Steve Burns – a successful, trader, who has pusblished several books and his latest book is the bestseller “New Trader, Rich Trader”

What are the traits that separate new traders from successful traders?
Steve gives us a bit introduction and background to how you have started strading?

I’ve always been fascinated with numbers and the technical part of the stocks’ market. I remember looking at the stocks tables in the newspaper as a kid. I don’t remember a time when I was not fascinated by the stock markets. I have started trading and building capital since 18-19 years old, since I was a teenager – old enough to invest on the market
How did you know what you were doing? Where did you learn from?

I have started more as an investor so I really looked at the fundamental part. So I was looking what companies I like what companies. I would study the price of the stock of the company on a daily basis for the price action. I was looking at the fundamental earnings growth and what will happen to the company’s trend like the performance of the company so I can project which company will grow.
Did you have much success right away?
I had the success of trading in the 90s. . It was so much easier in the 90s. I was in technical stocks for the much of the 90s. There were very few pull backs and a lot of expected growth in the tech.
So I got very spoiled and I couldn’t adapt fast enough to the changes in the 2000 and had to learn that stocks don’t always go up. In the late 90s I had to learn how to trade properly to survive to 2001 , 2002

What are the things that you struggled with in the beginning?
Trading too big and being too aggressive – taking a too big position’ size. As I was so lucky in the 90s , and I was so successful, I had to learn how to estimate position’s sizes so I don’t end with too big loses. Before you know it you end up 50% down. From 2003 onwards my main focus was on risk and not having a drawdown

I heard about the drawdown. What do you think had led to that?
I didn’t know the dynamics of shorting, buying protective puts, I understood everything from what I was looking at from when I was a child. From the mid 80’s until the beginning of the 2000’s was pretty much straight buy except some bearish movements and you won in the long term. So I was so long term biased that I could not believe that the NASDAQ fell from 5000 back to 2000 or so. So I have learnt that the market could go both directions. You can’t just buy and except to win in the long term. You can be stagnant as I did from the beginning of 2000’s until 2011.
Before we move on. What gave you the confidence to continue?
I have learnt from my 20’s when I had enough capitals to buy my own house that beats the heck out of 30 years mortgage. SO I knew the potential was there given the right trends and the right trading technology. I preferred this then giving my time to an employer. So I knew the potential was there and I knew I could do it again. What other job is there with so much potential?

Tell us about your approach to trading/ your style?

Everything I do is to be based on trends whether the longer term trend or the short trend or even the swing trading in the prevailing trend. So everything I do is based on the trend how can I best capture a trend. Even in the options where you are betting on the lack of a trend. Filter of a trend for each time frame

You have tried different ways of trading – day trading, value investment . Why this approach is better?

I like the reactive techical analysis approach, where I do not try to predict anything I am just trying to react to the market direction. I am not trying to beat it, I am just following the trend and is much easier than trading fundamentals – you think an untapped value is hidden in the price and you wait until the price move. Or day trading where you stand in front of a computer for 10 , 11 hours and earn nothing. All the big money I have made are in a trend where I have bought a stock, an index held it for a longer period of time following a trend, not trying to steal few pennies a day. I just got on a rocket and let it fly.
Your approach is influenced on Nicholas Dalas system. Could you shed some more light on this approach?
I am not as aggressive as I used to be. I really was fascinated by the concept from he Dover’s system – a dancer that become a millionaire in the 90’s by only following the fastest moving stocks based on nothing but the price action. I never look at the stock market during the day, so I don’t get into the drama of watching how the market moves. Simply buying the fastest moving stock if they fell under the support you sell them ,If they go up I held them until the trail has stopped. I have made a killing which goes against any common sense. His approach so simplistic but he was so much ahead of his time.
How did you discover and learn his system?
I found his book and I thought it was ridiculous but then so many people were talking about it and I have decided to read it. I have found his approach so fascinating because of his simplicity and then to see the similarities to the modern day traders. He was talking about support and resistance but he called them Dovern’s boxes and looking at the psychological approach. He was looking at the heavily accumulating stocks by traders and he was playing with the psychology dynamic instead of predicting random dynamic or fundamental dynamic

Your trade is based on technical analysis. Do fundamentals have any impact on your trading?
Not any more. I have never made a lot of money on fundamentals All my money come from a fine capturing of long term trend.

You use so 100% tech analysis. No more fundamentals?
I have abounded fundamentals since 2008
No more news, no more fundamentals – only technical analyisis based on trends. I use chart trading and may be some psychological analysis – if the markets sell on news or sell of on good news but mainly chart patterns and quantitative charts, price action.

What does a good set up look to you? When do you decide to enter into a trade?
There are different trades – there are trend trades and swing trades. If the stock indexes are on a uptrend on the 100 and 200 moving averages, there is also the RSI oscillators – filter for swing trades where on a daily frame a 30 -35 RSI will give me a swing low bottom trade and the 65-70 RSI high a place to exit and lock my profits or even selling various credits on a high level . I also use MAs like if it’s in a price range for a long period of time and it breaks the pattern and it reaches a new high I will buy it and I will trail it with a 5 day exponential moving averages or 10 day moving average and simply let it run

How do you manage your trades – where do you place your stop loses and take profits?

