10, I would love to be able to use this on every one of my old fashions. One, it’s almost impossible to find this particular bourbon, but two, it’s also a very expensive old fashioned if you start doing this with every one of them.

4:42
I’m gonna give it a 9.3, special occasion kind of old fashioned here. Now, back to Conrad here. He wants to know what are the milestones for adding capital to one’s account. He’s traded with $65,000 but you gotta realize when you’re adding more to your account, you’re also increasing your position sizes as a result.

5:01
Now in his appendix, he did give me an appendix on this email. Actually, it wasn’t even an email. It was an email that said, please see the attachments. It was like I was back in the corporate office again, you know, please see attachment. The attachment has the question, it has all the references that I can go back on, which I really appreciate.

5:16
His Average position size is 12% of his total capital. So instead of trying to work with a $65,000 account for this example here, I’m gonna just say he’s trading with a $100,000 account. So each trade then is $12,000. But let’s say he was being really aggressive.

5:32
Let’s say Uncle Ned dies. And Uncle Ned leaves him $100,000 and he wants to put that $100,000 into his account. Well, his account just went from $100,000 to $200,000 and now if he’s sticking with 12% on each trade, all of a sudden, he’s trading with $24,000 on each trade rather than $12,000.

5:53
And while on the surface, that shouldn’t seem like a problem, believe it or not, there’s a lot of issues that comes up with that. For one, we associate the losses in dollar amounts. Let’s say we only lose 10% on the trade. Well, with a $12,000 position, you are only losing $1200 which is still a lot.

6:11
But with a $24,000 position, you’re suddenly losing $2400. So then you have to ask yourself, am I mentally equipped, even though though I may be able to afford it, mentally and psychologically, am I equipped to be able to handle a $2400 loss? Because that can start affecting how you make trades.

6:29
And I’m using simple numbers here. I don’t use 10% stop losses, but I’m doing it for the sake of this podcast just to make the numbers simple. We tend to associate dollar amounts with what we can buy with that money, right? So that $1200 or that $2400 actually on a $24,000 trade, if you’re losing 10% on a losing trade, you might say to yourself, that was my entire mortgage for that month.

6:50
I can’t do that. That’s just too much to lose on one trade that just goes bad. If that’s the case, then even though you’re increasing the size of your portfolio by adding more capital to it, you might want to decrease your position size. And there’s nothing wrong with it. I mean, think about the big firms and the hedge funds out there. They’re trading with billions of dollars.

7:07
I doubt in most cases they’re putting 10% of their capital on one single trade. In fact, they. Probably have hundreds of trades oftentimes, and it’s spread out across a lot of different stocks. So they may have 200 positions open and they’re only dedicating a 0.5% of their capital to a single trade.

7:25
Why is that? Well, because the dollar amount that you lose, if you’re trading a billion dollar hedge fund, putting $100 million on a single trade. And you lose 10%, you just lost $10 million. It’s a lot of money. So what do you do? You decrease the size of your positions.

7:41
And now there’s other things too why they do it, of course. For one, the more money you’re trading, the more difficult it is to get in and out of trades when you’re a large firm. For us retail guys, it’s not really a big problem. I can tell you this, back in the day, going beyond. $2000 on a single trade was a huge mental block for me.

7:59
Just couldn’t do it. That was when I was trading a lot smaller, smaller account, but I couldn’t even fathom going above $2000 on a single trade. If I was wrong, let’s say I took a 5% stop loss, that was $100. I couldn’t go beyond $100 on a single trade.

8:15
So even when I increased my portfolio, let’s say, at first I was starting off with $20,000 and I can’t remember what it was, but let’s say I was starting off with $20,000 and I was using 10% position sizes. When I increased the account to $30,000 I was still keeping it at $2000.

8:31
So then my position size was really like 6.6% on a trade. And it was good that I realized at that point in time in my life that I was not equipped to be able to handle trades. Of more than $2000 because if I took a 5% loss, $100 on a trade was not something that mentally I could handle.

8:48
I had to become better at trading. I had to become more mentally adept at being able to trade more than $2000 and I did, but it took time. And so it’s good to be honest with yourself too. When you’re trading and you’re saying, OK, what are my position sizes going to be? If you’re trading a $200,000 account and you’re thinking about taking on a.

9:07
Position size of $20,000 which would be 10% per trade, and you lose 5% on that trade. Are you OK with a $1000 loss? And if you’re not, then you’re trading too big because trading ultimately revolves around losses and how you manage them. Because a lot of times what you can do too is panic and get out of a trade when you shouldn’t be because you’re afraid of taking the loss.

9:28
Now, that doesn’t mean that you have to wait until your stop losses hit every single time. There’s plenty of times where I’ll get out of a trade early on, but it’s not because out of some kind of like a fear of getting stopped out. It’s just because I can look at the chart and how the chart has developed since I got in and say, hey, this is probably a good time to get out.

9:44
And I would probably say about 70% of the time when I get out early on a trade, I don’t regret it, maybe even 80%. But if you’re getting out of a trade because you’re afraid to lose the money that you had put your stop loss at, then one, you either need to start tightening up those stop losses even more when you’re going into a trade or reduce your position sizes.

10:04
That’s why also I think it’s good to take partial profits along the way because when you’re taking profits, let’s say you get into a stock at $100 you set your stop loss at $95 and the stock goes up to $110 you take a third off the table, maybe you take a half off the table depending on whatever works best for your trading strategy.

10:20
Well, In doing so, you’re shrinking the actual amount of risk that’s existent on that trade. There was also a time before I was trading with $2000. I remember when this was when I was first starting off swing trading. I took $1000 out of savings and bought 5 different stocks, $200 on each one.

