Brian Shannon started his career as a stockbroker at firms such as Lehman Brothers in the early 90s before moving onto trading full time. His first trading gig was working for a firm specialising in leveraged trading. Next up he took a position at a “better-funded competitor”, leading its proprietary trading programme and creating a series of courses. He started Alpha Trends as his own trading office before developing it into a subscription insights service focused around technical analysis using multiple timeframes. He continues to actively trade daily and is a prominent voice on Twitter [TWTR] and StockTwits.
Here are his tricks of the trade.
I mostly swing trade. I don’t have the patience to be an investor and I don’t have the concentration to be a day trader. But I understand the markets really well and how money moves in and out of them, so that works best for my personality; it’s active enough, an intellectual challenge and I still enjoy it – plus I make money.
Trading is a journey; you have to adapt to your own personality. I started out as a swing trader, then got pretty active in day trading, but when I began to feel like I’d lost my edge in day trading I listened to my results and I expanded my time horizon. Over the past five or six years I have gravitated back towards swing trading, to the point that I'll take a day trade if it’s in front of me and it's obvious, but I don’t actively seek to be a day trader day in, day out.
“Over the past five or six years I have gravitated back towards swing trading, to the point that I'll take a day trade if it’s in front of me and it's obvious, but I don’t actively seek to be a day trader day in, day out”
I primarily trade individual equities. I find my ideas by doing manual scans of large lists of stocks. I have some general parameters: they have to trade at least half a million shares on average over the past 20 days, price doesn’t matter so much, but I tend to trade most actively in stocks of $20-60 per share.
I’m typically in a trade from three to eight days. Unless I’m wrong right away – then it will be an inadvertent day trade. After three to eight days is generally when you start to see deeper pullbacks that I’m not interested in holding through; it’s not that I actually choose how many days to hold, I choose where to put my stops, and when there’s a deeper pullback within that trend, and then I’ll get bounced out.
I have a master list of stocks that I predominantly look for ideas in. There’s about 700 stocks on the list that I review once a month. At the start of each week I whittle down the list to a group of about 150 that I think might be good ideas. Each day I look at the shortened list and seek out what appear to be the low-risk, high-probability swing-trade set-ups for the coming day.
I trade using multiple timeframes. I have a weekly chart, a daily chart, a 30-minute timeframe, a 15-minute timeframe and a five-minute timeframe so I can see five time-frames at once. This allows me to see the interplay of bigger trends with shorter-term timeframe trends.
“At the start of each week I whittle down the list to a group of about 150 that I think might be good ideas”
I don’t have a certain list of criteria that I check off. What I’m looking for is a stock that’s trending on a longer-term timeframe like a daily timeframe and then it may have pulled back on the shorter timeframe. I’m not looking to buy as it’s pulling back – I don’t guess, I wait for evidence in the shorter-term timeframe to show the equity has stabilised and then as it begins to turn higher again – back in the direction of the primary trend – I put my money in with the stock. It’s all about looking for alignment: the stock is in an uptrend on the daily timeframe, it's pulled back, it's gone sideways, and now it's looking like it’s ready to re-emerge into that uptrend again. It’s basically the concept of my book Technical Analysis Using Multiple Timeframes.
The volume-weighted average price has become my primary analysis tool. It allows me to say very objectively where we are in reference to a previous high or low, who has control, who’s gaining control, who’s losing control at any given point. It’s a tool I've been using for 14 years and the most important piece of the puzzle for me because it accurately measures true supply and demand dynamics from any point in time.
I set alerts on stocks I’m interested in. For instance, if I think a stock is going to break a near-term level of resistance if it gets above $35 a share, I’ll set an alert at $34.95. So if my eyes aren’t on that stock, I’ll get an alert ahead of where I think the break out is, so I can start to pull up a level two, look at the shorter-term timeframes, make sure that there isn’t something I’m missing about the trade, and then I’ll start to really watch it carefully.
“The volume-weighted average price has become my primary analysis tool. It allows me to say very objectively where we are in reference to a previous high or low, who has control, who’s gaining control, who’s losing control at any given point”
It’s important to understand the personality of what you’re trading and the type of people that are trading at various stages. Take a marijuana stock that’s going crazy and you're getting every kind of gunslinger in there; it’s going to be a very emotional crowd, so you’ve got to be prepared to move quickly.
I take partial profits when a trade moves in my favour. I like to have that comfort of being in a stock from a position of strength, and then if I get stopped out I’ve already taken a little bit of a cushion to absorb some of that stop loss. But it doesn’t bother me at all if I take a small profit and then it continues to go higher because that’s just part of the process, it’s part of the plan.
I don’t typically have price targets. I look at price as relative to where my risk is; if it looks like there’s an opportunity for the price to move higher, and if so, where’s the potential it has to go to. I’ll take partial profits as it does move in my favour, but then I’ll continue to raise stops under what I call the most recent relevant high or low for a long position for my timeframe. That way the market tells me when to get out by breaking the definition of trend for that timeframe. If it continues to make higher highs and higher lows, then I can raise my stop comfortably and I will continue to hold it.
It’s up to the market to tell me if and when I’m right or wrong, it doesn’t care about my opinions. I review a trade if it’s gone wrong to see if I implemented something wrong, but I don’t have a grieving process. It’s business, I forget about it, move on and look for the next trade.
“I review a trade if it’s gone wrong to see if I implemented something wrong, but I don’t have a grieving process. It’s business, I forget about it, move on and look for the next trade”
I’m generally aware of the fundamentals on a cursory level. I don’t do a deep level of fundamental analysis, but I’m aware of the general sales and the earnings trends; that would be what I’m most focused on when it comes to fundamentals.
My biggest losses have always occurred when I’ve been fighting trends. When I’ve thought, “It’s down too much,” or “It’s got to bounce” – essentially buying a pullback rather than waiting for the pullback to settle down, establish some support and maybe start to turn up a little. It’s why I don’t try to pick bottoms, but work to capture some of the resurgence of upward momentum.
I just want to do my own thing. That’s why I’ve stopped trading other people’s money. I’ve had a couple of different funds I’ve worked with as recently as last year, but it’s different for me when I trade with people’s money, I feel like my every move is being watched. Also, as difficult as it is to manage money, managing clients expectations can be more challenging!