For the next interview in the StockTickr Interview Series (RSS feed), I spoke with Brian Shannon from Alpha Trends. Brian’s site caught my eye when he wrote a post comparing his training for a triathlon with trading. Being a competitive runner myself, I took an interest in that article and his site. Many of you probably know Brian from his daily market video commentary (here’s the one for today). If you haven’t seen his daily commentary, I can hear you saying, “Well how great can it be?” – it is surprisingly good! Brian keeps the pace fast and looks at the overall market and individual stocks from the technical side and on different timeframes. If you can find an extra ten minute in your day, it’s worth watching.
I think freely available market commentary like Brian’s but also TraderMike‘s and recently Brett Steenbarger‘s provide such a valuable service – they analyze the markets so you and I don’t have to. (And they do a better job than I could anyway!)
Read on for more about how Brian got started trading, how he trades the markets, and what you should do when you first start out trading. Brian has agreed to answer questions in the comments, so ask away!
StockTickr: Tell us a little about yourself, Brian.
Brian: I am 38 years old, married to a wonderful woman and the proud father of 2 boys aged 10 & 12. I was born in Denver Colorado, lived on the east coast for a good part of my life and moved back to Denver in 1992. I am currently a full time trader and I also do some work developing stock scanning software and teaching classes for www.marketwise.com.
StockTickr: How did you get started trading stocks?
Brian: Growing up I used to watch Wall Street Week with my Dad on Friday nights, I didn’t really pay attention to the show, I just wanted to spend time with my Dad. Eventually some of what I heard sunk into my head and when I was 13 or 14 years old I made my first stock trade. I had seen a news report on television about the company Lo-Jack (LOJN) and how they had just received an order for their technology from the Massachusetts State Police. The technology, which is used to track and recover stolen vehicles, seemed pretty cool to me, so I asked my Dad about buying some stock. The stock was trading for $5.00 and I told my Dad that I wanted to buy 100 shares with the $500 that I had saved up. He made a deal with me where I could buy 1000 shares with him putting up the difference and I would be able to keep all the profits. I would watch the stock in the paper each day and after about six months the stock had doubled so I figured it would be good to get my young hands on all that cash! From that trade, I was hooked. I never understood why people would get regular jobs when trading the markets was an option. Of course I didn’t realize at the time how lucky I had gotten on the trade or how much work it would take to succeed.
StockTickr: Most traders have a horror story about losing their shirt when they first started trading. What’s yours?
Brian: Mine came on a Monday morning exactly one week before I was due to leave the world of being a retail stockbroker to one of a proprietary trader. I think it was January of 1993. For months I had built my account to the $25K level required by a leveraged stock trading outfit in NYC. I was having particular success with a stock called Chantal Pharmaceutical (CHTL). The company had a “miraculous wrinkle cream” which was getting a lot of attention in the press and that combined with a low float got the stock surging. I was trading the stock and making great money, dreaming about how close I was to never having to make another cold call to someone in the middle of their dinner. On the Friday before, I had purchased 1000 shares and was up over two points on the stock and I was feeling good about owning it. In fact, I felt so good that I decided to take Monday off because I thought I would be tempted to sell the stock if I was in the office watching it. I wanted to hold this winner! About an hour after the market had opened I decided to call the office to see where CHTL was trading before I got on the chairlift for a great day of skiing at Vail. When my assistant told me where the stock was trading, I made her repeat it because I was sure she made a mistake. No mistake, Barron’s had written a piece about this company and their “miracle product” and the stock had opened six points lower, by the time I got the news; it was down another 2 points. I was heart broken, but I knew I had to sell, which I did. I saw my $2000 profit turn into a $6000 loss, it wasn’t a great day of skiing, I was emotionally drained. Good thing I sold though, the company declared bankruptcy within six or so months. It was a good lesson learned, but the timing was terrible, I had to interrupt people’s dinners with my cold calls for another month before I could make the break to being a full time trader.
StockTickr: Do you trade for a living now?
Brian: Yes, besides my money, I trade a few accounts for friends and I have two accounts at the World Cup Advisor. The WCA accounts are able to be viewed and followed by the public on the WCA website. The long only equities account I started on March 15 has shown a gross return (before commissions) of just about 55% through the close on Friday August 18.
StockTickr: What single lesson did you learn along the way that has helped you the most in your trading?
Brian: That the market does not care what I think. I would often spend hours doing fundamental research on a stock and forming an opinion. When the stock I researched went down I convinced myself the market was wrong and I would end up taking large losses and feeling badly. I learned to trade what the market is saying rather than what analysts or reporters said. Once I learned to ignore the “experts” and rely on my own analysis of price action my results dramatically improved.
StockTickr: What is the most common but easily correctable fault you see in traders?
Brian: Fighting the trend. I don’t understand the fascination with picking tops and bottoms. I can’t tell you how many emails I received this past week from traders telling me they were shorting the Qs into the rally. The Qs finished close to the highs for the week, so not many of them could have made money. It is no different that the people who were buying weakness looking for a bottom in the Qs in May, June and July. Let the specialists buy weakness; I prefer to buy strength after a period of weakness in a primary uptrend and then define risk with tight stops.
StockTickr: Describe your style of trading. How long do you typically hold stocks?
