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.

This is the final installment of my interview with longtime equities trader Brian Shannon.

Optionetics: How would you characterize your technical approach to the markets?

Brian: Trend following utilizing multiple timeframes.  I look at technical analysis not as a system but as a method of looking objectively at market data to determine possible trading scenarios for the prevailing market environment.  If we can anticipate all potential outcomes in advance we will be less likely to be surprised by market activity which reduces the chance of emotions being allowed into the decision making process.

Optionetics: What do you think are the greatest misconceptions beginning traders have about trading the markets and about trading systems?

Brian: That you can take a class or buy some software then give up personal responsibility.  You have to take the information and learn to think for yourself and implement the tools in a way which makes sense to your personal situation.  Trading is a contact sport, you will get bruised and battered, emotionally and financially.  If you have a super strong defense you can limit the damage when you are wrong so you are in a strong financial and emotional position to take advantage of the low risk opportunities as the market presents them.

Optionetics: What kind of advice would you give a person just beginning to trade the markets?

Brian: Being that we are in a bear market, I think it is the best time to learn because it will help you establish a respect for risk management that seems to go out the window when we are in a bull market.  I would tell them to go slow, understand market structure and remember that rule number one is risk management.

Optionetics: Can you describe what your average trading and analysis day entails from preparation to execution?

Brian: That is actually a full chapter of my book, but in a nutshell… My prep for the next trading day occurs as soon as the market closes.  I manually scan through a long list of stocks to come up with 10-20 that I will watch fairly closely the next day.  The next morning I will take a closer look at those stocks to come up with what I believe are key levels where market activity may become more active and lead to short term trends which I can exploit.  I will set alerts a few pennies below (for longs) or above (for shorts) the key levels. 

When I am alerted I will then review the stock on multiple timeframes, paying most attention to the shorter term timeframes and formulating an exit strategy that will minimize the damages if the stock does not follow through as expected.  If the stock is behaving as I would expect, I will then pull it up in a level 2 screen where I can watch the activity closer and determine whether or not I will enter.  When I actually execute the trade I try to go on fairly heavy initially and scale out of a small portion of the trade with a small profit, this allows me to cover transaction costs and lock in a small profit which puts me in a position of initial strength. 

Assuming that the stock continues to move in the anticipated direction I will continue to sell small pieces into strength or as the stock reaches potential resistance levels.  If the stock travels higher still I will allow the final small portion to run until it makes a lower low on the timeframe I feel is most relevant.

Optionetics: What kind of decision-making process do you go through before deciding on a particular trade and a particular sector of the market that would be worthy of putting on a position?

Brian: I am more of a bottom up stock picker, but sector strength or weakness does play a small role in the decision making.  I am most interested in what appear to be low risk/high potential trades in a stock which has a history of making quick moves.

Optionetics: What type of analysis methodology do you employ to find great trading opportunities?

Brian: Technical Analysis Using Multiple Timeframes.

Optionetics: Thanks, Brian, for sharing your thoughts about the stock trading business 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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