Steve Burns - Author of New Trader, Rich Trader

In this episode of the Chat with Traders podcast Aaron Fifield interviews Steve Burns. Steve is a successful trend following trader and the author of several books including the New Trader, Rich Trader series. In the interview Aaron and Steve discuss in detail the traits that separate new traders and rich traders.  The interview focuses on the importance of risk management and having a sufficient knowledge base.  The interview focuses on many of the same trading principles that are the focus of The Voodoo Trading Journal. Steve started trading in the mid 1990’s and initially benefited from the dotcom boom. His real transformation to a successful trader really came from the lessons learned during the subsequent crash in the early 2000’s where his account had a 50% drawdown.  During this time, he learnt the importance of position sizing or risk management which he attributes as the many reason for his long-term success as a trader.  In his evolution as a trader Steve experimented as a day trader and a value/fundamental trader but settled on swing trading as his preferred trading timeframe.  Steve discusses how he modelled his trading method after the trading strategy described in Nicolas Darvas’s book How I Made $2,000,000 in the Stock Market. Steve’s best piece of trading advise is from Larry Hite; “As long as you manage your risk and go with the trend this just has to work”. His favourite trading books are Market Wizards by Jack Schwager and Trading for a Living by Alexander Elder.  This is a relatively short podcast at just over 30 minutes but it packed full of good information that will definitely make you a better trader.

Trading advice from the Podcast that will make you a better trader:

  • Most traders fail because they trade too big and are too aggressive.
  • In developing your trading strategy, you should always be looking for the best way to capture the long-term trend.
  • Don’t try and predict the direction of the market simply react to what it is doing.
  • People are obsessed with predictions but the truth is that nobody can predict what the market is going to do.
  • “Get on a rocket and let it fly”.
  • To be a successful trader you don’t need to be an expert on technical analysis. Focus on price action, support and resistance and volume.
  • Steve does not use fundamental analysis and does not watch the financial news.
  • Indexes are typically in an uptrend if they are trading above the 200-day moving average.
  • Steve uses an RSI oscillator to buy pullbacks within the uptrend
  • Also buys breakouts above 200 DMA and new all-time highs.
  • Steve enters a stop loss as soon as he purchases a stock. On breakout trades the stop loss is just below the breakout level.
  • Steve never risks more that 1% of his trading capital on any one trade.
  • Uses volatility of the position he is trading to determine his position size.
  • Uses a trailing stop loss for winning positions to lock in profits and capture as much of the trend as possible.
  • Remember if you have a 50% drawdown it takes a 100% return to get back to even.
  • Educate yourself first and then trade. Most traders start trading, lose money then commit to learning how to trade properly.
  • Don’t start trading until you have a trading plan/strategy that you have backtested
  • On average only 10% of traders are profitable and these are usually the traders that put a focus on managing risk.
  • You need to find a trading strategy or plan that fits your personality.
  • You need to develop trading rules that work for you and not try and use someone else’s trading rules.
  • You must have the discipline to follow your strategy. You can have the best trading system in the world but if you don’t follow it you won’t be successful.
  • You must have perseverance to be successful. You must have faith in your trading strategy so you can keep trading.
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