10:38
Could not handle it. Could not handle it, and so those $200 position sizes among 5 different stocks, I ended up closing out all 5 of them at once because all of them went down 1% and I couldn’t handle the losses that I was taking on. I know it sounds crazy, and this was a different time too.

10:54
This was like more than 20 years ago, probably like 25 years ago. So there was some real angst there for me as a trader that I had to overcome. And also too, I would look at what does that money represent? And I know the question that Conrad asked me is, what is the milestones that should be achieved in order to add capital to my account?

11:15
But I don’t think it’s as simple as, OK, if you’re up this much on the year, you add another $10,000 or $20,000 or whatever. It isn’t. So the next point I would say is, is, what does that money represent? Does that money represent funds that are going towards your child’s next semester of college classes?

11:30
Does it represent your next mortgage payment? Does it represent the down payment on your dream home or? A vacation home or your next car, or your operation that you have to get done. If it’s one of those things, then yeah, maybe don’t put that money into the account, because that money will take on an increased amount of importance.

11:52
If it’s like $10,000 it’ll feel like you’re probably trading with $50,000 of additional funds. And so you don’t want that kind of pressure on you because again, The market doesn’t care about your circumstances, it doesn’t care what that money represents, it’s going to do what it wants. But if you let that stuff start interfering in your mind and how you’re trading and the decisions that you’re making in regards to your trading, it could really turn out disastrous for you.

12:17
The other point that I would say is how disciplined are you in your trading? Yes, you want to be profitable. You want to show that, OK, I’m not just throwing more money at this thing just to lose more money in the process. No, I think you definitely should be more profitable in order to make more money. Now, back in the day, we would say, OK, I need to add more money just so that the commissions don’t have such a large impact on my overall trading, but that’s not the case now.

12:39
So the biggest question is, are you being disciplined with the money that you’re currently trading? Or when you have a losing trade, do you get mad and do something stupid? Are you doubling down when you should be getting stopped out? Are you tripling down after you’ve doubled down? Are you revenge trading? Are you buying an exorbitant amount of puts when you get stopped out of a trade just to be able to try to stick it to the market and make that money back immediately?

13:02
Are you FOMOing after crap stocks like the meme stocks out there just because you get caught up in the FOMO? Then there’s probably a good reason right there alone to not add more money to your account until you can overcome some of those things. My faith has been a big part of my life, and there’s this story in the Bible called the parable of the talents where this man calls the servants and trusts him with his property, and he gave each one different talents according to their ability.

13:29
To one he gave 5 talents to another he gave 2, and to another he gave 1. If you want to read this, it’s Matthew 25:14. And it goes on to talk about he who had received the 5 talents went at once and traded with them and he made 5 more talents. Now he’s not talking about swing trading.

13:45
And then in verse 17, it says, so also he who had 2 talents, made 2 more talents, but he who had received 1 talent went and dug in the ground and hid his master’s money. Now after a long time, the master of those servants came and settled the accounts with them. And he who had received the 5 talents came forward bringing 5 talents more, saying, Master, you delivered me with 5 talents here.

14:04
I have made 5 more talents, and his master said to him, Well done, good and faithful servant. The guy with 2 made 2 more. But he was very displeased with the person who did nothing with the one talent that he was given. Instead, he buried it and was afraid to lose it. And so the whole point of me bringing up the parable of the talents is that it doesn’t do you any good if you can’t make anything by increasing your capital.

14:27
By increasing the money from 65,000, let’s say, to 100,000 in the case of Konrad here. If Conrad can’t make more money by creating a return for himself, and I’m not speaking specifically to Konrad here, I’m talking to the people just in general thinking about increasing their capital.

14:43
You can’t do anything with a little, it’s not likely that you’re gonna do better with more. And so be able to be a good steward of the one talent that you have and try to make one talent out of that one talent. And then when you want to trade with 2 talents or 5 talents, then you’re in a better position because you’ve already shown that you can do much with just the one talent that you have before in our case, capital.

15:05
Show that you can manage the capital well. And if you can manage the capital well, if you can handle all the psychological challenges of increasing position sizes and increasing account sizes, and that means taking on bigger dollar losses potentially, then you can overcome those hurdles, then maybe that is a good time to increase your capital.

15:26
Now, one thing that is very good for the capital is swingtradingthestockmarket.com. That is the service that goes along with this podcast. You’re gonna get all my stock market research each and every day. I mean, we are talking about some really good stuff here. That’s including market updates, updates on all the big tech stocks, and my weekly watch lists, my daily trade setups that I’m following, and all the most intriguing charts of the day.

15:49
So check that out, swingtradingthestockmarket.com, and keep sending me your emails, man, I read them all and I do try to put almost every one of them on air into its own podcast episode. Keep sending them to me, ryan@shareplanner.com. I love hearing from you guys.

16:05
It does motivate me to keep providing you guys this quality content. I love doing it. And make sure to leave me a 5-star review because those things do go a long way in helping me continue to build this audience that I’ve been speaking to for about what, 4 years now, I guess.

16:20
So it’s been a really good journey here. This is episode 272. I appreciate how much you guys have listened to me over the years. Thank you guys, and God bless. Thanks for listening to my podcast Swing Trading the stock market. I’d like to encourage you to join me in the SharePlanner trading block where I navigate the stock market each day with traders from around the world.

16:41
With your membership, you will get a 7 day trial and access to my trading room, including alerts via text, and WhatsApp. So go ahead, sign up by going to shareplanner.com/tradingblock. That’s www.shareplanner.com/trading-block, and follow me on SharePlanner’s Twitter, Instagram, and Facebook where I provide unique market and trading information every day.

17:03
If you have any questions, please feel free to email me at ryan@shareplanner.com. All the best to you and I look forward to trading with you soon.