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Interview with a Trader: Inside the Mind of Steve Burns

Steve Burns has been successfully investing in the stock market for more than 20 years, and has been an active trader for over 14 of those years. He is the author of 13 trading books in total, 6 of which are #1 best sellers on Amazon.com in the Stock Market Investing Category. He ranks near the top 1,000 of all reviewers on Amazon, and is one of the site’s top reviewers for books about trading.

Steve has been featured on several sites and within numerous publications, some of which would include DarvasTrader.com where he was featured as a top Darvas System trader, and has been interviewed by the Wall Street Journal, Traders Magazine, Michael Covel (creator of Trendfollowing.com,) and now of course, by TraderMentality.com. He has also been a contributor to Traders Planet, ZenTrader.ca, and SeeitMarket.com.

Steve currently resides in Nashville, TN with his wife and business partner, Holly, their three children, and lots and lots of cats.

The Interview

He took some time away from his busy schedule to answer some questions for me:

What first influenced your interest in the stock market?

“As a teenager, I was always fascinated with what drove stock prices, and I loved the concept of free market capitalism. I thought the rate of growth through compounding returns on money was magical, and wanted to do it myself in the real world. By March of 2000, I had enough in my first investing account to pay off my first house. After that, I was hooked for life.”

What methods/strategies have you pursued that have failed for you in the past as a trader?

“I was not patient enough to be a value investor. After all, it could take years for a stock to be valued correctly. I also didn’t enjoy sitting in front of a screen for 8 hours a day as a day trader. That wasn’t what I wanted to do with my life.

It was either wait for years for a stock to come back, or waste my life on screen time as a day trader. So instead, I ended up in the swing trading/trend trading camp focusing on the open and the close for trading decisions. I wanted to get paid for good trades on a weekly and monthly basis, and still have a life outside of the screens during the day.”

Who are influences/role models for you that are relevant to trading and why?

“Alexander Elder showed me the importance of combining the mind, method, and money management for trading success.

Michael Covel showed me the power of reactive technical analysis and the trend.

Jack Schwager let me look inside the thoughts and process of the world’s greatest traders with his interviews.

Van Tharp really explained the process of risk with his ‘R’ process.

Mark Douglas was the master of trader psychology.”

When/what was your “ah-ha” moment? What was the breakthrough?

“When I quit trading fundamentals, when I stopped trading too big, and when I simply reacted to the price action in a systematic way. As a result, my returns and drawdowns became much more consistent, and trading was no longer painful or emotional for me. Drop the ego and the predictions and follow a winning system and the trend.”

How would you best describe your trading style?

“I am a swing trader that trades in the direction of the dominant trend. I strive for small drawdowns and my edge comes from maximizing bull markets through leverage and minimizing drawdowns during market plunges and bear markets.”

What key rules do you apply to your own trading?

“I never lose more than 1% of my trading capital on any one trade through proper position sizing and setting stop losses.

I am an aggressive bull when in bull markets, and trade short and small in bear markets. I trade the market leaders, not the laggards. Moving averages show me the trend. RSI shows me when the trend is about to bend. MACD shows trend turning points. I trade the market based on predetermined signals.”

What do you look for in the stocks that you trade?

“I want the stocks of the companies that are changing the world through their business model, products, or technology and are pressing all time highs above all key moving averages.”

What do you feel sets the great traders apart from the rest?

“The great traders are slaves to the markets price action and keep their own egos in check. The great traders I know personally are humble, generous, and learned their trading lessons the hard way, by losing money.”

What can you tell readers about your risk management approach?

“My goal is to never lose more than 1% on a single trade when it goes against me. I do not want to be exposed to more than 3% total risk at one time in correlated positions.

I want to be in losers briefly and move on if I do not make money pretty fast. I try to limit my drawdowns in capital to 5% each year. Risk management is my #1 priority. I want to keep what I have more than try to go for big winning trades.”

What trading moments make you the most proud?

“In my main accounts I averaged +20% returns from 2003-2007 and went to cash in January of 2008 in those accounts suffering no drawdown in 2008.

I traded Apple and Priceline breakouts in the 1st quarter of 2012 with weekly option rolling a 52% return in 3 months. I made a 100% return on options in a big Apple strangle in mid 2012 in an overnight trade.”

The most upset?

“I suffered two 50% drawdowns in my trading accounts over the last 16 years through trading too big and aggressively.

I learned the lessons of position sizing and trend fighting the hard way. I came back from both drawdowns to return to all time account highs. It is hard road to come back from. I advise not travelling it. It tends to break most traders.”

What books, websites, or other resources would you recommend to those wanting to broaden their trading knowledge?

I tried to create the most affordable and informative books and e-courses on the market for new traders to get them started. I use stockcharts.com, ETFreplay.com and Finviz. I strongly advise educating yourself before you start to trade. The books from those I mentioned before, Michael Covel, Alexander Elder, Van Tharp, and Jack Schwager were all life changing for me.

What advice can you offer readers regarding position sizing?

“Trade small enough where you emotions don’t interfere with you following your trading system and trading plan. Never losing more than 1% of your trading capital on one trade is a great place to start.”

A lot of traders plateau and have trouble evolving beyond this level. What advice can you give to them?

“Never stop learning and growing as a trader.

Focus on where the trends are every year and never stop growing.”

Now that you have developed into a successful and profitable trader, what are you doing to better your skill?

“My blogging and book writing forces me to grow and solidify my trading in my writings. It keeps me from getting sloppy or lazy.

I also post my trades on twitter and in my private twitter group so I am always accountable for why I am trading something.”

Any habits or methods that you use that others might think is unorthodox?

“I don’t care about fundamentals, I care about price action. I don’t watch CNBC anymore. I don’t predict price action, I follow price action. I care more about moving averages than the news. I trade primarily the first hour and the last 30 minutes and consider most of the daily price action just noise.”

For those who are just beginning to get their feet wet, what advice would you give or direction would you point them?

“Learn to manage your emotions and your ego, they are expensive things in the market. Trade small so you survive. Do not put money at risk without first having a trading system and a trading plan for how to implement it.”

Any advice for those traders who are already successful?

“Never believe you have arrived and can take money from the market at will. That will cost you.”

What would you like your “legacy” as a trader to be?

“My goal is to bring up the survival rate of my audience of new traders by focusing on risk management, discipline, and rule based systematic trading. If I can inspire one trader that goes on to be a millionaire or even billionaire then that would have made my work well worth it.”

I want to personally thank Steve for taking the time to share his thoughts on the above subjects with us. A brilliant financial mind to share.

Follow Steve on Twitter @sjosephburns

Steve’s website NewTraderU.com

If you would like to recommend a well respected and credible trader for TraderMentality to contact regarding an interview, email [email protected] or DM via twitter @tradermentality.

Steve Burns