The Pro’s Process - Brian Shannon

The sixth in my series of posts asking Pro Traders about their psychological processes.  Delving a little into how it feels to them when trading.  The good and the bad.  How this has changed over time and what preparation they do mentally for performing as a trader.

One of the key features for me was that I wanted traders with experience who have been through the mill over the years and of course those who were kind enough to broach this subject publicly.  This I hope gives developing traders more to learn from.  

I’m very fortunate to have a great line up and this week is: 

Trader: Brian Shannon

1) How long have you been trading?

I started as a full time trader in 1993 with a proprietary trading firm based in NYC.  

2) What style of trading / investing do you practice (technically driven, fundamental, systematic, a combination etc)?

I am 95% technical in my determination of entry and exit points (except for rare emotional reactionary trades- which usually don’t work!) and I am generally aware of what the company does or I may skim some stories about the company but I try not to let my opinion of the business affect how I trade the stock.

3) How do you feel when a trade goes against you?

Initially I feel like my timing wasn’t as good as I had hoped it would be, so I am on very high alert to make sure I do not allow it to turn into a larger loss.  When I am trend trading I am very quick to take a small initial loss and then get back in if the stock recovers, but avoiding large losses is a very satisfying feeling and helps keep me focused so I don’t mind getting back in soon after taking a small loss.

One of my weaknesses in the past has been to buy a little more  of a losing position in an attempt to average lower because I think the stock is “down too much” and I tell myself that if I sell I am probably hitting it out at the lows.  This type of loss typically comes when I am attempting to catch a “bounce” in a stock, and they usually end up being my largest losers!  Yet…. there are a few times a year I will find something that looks so compelling that I break my trend following rules and end up getting what I deserve for breaking discipline.  When I have a large loss, 99% of the time it is because of my actions, not because I was “unlucky”  After making this type of error I refocus, trade smaller size and get my money back!

4) How do you feel when a trade goes for you?

I feel relieved not to deal with the stress of a losing position and I then begin to focus on making sure that 1- I dont allow the trade to turn into a loser and 2- that I can maximize the gains as much as possible.  I am always on the alert for potential levels where the momentum may slow and often trim partial size when those levels are obtained .  Some of the common levels I look for are intraday pivot levels (mainly R2 or S2) or a prior level of consolidation in the stock.

5) How have these feelings changed over your trading career?  (Can you recall how you originally used to feel and elaborate on how this has changed over time?)

I have always had a  strong aversion to losing money and taking small losses has come more naturally to me than many other participants I have seen, I feel lucky for that and it has definitely added to the longevity of my trading career.  Over time, I have become more skeptical of some of the more speculative stocks which I am attracted to and that has helped me.  I used to have a greater tendency to swing for the fences, but my defense has become much stronger.

6) Do you have any practices that you do away from the trading screen to help you mentally and emotionally handle trading?

Stress from trading doesnt affect me as much as it used to but it is still a source of it and I am much better at recoginzing it that I used to be.  The quickest, most effective thing I can do when I need to emotionally recharge is to workout, a run is usually the best way to accomplish that emotional balance.  I am very fortunate to have a very smart, supportive and understanding woman (twitter users know her as Bond Girl) who really has a great talent for simplifying things and putting them into perspective.   I also can get lost in music sometimes and that brings me back to a more even keel if i need it.  And on occasion, I drink more beer or wine than I should, alcohol never makes me feel better in the long run, but it has its soothing moments…

7) Have you always done this? 

No.  it used to be much more difficult for me to recognize when I am stressed.  I prided myself on being an “unemotional trader” and going back in to fight.  Over time the urge for battle with such a difficult opponent (the market) on a tick by tick basis has diminished as I have matured and become more patient and introspective of the process. 

8) If not, how have you learnt to deal with the feelings that come up when trading?

Largely the school of hard knocks!  I have benefited from  one on one training from mental coaches.

9) Can you describe a time in your trading life which really rammed home the point that so much of trading comes down to psychological factors?

I cannot remember specifically, but I think it is something which has evolved over time.  I like the phrase “the market doesnt care what you think.”  That is so true, we need to understand and get in synch with the market, it will not bend for us.  My work focuses on technical analysis but not because I think it is important to recognize patterns and expect them to repeat.  I look for patterns in the market and try to understand the motivations and feelings of the participants who might be; long, short or in cash watching.  I try to gather what the collective emotion is and where there are low risk turning points and I can participate in an established trend.  Psychology (both personal and the collective emotion of the participants) is definitely one of the most important factors for successful trading, especially on shorter timeframes.

10) If you could give aspiring traders one piece of advice about emotionally handling the market what would it be?

Here is another phrase I love.  ”If you don’t know who you are, the market is an expensive place to find out.”  You cannot learn trading using a simulated account, you need to have your money in the game, because you WILL have your emotion involved, like it or not.  Emotions have been referred to as the enemy in trading but I think they can be a good warning for us as well, but only if we are capable of really understanding what we feel.   I think that to succeed in the markets you need to have a unique mix of confidence (but not cocky) and skepticism (but not cynical).  You also have to have a quick mind which is capable of letting go of an opinion when your thesis changes, because the market does not care what we think.  Last point, have a partner who really understands what you do and find ways to separate the hardcore trader personality during market hours to the kind caring person that people want to be around when the market isn’t open.  

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I’d like to thank Brian Shannon for sharing about the way he tackles the market from an emotional / mental side of things and for his willingness to allow me to post this as a free resource in the hope that traders who have been in the market for less time or are thinking of entering can perhaps pick up some A-HA’s.

If you are interested in finding more out about Brian Shannon you can find him:

On twitter @alphatrends

Or on his website: http://www.alphatrends.net/

He is also the author of Technical Analysis Using Multiple Timeframes which you would be wise to check out.

Brian is also an investor in http://www.stocktwits.com

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Previously in the series:

Charles Kirk - read it…..here

Matt Davio - read it…..here

David Blair - read it….here

Mike Bellafiore - read it….here

Mark Holstead - read it ….here

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Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.