Thursday, 24 December 2009

Not Floored

Yesterday's comment by Rino brought back a few memories that are still relevant to todays' trading.

My market on LIFFE was the Bund. It was the German Bund in those days and traded in Deutsche Marks. I traded it on the first day it was listed on LIFFE. Neither the German Bund or Deutsche Marks exist today. The LIFFE floor is no more.

I saw the writing on the wall pretty early. LIFFE had an electronic trading system but only used it after hours. I told everyone I could that they should make it a 24 hour operation. No one wanted to hear it as there was a vested interest in keeping the floor. As soon as my clearer got a Deutsche Terminal Bourse machine, I started to try and trade the Bund in Germany. In those early days you had to trade on a DTB computer connected to the DTB and be licensed by them. There was no PATS or any other way of trading from home.

I lost money for quite a while. And, I had an advantage because I had used computers for trade analysis before I went down on the floor. But the dynamics of trading an all electronic market was very different to trading a physical market from upstairs. The difference in volatility was amazing. When the floor was finally closed, many of the people I know could not make the transition to trading electronically. It was a different business. Many of the people down there only made money because they were very quick, or because they were friendly with brokers who brought in the "paper" (customer orders). They just didn't survive.

The runners who were employed to run orders into the pits from the booths and to check trades had been the source of new traders for the industry. They served a kind of apprenticeship and learned from the guys who they ran for. All this is gone. Learning to trade has changed with the times. Snake oil salesmen have saddled up their wagons to the internet to ply their trade again. Its hard to tell what's snake oil and what's real penicillin or viagra.

Traders had to make a major adjustment to be profitable. In today's markets, traders still have to make adjustments on a continual basis to be profitable as the markets change. Maybe not as drastically as transitioning from the floor to electronic trading but adjustments none the less. But, and in my opinion, this is a huge but, your trading approach must remain consistent as the markets evolve. Having a methodology that is not able to evolve means that you have to throw it away and re-invent a new one quite often. And it also suffers from the same flaw as automated computer trading -  you don't know when the methodology is no longer working.

I know if I am trading badly because my trading stats change. It jumps right out at me. As I have said in a previous post, I change stops and targets in line with volatility. Its pretty automatic. But I don't change the way I trade.

My trading context, the Profile, changes automatically with changes in volatility so I don't need to do anything there. My bar charts are the same. Even in the super volatile markets last year my range bars did not change although I did think about it.

I wish you all and yours, Happy Holidays, and may 2010 bring us all everything we wish for others and ourselves.


  1. Happy Holidays to you too, thank you for sharing your expertise.

    One question, you said you didnt change your range bars in volatile times. Does that mean you had them in the same range, like 1.25 point?

  2. I wish nice Holidays to you and Kiki and all participants of this blog. . I have to admit nearly each free moment during Christmas I spent by reading your great blog and study your charts. Its pity that time is running very slowly and to seminar is 19 days .... so just patience and look forward. :) Please I have questions:
    1 ....Do you consider as significant take whole day data (RTH+ Globex) for determination POC, VAH ,VAL either TPO or VOLUME profile ??? If you use just RTH data levels (mainly for volume profile) are often same but some day no.

    2.. Is not clear for me ,if you split whole day (RTH + Globex)TPO profile for 2 distribution areas do you determine for every area separately POC, VAL,VAH ???? I think no.....
    3....Cumulative volume breakdown is cumulative from day that is setting as first day of given contract in charting platform (or from roll-over day) (and smoothed by 9 of course ) ??? Or it doesnt matter from which day ??? Thank you.

  3. Tom,Kiki,
    Merry Christmas and happy New Year.
    Looking forward to the webinar.

  4. Janusz, Thanks. Yes, 5 ticks for ES, and 10 for Dow Euro 50
    Kuky, thanks. I don't really look at TPO count, rather at where the TPOs (volume) is going. I look at both RTH and the whole day. The significance depends on the distributions. No, My CVD is continuous. It does NOT start afresh every day as I the markets are 24 hour and I want to see the volume flow continuously.