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.