Brian Shannon, a professional trader with over 35 years of experience, shares essential trading lessons including the importance of cutting losses, focusing on price action, risk management, and identifying market themes. He emphasizes trading strength after weakness, sizing positions based on volatility, and maintaining balance for long-term success.
Brian Shannon, a seasoned professional trader with over 35 years of experience, recently shared his invaluable insights on what separates great traders from the rest. In a rapid-fire interview, he covered 30 important trading topics, offering golden nuggets of wisdom that every trader can benefit from. Here, we distill his key lessons and advice for traders aiming for consistent profitability and long-term success.
Brian officially started trading in 1991 and became profitable within that year, thanks in part to his prior brokerage experience. One of his memorable early trades involved EMC options, where he made significant returns as the stock repeatedly split. He also navigated the challenging period around 9/11 by identifying security stocks that surged afterward, demonstrating his ability to spot opportunities even in difficult times.
Brian struggled with cutting losses and letting go of his opinions about the market. His biggest losses came from ignoring what he knew he should do, highlighting the importance of discipline.
Brian's favorite technical indicator is the Anchored Volume Weighted Average Price (VWAP). It combines price, volume, and time to reveal who is in control of the market from any chosen point, providing a truthful picture of market dynamics.
He prefers trading stage two stocks on a daily timeframe that have pulled back for a few days, settled, and then break into a continuation of the uptrend. This approach focuses on buying strength after weakness rather than buying dips or touches of moving averages.
Position sizing is based on dollar amounts and the Average True Range (ATR) of the stock. For stocks with high volatility (e.g., 20% ATR), he sizes smaller compared to stocks with lower volatility (e.g., 5% ATR). He manages risk tightly and aims for home runs but is content with singles and doubles.
Brian uses a largely manual process, reviewing about a thousand stocks weekly to get a feel for the market. He looks beyond sector ETFs to individual stocks to identify where money is flowing and to spot market rotations early. The strongest stocks often lead sectors and indices out of market bottoms.
Brian draws inspiration from contemporary traders like Ariel and Ted Zang, appreciating their energy, passion for learning, and ability to adapt to new market conditions.
This phrase emphasizes that the only price that truly matters is the price you pay for a stock. Regardless of opinions or indicators, price action is the ultimate scorecard. Managing risk and protecting profits around your entry price is essential.
Themes emerge from Brian's master list of stocks. He narrows down to about 200 stocks weekly and notes recurring themes, such as multiple lithium stocks preparing to break out. He also follows curated lists on social media to stay informed about emerging sectors.
Sell when the stock breaks the definition of the trend, such as violating the higher low in an uptrend.
Market trend influences position size. Brian starts with smaller sizes during uncertain market conditions and increases size as confidence grows, but reduces size when the market becomes extended and volatile.
Brian attributes about 90% of his buy decisions to technical analysis, with fundamentals providing context. He favors stocks with strong fundamentals as they tend to have a supportive buyer base.
When experiencing multiple losses in a row, Brian steps back, reduces position sizes, and sometimes takes a short break from trading to reassess.
Trading is like fishing because you never know what the reward will be or where the best opportunities lie. It requires patience, effort, and adapting to changing conditions.
Brian prefers buying strength after weakness, which aligns with his stage two stock setup.
Stocks with higher volatility and strong prior moves, such as lithium or uranium stocks, offer greater potential returns compared to stable, low-volatility stocks like grocery stores.
Traders often forget to manage risk properly, chase trades, and fail to accept that the market does not care about their opinions.
Focus on the trading process and especially on risk management to build a sustainable trading career.
Brian Shannon's insights provide a comprehensive guide for traders at all levels. His emphasis on discipline, risk management, and understanding market structure offers a roadmap to consistent profitability and longevity in trading. Remember, only price pays, and managing your risk around your entry price is the key to success.