Once I have purchased a stock I put a stop loss. If S&P 500 broke over the 200MA, I will buy in the end of the day and then place a stop loss on a close below the 200MA so it can still fluctuates 100 during the day but the close below the 100 200 day that will be my initial stop loss . If it is a trend I will move my SL to the 10 day moving average. If the trend trails faster I might move to a 5 day moving average as my end of the day stop. I trade small so I do not need a physical stop but I use an end of the day stops. Whatever my stop loss is I intend not to loose more than 1% of my capital. So if I trade with 200 000, I will put my stop so I do not loose more than 2000 of my trading capital which is 1% of my account. I base my position on the volatility of the underlying equity. If the stock I am trading moves 2 dollars a day then I won’t trade 500 shares because eif it moves the full range I do not loose more than 2000 – 1%. So there is an initial stop loss to prevent very further losses, there is a trailing stop - if it is a winner I trail behind it, to get much of the trend as much as I can

Risk managements rules?

This is something that so many new tradersdo not understand. Everyone says that we need to risk 1% of our trading account and so many new traders and even more experience traders say that they do not want to trade with only 1% of their account but what it means is that you should not loose 1% , it doesn’t mean to trade with 1% . You can trade relatively large but you can put 25% of your account in S&P and if it 50% in it wil have to drop 2% for you to loose 1% of your account. So this is one way to trade large and not loose more than 1% of your account. If you have multiple positions I do not like to risk more than 3% in total risk. In any bad day I do not want to loose more than 3% of my trading account. At all times I have one position. I am very conservative. If I am on a bad trading day I do not wish to loose double digits numbers on my account.

So the 1% rule is something you stick to

I believe in it more now. If I have 1% returns on several trades on your capitals in a month you will have great annual returns without exposing yourself to too much risk. The danger come in the drawnback. What other people do not understand is that they need to earn 11% to compensate 10% losses. If you go down 50% in your account, you will need to earn 100% in your account so you can get back to even and I do not know many traders who can ralise 100% returns even in an year. So it is important to keep away from drawdowns.

If you risk 1% of your account, for the new traders with very low accounts, the market should wove quite away so they can even cover the commission.
The biggest mistake that new traders do is that they start with very small accounts then they bulk them selves up because they couple of thousand as they need to earn just to cover commissions they have to earn so much, so they trade with large positions and risk a lot of their account on indiviual stocks. The probability is that 5-10% per trade you will need just a few losses in a trade and their account is blown away. SO they need to wait and build enough capital to trade properly because the math goes against them when they are risking too much money at one time as yu are going to loose too much when something happens and for the trend followers, when the trend reverses imagine how much they are going to loose.

What would you suggest as a good capital
If you want to trade in long term monthly – 5000
If you want to be an active trader and be able to deal with the commissions and ride the trend and serious traders – 25 000 – 30
Is that a good idea for someone who is not traded before? Is it a good idea?
No .They get things wrong. They put money in and start trading and then they loose and then they start educate themselves. Most of the times they spent an year and a half or even a hear reading all the top trading books. If they educate themselves first and start very small land not get their emotions in because they loose 50 bucks, 100 bucks at a trade but they should never start trading before they have a complete trading plan and a system and they have done their homework first

You said in a previous interview – a new trader should first start studying ine year before and not do anything else and then to get to trading after he has done his homework.
Trading is a profeesion just like a doctor, a taeacher or a lawyear and I do not know many lawyears who get in the court without having studied beforehand. They need to educate so they can understand how the market is moving, to understand the risk management, how their own emotions are going to affect their trading how the emotions on the market will affect their trade and understand the historical patterns.
The 10% will be the successful traders and the other 90% will be the frustrated traders that they loose their money and do not know why they use their money.
How should they learn/ how should they educate?

So many free resources. They do not the right questions, new trader you – blog and his book. Once they know what are the right questions to ask, they can get into more advanced parts. Read about chart patterns, do some simple back testing an simple software. They should read all this books by successful traders that explain what they do . The new traders should educate themselves first.

Reading so mnay books, you might absorb some mixes messages.
They need to find what is for them.
Some are scalpers, some are purely mechanical – only exit and entries.
They need to findtheir own trading plan They need to have their own trading pla, methodology and system.
How do you find your style form all this information?
It is like a buffet you read different styles and techniques and you style your methodology according to your risk profile what your personality will bear as risk
Where is one area that you see that there are many people who are relatively new, make a lot of mistakes?
Obssessed with prediction. Everyone wants to predict. Future is not existing until day by day to it. There is no one who can go through all the information on the market. You can not predict. All you can do is trade every day based on what has happened today , support and resistance, trend, ma, volatility, you have to trade what the market is giving you. Anyone who says that they can predict the markets is lying to you.

What do you believe the difference between the traders who can make it and earn a lot of money and the others that don’t?

Think there are universal principles
The ones that made it are the ones that manage risk. If you do not manage risk and you put your entire account at risk you are going to blow it off as Victor Netherholf.
Also the discipline to follow the trading plan as no matter how good a trading plan is if you do not follow it it doesn’t matter. No matter how good someone is if he doesn’t have the discipline to keep its positions sizes right.
Reacting to what has happening. So predictors that believe that cannot be wrong they inevitably go wrong.
So risk management, discipline and reactive technical analysis, persistence. If they decide they are going to be traders and then the only thing that seperates them from being successful traders is time.

What advise do you have for any traders who struggle with the emotional side of trading?
The only thing that will get them through is to have faith in themsleves and faith in their system. They have to know that they are going to do the right thing and when the real money comes at stake, and they have to know that their trading is a winner in the long run and their risk management will keep them safe. They have to have faith. They should not trade too large so they do not get emotional in their trade. If you get emotional trade, you are dead. You have to stay unemotional ,it has to be just numebers, and executing a plan. You should not let your ego, fear, greed or fear to be engaged in your trade. It has to be a business transaction.