For the next interview in the StockTickr Interview Series (RSS feed), I spoke with Brian Schumacher, an engineer and trader that lives in Iowa. I noticed Brian because his picks were popping up frequently on the profitable trade report on StockTickr. He has a site called Trade4Cash where he posts about his trading systems.
Read on for more about how Brian developed his trading system, how he thinks about the markets, and what ingredient he believes is the most important to long term trading success.
Brian has agreed to answer questions in the comments – so ask away!
StockTickr: Tell us a little about yourself, Brian.
Brian: Well, I grew up in Iowa, attended Iowa State University in the late ’70’s/early 80’s to get my engineering degree, and after doing some traveling around the country (Wichita, Chicago, and Knoxville, TN), my wife and I are back in Iowa to be closer to family. I am a structural engineer by profession, but my true passion lies with stock trading.
StockTickr: How did you get started trading stocks?
Brian: Basically, I got bored with mutual funds, and thought there had to be a better way. I started trading individual stocks in 1998, but still kept most of my money in mutual funds for another 4 or 5 years after that (bad decision).
StockTickr: Most traders have a horror story about losing their shirt when they first started trading. What’s yours?
Brian: Well, my horror story is with a mutual fund I was in, not with individual stocks. I had a lot of money in the Fidelity Aggressive Growth fund. When the dot-com bubble burst, that fund lost about 75% of its value over the next year and a half. Needless to say, I rode it all the way down to the bottom. On the other hand, I lost a little bit of money in my first two years of trading stocks, but nothing severe. And actually, I pretty much broke even with stock trades in 2000 and 2001 while my mutual fund was tanking. The mutual fund fiasco finally convinced me that I had to take charge of my own future. I’ve been making money every year since.
StockTickr: Do you trade for a living now?
Brian: I still have my day job as an engineer, but each year my trading profits are a larger chunk of my total income. I hope to be trading for a living by the end of 2008. I want to get my home paid for and be more liquid before I finally take the plunge.
StockTickr: What single lesson did you learn along the way that has helped you the most in your trading?
Brian: To have faith and trust myself. In my opinion, self-confidence has more to do with your long-term success than anything else. Many times early on, I didn’t trust myself completely, and lacked confidence in my trading skills. If I had trusted my abilities back then, I would be indeed trading for a living by now.
StockTickr: Describe your style of trading. How long do you typically hold stocks?
Brian: I have many styles. Primarily I am a swing trader, and like to hold stocks anywhere from 1 day to a few weeks. But I also hold high-yielding dividend stocks for long-term positions, and hold medium-term trending stocks for a few weeks to a few months. During bear markets, I will also short stocks. Basically, I take whatever the market will give me.
StockTickr: How did you go about developing your trading system?
Brian: Early on I studied thousands and thousands of charts and read many books on technical analysis. And the more I studied charts and read books, the better I got at spotting potential winners. But that did not immediately translate into better overall success. Part of it was the confidence issue, but something else was missing. Things really didn’t start clicking until I subscribed to Portfolio123. That site taught me what was most important to be a successful trader – the exit strategy. Once I learned how to use exits, my profits started surging. I still use Portfolio123, but most of my current systems are developed using the tools at StockFetcher.
StockTickr: What’s your exit strategy for winning and losing trades?
Brian: It depends on the system. I will say that I don’t use protective stops as much as I used to. I have found that protective stops hurt performance more often than they help if you have a good entry filter.
StockTickr: How do you use StockTickr?
Brian: Currently I am using StockTickr to track my trades, and as a third-party validation source for my past trades. I use it as a performance link in my blog. In the future I may start using the advanced features for StockTickr Pro members, such as viewing other successful traders’ trades. It is important to learn from your own trades, as well as from others. We all have much to share.
StockTickr: What broker do you use and why? (We use Cybertrader and love it, by the way.)
Brian: I have always used E-Trade. I have never had any serious problems with them, and like the fact that I can also do banking with them, and link between bank accounts and brokerage accounts. And the $10 flat-fee commissions are well-suited to trading low-priced stocks.
StockTickr: What 3 books do you recommend traders read?
- How to Make Money in Stocks by William O’Neil – This was the first book I ever read about stock trading
- Trade Your Way to Financial Freedom by Van K. Tharp – An excellent book about trading psychology and money management
- Rich Dad, Poor Dad by Robert Kiyosaki – This is not a stock trading book per-se, but it opened my eyes to a new way of thinking about money
StockTickr: Other than your own, what are your 3 favorite blogs?
- StockTickr (I had to list this one, right?) (Dave: No, you didn’t have to, but thanks!)
- Ticker Sense
- The Kirk Report
StockTickr: What is your typical R value per trade? i.e. what % of your portfolio do you risk with each trade?
Brian: I never risk more than 3% of my total capital on any one trade, and it is usually closer to 1-1/2 to 2 percent. The main objective is to stay in the game. Too much risk can knock you out early.
StockTickr: What technical indicators could you not live without?
Brian: Three by Welles Wilder – DMI/ADX, RSI, and Parabolic SAR. In my opinion, Welles Wilder was a technical trading genius. The other indicator I use extensively is the Commodity Channel Index (CCI).
StockTickr: How do you think the market has changed over the last several years? How have you adapted?
Brian: More and more people are trading short-term online. And I think more young people are trading than ever before. In today’s trading environment, a person needs to have more than 1 system in place, so that at any one time, one of his/her systems is working. And he/she has to be in touch with the market on a weekly, if not daily, basis, and be willing to change trading styles quickly and without hesitation.
StockTickr: Do you backtest and if not, how do you instill belief in your system?
Brian: Yes, I absolutely backtest. But I am also careful not to fall into the trap of over-optimizing the backtested system, and data mining. After I backtest a system, I will paper-trade it for awhile to see if the actual trades validate the backtested results.
StockTickr: What advice can you offer traders who are just starting out?
Brian: Start out slow, and spend a lot of time educating yourself. Then look at yourself in the mirror and tell yourself that you absolutely want to do this, and are committed to learning. Then believe in yourself, and do it! But don’t use money that you can’t afford to lose. Scared money is soon lost.
StockTickr: What do you like best about trading?
Brian: Being an engineer, I love solving problems and working with mathematical systems. The stock market has been the hardest problem for me to solve, simply because it is not always logical. Traders’ emotions too often dictate short-term direction. The other thing I like about trading is the freedom it offers, and the sense that nobody else but me is responsible for whether I succeed or fail. I don’t let myself fail, and if I do, I have to try again until I get it right.
StockTickr: When did you start your blog and what prompted you to do so?
Brian: I started my blog in August of 2006, for two reasons. Number 1, it is a form of journaling, and by publishing my methods to the world, it holds me responsible and helps me to remain disciplined. And number 2, I wanted a chance to teach other traders what I have learned over the past few years. If I can help just one person become a better trader, I will consider it a success.
StockTickr: Thanks, Brian.
Brian: Sure, Dave!
Stay tuned – there are several interviews on the way. You can subscribe to these interviews via RSS feed.
- Doug Hischhorn
- High Patterns Chart Group
- Zoomie, retired fighter pilot
- Trader Gav
- Will Fisher
- Tom C.
- Michelle B.
- Elliot Dole
- Jon Tait, the Fickle Trader
- Bill Rempel
- Roger Nusbaum
- Dave Johnson
- J.C., the NYSE Scalper
- Brian Shannon, AlphaTrends
- Jamie, Wall St. Warrior
- Howard Lindzon
- Kernan of TRADEthemove.com
- Richard Todd
- Andy Swan
- Steve Nison of Candlestick Charts
- Dan Mirkin, 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!