Interview with Andy Swan

July 20th, 2006

For the next interview in the StockTickr Interview Series (RSS feed), I spoke with Andy Swan. Along with his brother Landon, Andy started, a trading service based on technical analysis, a statistical to trading, and risk control.

In this interview Andy talks about losing an account in the early days, how he thinks of stocks as players on a team, and what he likes best about trading (can you guess? ;-)). Read on for the entire interview.

StockTickr: Tell us a little about yourself, Andy.

Andy: I live in Louisville, KY (home of the Kentucky Derby!). I moved here to play college basketball for Bellarmine University and fell in love with the city. After college, I had a (very) brief stint in Boston, where I attended Boston University School of Law on a full scholarship. It didn’t take me long to figure out that it wasn’t for me, and after a few months I dropped out to start with my Brother, Landon Swan.

StockTickr: How did you get started trading stocks?

Andy: I started in 1997 or 1998…right as the markets started to really take off and make the news. I’ve been interested in the dynamics of markets for as long as I can remember. I set up an online brokerage account and was pretty much hooked after my first trade. The more I traded, the more I wanted to learn, so I read everything I could get my hands on and really gravitated toward technical analysis because of my math background.

StockTickr: Most traders have a horror story about losing their shirt when they first started trading. What’s yours?

Andy: Well, it was the late 90’s when I first started, so no one was really losing money at that point. Landon and I turned our initial deposit of $2,000 into $48,000 in about a year. Like everyone else, we thought it would never end. Of course, in 2000 it all came crashing down. We lost a lot of money during the beginning parts of the downtrend, but also realized fairly quickly that money could be made when the market moves in the other direction as well. I’m really thankful now that we had that brutal experience–it forced us to discipline our trading and learn some of the more advanced techniques for profiting from non-bull markets.

StockTickr: How long have you traded for your primary source of income?

Andy: I’ve relied on trading and helping educate others for my income since dropping out of Law School in 2000, with a couple of fairly lean years in the beginning.

StockTickr: What single lesson did you learn along the way that has helped you the most in your trading?

Andy: How to properly mix a Bourbon and Diet, kick off my shoes and enjoy the evening after a big LOSING day. I think most starting traders allow themselves to get into a rut by constantly chasing their high water mark or trying to recover losses RIGHT NOW. It’s just a recipe for disaster. If you need the money for next week’s rent, you shouldn’t be trading for a living. Put yourself in a position to succeed by allowing yourself to stick to your discipline, plan and rules no matter what the last trade did.

StockTickr: Describe your style of trading. How long do you typically hold stocks?

Andy: Hodge-podge is probably the best word. I don’t like to be limited by a particular style of trading. I love to diversify my portfolio by combining options spreads with swing trades of a week or two and day trades. I’ve found it really smoothes out the returns in my account and allows me flexibility in various market conditions. This is the same reason that DaytradeTeam switched last year to an all-inclusive model that we knew would reduce our revenues–it just works.

StockTickr: What’s your exit strategy for winning and losing trades?

Andy: On winning trades I typically move my mental stop as the stock moves through minor support and resistance levels, but almost always exit if it is approaching a major technical level of interest. I’m known around the office here for having an itchy trigger finger. One of the things I’ve noticed about beginning traders is that they always seem to focus on the trades that they “sold too soon”. This can lead to major problems down the road, because it erodes the discipline of exiting trades and results in far more trades moving from solid winners to losing positions. Once you get out, you’re out and you really shouldn’t care what the stock does afterwards at all until you are ready to enter another position on it.

Losing trades are much easier to exit. As soon as the pattern or analysis that I used to justify putting capital at risk is no longer intact or valid, I bail out. I don’t care if it’s up a smidge, down a bunch or sitting at even. Having a high percentage of winning trades has never interested me near as much as my account balance. You’ll see guys all the time that don’t “want to take a loss” and continue holding a loser.

The best way I’ve thought of to approach your open positions is to think of each position as a player on your team. If one is performing extremely poorly, why would you extend his playing time or give him a bigger role (averaging down)? Get the losers off the team as quickly as possible and your chances of winning overall improve dramatically.

StockTickr: What 3 books do you recommend traders read?

Andy: Instead of 3 books, I’d recommend that everyone read Technical Analysis of Financial Markets by Murphy three times.

Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications (New York Institute of Finance S.)

StockTickr: What is your typical R value per trade? i.e. what % of your portfolio do you risk with each trade?

Andy: I’m a pretty aggressive trader, but very rarely will I enter a position that has the potential to draw my portfolio down more than 5%

StockTickr: What technical indicators could you not live without?

Andy: I’m really not much of a fan of functional indicators that everyone and their brother have access to. I think the key to trading successfully is having an advantage over the rest of the investing public..which is why I am so focused on constantly improving my ability to analyze a stock on a geometric level.

StockTickr: What type of charts do you use? What timeframe are you normally looking at (15 min bars, 30 min bars, etc)?

Andy: I use log scale charting so that a move from $5-$10 is visually shown as equally important as a move from $10 to $20 for a stock. My timeframes depend on the length of time I plan to hold the position. For example, if I’m looking for a 2-3 week play, I’ll use a 9 month chart with daily bars, but if I’m day trading I’ll probably be watching the 2 day chart with 2 minute bars or the 5 day chart with 5 minute bars. In any event, I like to keep my timeframe and bars matched up like that (5 day/5 minute, 1 day/1 minute) so that each bar is always a consistent percentage of the timeframe I am looking at. I find this helps me keep consistency in my approach to trades of varying lengths.

StockTickr: How do you think the market has changed over the last several years? How have you adapted?

Andy: The biggest changes were the move to decimals, which killed daytraders for a while, and a drop in overall activity and volume. By adding more skills and trading techniques to my arsenal, I’ve been able to change with market conditions and utilize strategies that fit the current volatility levels and trends. Mastering complex options spreads like the Iron Condor, Vertical Spreads and Butterfly Spreads was probably the most beneficial, because they allow me to take in some consistent profits in dull markets that are tough to day trade.

StockTickr: Do you backtest and, if not, how do you build a strong belief in the trading system you use?

Andy: I do not do any computerized backtesting at all. I just don’t believe that a fully automated system for trading can ever work, because the nature of a market is to eliminate that kind of inefficiency within itself. Long-term success and profitability is about being able to adapt to differing market conditions and capital preservation.

StockTickr: What advice can you offer traders who are just starting out?

Andy: Start with a low dollar amount that you don’t really care about or paper-trade, and focus on LEARNING. The goal when starting out should be to learn the methods and discipline of success, NOT to make a bunch of money quickly. By taking the element of profits and losses out of the equation, your focus is on the movement of the stock instead of the balance of your portfolio. By doing this, you will eliminate the number one cause of massive losses–emotion. There is plenty of time to increase your trading amounts as you get more and more comfortable with having money at risk.

StockTickr: What do you like best about trading?

Andy: The money.

StockTickr: Thank you, Andy!

Andy: My pleasure.

Sign up for StockTickr Pro a copy of one of Van Tharp’s books while supplies last – quickly, though, I don’t have many more to give away!

Stay tuned – there are several interviews on the way. You can subscribe to these interviews via RSS feed.

Previous interviews in the StockTickr Interview Series (RSS feed):

Do you have suggestions for other traders you’d like to see an interview with? Let us know!


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