Brian: I am a trend trader. I look for the longer term trends on a daily timeframe and then time my entry into those trends by using a shorter timeframe. For longs, I wand a good healthy uptrend on a daily timeframe and I then look at a shorter timeframe (usually 10 days of 10 minute data) to look for evidence of a fresh uptrend developing. I call it trend alignment, because it has to show signs of strength on the longer term timeframe and emerging strength on the shorter term timeframe before I get involved. These trades are typically good swing trade setups which can be held for 2-3 days, but I exit a lot of them as day trades when they experience a strong move.
StockTickr: What’s your exit strategy for winning and losing trades?
Brian: My exit strategy for losing trades is to sell very quickly! I do not have much tolerance for a stock that does not move in my favor. My stops are typically very tight because I make my timing decisions on short term timeframes. For winning trades, I usually sell in pieces. One area I almost always take partial profits is daily R2 for longs or S2 for shorts. For the balance I will cover when there is a sudden and sharp movement or when the micro-trend (on a 1 or 2 minute chart) stops showing a trending pattern.
StockTickr: What 3 books do you recommend traders read?
Brian: How about 4?
- Secrets for Profiting in Bull and Bear Markets by Stan Weinstein – this book first got me into technical analysis and I love the simplicity of his approach
- The Market is Always Right by Thomas McCafferty – I am written about in it. 😉
- How Charts Can Help You in the Stock Market by William Jiler – this book does and excellent job of explaining the psychology of many common chart formations
- Pit Bull – Lessons from Wall Street’s Champion Trader by Martin “Buzzy” Schwartz – Buzzy is the type of trader Hollywood models their traders after, he is a fantastic trader and has a great sense of humor.
StockTickr: Other than your own, what are your 3 favorite blogs?
Brian: How about 4 again?
- Ticker Sense – they do some really insightful and original research
- Trader Mike – he has a great feel for the market and always has interesting links
- Brett Steenbarger – understanding the psychology of yourself and others is a critical component in market success and Brett is not only a clinical psychologist, but he is a trader, and it shows. I also think he is probably the hardest working guy in this business.
- Kirk Report – Charles is a very intelligent man who has great trading results and I always learn something reading his site.
StockTickr: What is your typical R value per trade? i.e. what % of your portfolio do you risk with each trade?
Brian: I typically put about 20-25% of my capital into a particular trade and then my stops are about 1-2% away. So the actual %age of portfolio “theoretically” at risk is .25-.50%. I say theoretical because once the money is at risk anything can happen; the stock could get halted and open significantly lower, an intraday downgrade could get it spiraling lower, etc..
StockTickr: What technical indicators could you not live without?
Brian: My analysis is really simple; price, volume, moving averages and multiple timeframes.
StockTickr: How do you think the market has changed over the last several years? How have you adapted?
Brian: I think the big moves in individual stocks are less common today than they were 5 or 10 years ago, but structurally the markets are the same. As the saying goes “the only constant in the markets is the participants.” Fortunately for us, people tend to act/react to certain situations in predictable ways and we can use that knowledge to anticipate their decisions. I have adapted by shortening my timeframes.
StockTickr: Do you backtest and if not, how do you instill a belief in your system?
Brian: I’ve “live tested” for 15 years with real money in the market! Belief in my system comes from experience and success; that cannot be programmed into a computer.
StockTickr: What advice can you offer traders who are just starting out?
Brian: Go slow, regardless of how much money you have. You need to understand yourself as much as you understand the markets, and it takes time to develop a feel for trading. If you have a day job, do not quit, close your door and trade when there is no one around, or do it on a wireless device. Also, keep your analysis simple, do not search for the perfect indicator or oscillator, it does not exist. Know who you want to be as a trader and then learn to become self reliant. There is nothing wrong with listening to others, but you are the one who makes or loses money based on the trades you make, so make sure you know why you are making a trade. Lastly, take a class or two, everything I have learned about the markets is self taught. If I had taken a class early on, it may have saved me time on the learning curve.
StockTickr: Do you view physical wellness and exercise as an important part of trading?
Brian: Absolutely, I am a big subscriber to the theory “strong body, strong mind”. Being physically fit sharpens the mind and you need to think quick in this business!
StockTickr: What do you like best about trading?
Brian: The freedom of not having to answer to anyone. I have strong work ethic, but if the market is slow I may turn the computer off and go for a swim, ride my bike, go skiing, have a quiet lunch with my wife, or whatever… And I don’t have to ask anyone or be judged for it. I also enjoy the mental challenge of trying to stay one step ahead of the crowd; it is a financially and emotionally rewarding business to be in when you achieve success. I wouldn’t trade it for anything!
StockTickr: Thanks, Brian!
Brian: Sure, Dave.
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Stay tuned – there are several interviews on the way. You can subscribe to these interviews via RSS feed.
- Jamie, Wall St. Warrior
- Howard Lindzon
- Kernan of TRADEthemove.com
- Richard Todd
- Andy Swan
- Steve Nison of Candlestick Charts
- Dan Mirkin from Trade-Ideas
- Bruce Brotnov
- Eric Cahoon
- Ugly from Uglychart.com
- Alan Farley
- Declan Fallon
- Smita Sadana
- Bill Cara
- Van K. Tharp – Free autographed copies of Van’s book still available! Get yours now!
- Brett Steenbarger
- Eyal Maoz
- Gary B. Smith, the Chartman
- Nusair Bawla (alibawla on StockTickr)
- Dave Landry, Swing Trader
- Jeff White, the Stock Bandit
Do you have suggestions for other traders you’d like to see an interview with? Let us know!