Brandon Fredrickson: Powerful Short And Long-Term Trading Tactics

We
are joined today by professional trader Brandon Fredrickson.  Brandon has been
trading for the past 10 years and has developed unique and effective methods
for consistently extracting profits from the markets.  His trading methods
combine fundamental and technical analysis and are applicable for short and
long-term trading horizons. 

Dave: Welcome to Real
World Trading, Brandon.

Brandon: Thanks for having me. I have
really enjoyed the site and think you are doing a great job here.

Dave: Can you tell our
readers a little about your history?  How did you get interested in trading?

Brandon:
Well, I grew up very poor in a rural area
and I always wanted something better for myself. Not just in terms of money,
but just to have opportunities, for myself and my family. The stock market
appealed to me and my Mom tells me I was reading Peter Lynch when I was in 6^th
grade; this was long before the stock market became the phenomenon it is now.
I got interested in short-term trading when I was about 14. I was taking a
Vocational Agriculture class and we were learning about hedging. I discovered
the miracle of leveraged short-term speculation and was soon the richest kid
in class. This was just a paper-trading account, so I could not really spend
it. But I thought that this had potential. For a long time my goal was to
become a floor trader, and in fact I was all set to go up to Minneapolis and
be a floor trader in the Spring Wheat market when I discovered I had a cyst
and needed to have brain surgery. I was only 19 years old and uninsured so
that took care of my savings and set me back a few years. When I got the money
to trade again I had done more research and the stock market seemed like a
better opportunity.

Dave: Do you have a
daily routine that you follow every trading day?

Brandon: I
think that it’s very important for a trader to have a routine that he or she
follows and keeps to. As you know, a lot of my trading is focused on taking
advantage of gaps, so I start off in the morning going over a lot of news:
upgrades, downgrades, earnings reports, FDA approvals and such. What I am
looking for is an item which can cause a stock to gap up a large amount
because when this happens you have an event that can give you an edge. For
example, yesterday (10/21/04), GOOG came out with good earnings and this is a
stock that has had a lot of interest. It had a huge gap up. When this held
well and did not substantially fill in, I was watching it to go long. I had an
alert to buy when it broke above $168.40 and was filled at 169.05. I decided
to hold this for awhile and trailed my stop out when it traded under 176.50. I
was filled at 175.90. GOOG is a not a stock I would recommend for the faint of
heart. I haven’t seen anything like it since SDLI.  Another idea I work with
is a variant perception, and I hate to use the same stock twice as an example,
but Google provides a good illustration of this as well. I have never seen a
major IPO come out with so much negativity by the major brokers and whatnot.
But if you look at this stock and where it’s at, you have to understand that
it’s one of those names that people are going to own. So funds are going to
buy it, and all the negative talk around it just puts more pressure. So on its
opening day I was able to trade that and held it until the 24^th for
a nice gain as well.

When I am managing a client’s money, I take a
longer-term approach. It is loosely based upon William O’Neil’s CANSLIM
method. I also have drawn very heavily on what Mark Boucher wrote in his book
The Hedge Fund Edge, especially about finding stocks that fit the
growth criteria but are undervalued and under-owned by funds. I look for
things that are really on the cusp and that has been great for me as well. For
example, Brooke Corp. (BXX) has been my biggest winner of the year. I bought
that on January 27^th for the first time and have added several
times since then. But I really liked it that during that period the stock had
a PE that was about 30% of the average in the S&P 500 and it had been growing
earnings like gangbusters and there were only two firms that had ownership in
it. Management owns 74% of it and so I really liked it. I entered it small
because I always scale into this type of trade, and their debt load is very
high, but as it has come up I’ve added and have just recently started to get
out because I think that the stock has just gone parabolic and is being
discovered, so I want to get out.

Dave: Interesting, would
you recommend this routine for a new trader?

Brandon: I would recommend some sort of
routine, whether it be this one or something else. But I think you have to
have some sort of consistent routine to be successful in this business.

Dave:  What does your
trading station consist of–screens, computer, data feed, etc?

Brandon: I have two computers, each with
three 20-inch flat panel monitors. I really don’t know much about computers
except how to turn them on so I don’t know all the specs of my computer. I use
Realtick 3 as my primary data feed and then I have Esignal as a back up. I
also have a Reuters Bridge Station for news. At night, I use Tradingscans.com
and Daily Graphs.

Dave: When choosing
stocks, what do you screen for?

Brandon: 
For my day trading I tend to look for a large gap. I find that stocks that gap
up an excessive amount give you a strong edge and I spend the majority of my
time looking for that. For my longer-term trades I also like to see a large
gap, and then I also look for the strong fundamentals and for a stock that is
relatively undiscovered.

Dave: Have this criteria
changed since you started trading?

Brandon: Not too much since I’ve known
what I was doing. My criteria used to be whatever Cheetah called and that
didn’t work too well for me. Since I’ve gotten past that phase it has stayed
pretty much the same.

Dave: Funny
Brandon—