Brian Shannon is an experienced and successful trader, speaker and educator. Involved full time in the markets since 1991, he has worked as a broker, owned a day trading firm, managed a hedge fund, ran a proprietary trading desk while simultaneously being the most profitable trader of that company. Brian’s work has been published or written about in Technical Analysis of Stocks & Commodities, Barron’s, Active Trader, Stock Futures and Options Magazine and several online sites.

It was a genuine pleasure to get to speak with Brian about how he identifies trading opportunities. This is the second part of that interview.

Optionetics: Are your trading systems geared more toward long-term strategies or short-term strategies?

Brian: My personality is geared towards a swing trade timeframe of up to 5 days, but being in a bear market as we are, I have shortened my timeframes dramatically and the majority of my trades are closed out at the end of each day.  When the market stabilizes and the new leaders emerge I anticipate that my holding time will stretch out again.

Optionetics: What are some of the key rules or factors that you consider before selecting any potential trading opportunity?

Brian: Trading with the trend of the timeframe I anticipate my hold time and ideally trading in the direction of the trend from larger timeframes as well, I wrote a book about it…

Optionetics: What are your favorite markets that you like to trade and track with your analysis tools?

Brian:  I track the QQQQs most closely and I like to daytrade the leveraged QID and QLD based on how the Qs are trading on a 1 minute timeframe.  I also trade the SPY and IWM along with the leveraged long and short products for those markets.  For individual stocks, I prefer to trade those long so I haven’t been as active as I am in the index products lately, but when the market can turn around I will trade several stocks each day in addition to the indexes.  My analysis tools are really simple; multiple timeframe analysis using price, volume, moving averages and I find the VWAP particularly useful for shorter term trades.

Optionetics: What is your most memorable trade?

Brian: Good or bad?  Good, probably the week or two after 9/11.  When the markets reopened, I was prepared with a list of security stocks I thought would benefit from a move to a more secure world.  I did very well with stocks like: VSNX, INVN, MAGS, and a few other stocks, many of them are no longer trading for whatever reason but they were great trades at the time and I was loaded very heavily in them.

Bad, was probably in TASR.  When TASR was making its huge run in 2004 I was trading it long very well.  For some reason I thought I could pick a top in the stock but the common shares were impossible to locate for a short sale.  I thought I was pretty clever for figuring out that you could short the warrants and made some really good trades short, which boosted my confidence. 

At one point the warrant trade went against me by 2 or 3 dollars so I shorted some more and repeated that stupid action another 3 or 4 times before I realized the stock wasn’t coming in.  I took a big loss on that trade but was profitable with TASR overall during that run.  I would say it is most memorable not because of the dollar amount, but because I broke so many of my rules and basically became a gambler.  I hated myself for it at the time, but it was actually a good learning experience.

Optionetics: With all the different technical as well as fundamental analysis tools out there how does a new trader avoid information overload or "analysis paralysis"?

Brian: That is something that usually occurs after time.  We all want to find the “perfect indicator” or tool, which leads us to look hopefully at anything new that comes along, but in the end it is only price which pays us, so that is where the majority of the attention should be focused.

Optionetics: Thanks, Brian, for speaking about your trading approach with our Optionetics reading audience.

To read previous installments of this interview, please click here.

Jeff Neal 
Senior Writer, Options Strategist & Profit Strategies Radio Show Market Correspondent
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