Interview with an ex-floor trader.

Interview with an ex-floor trader.

And yep, again, same lessons to be learned.
Just a refresher for those that still need these lessons drumming home, and a bit of an interesting read.

Also, with a woman, seeing as Jay(Trout) opened that politically incorrect door yesterday ... I thought I'd rub it in.

JL: Hi, Sally. We’ll begin with an obvious question. What was it like learning to trade on the floor?

SL: Well, it’s a great place to learn quickly. Because if you don’t learn quickly, you’re toast! I asked lots of questions and focused on the traders who really knew what they were doing. The first few months mainly consisted of watching, observing and questioning. Then I finally picked up a groove where I developed my own unique style of trading.

JL: How did you handle being in a pit full of macho traders? Was there a lot of pushing and shoving?

SL: I wasn’t the type to be a maniac -- you know, jumping up and down and screaming. As a woman on the floor, I couldn’t push people around. So I had to be smart. Instead of doing what everyone else was doing, I focused on niches and overlooked opportunities, like finding price discrepancies between related contracts. My style was much more strategic and focused -- very different from the macho types who liked to duke it out and battle the bid/offer spread all day long. That would have driven me crazy!

JL: What lessons did you take away from your time on the trading floor?

SL: Mainly I learned about market psychology. Not just learned it in the textbook way, but really learned it inside and out. You can actually see, hear and even smell the major emotions like fear, greed and anxiety. It’s just incredible. Before I got drawn into trading, I was preparing to go to graduate school to study psychology. But the floor turned out to be the best human laboratory on the planet!

JL: Are there things you picked up on the floor that still strongly guide your trading today?

SL: Absolutely. Being on the floor helped me really see how the public tends to trade. Not just in the emotional sense, but also in regard to little things, like how the market is drawn to round numbers, or how stop-loss orders tend to cluster in predictable places. Those are just two quick examples. The “locals” -- lingo for traders in the pit -- pay a lot of attention to what the “paper” is doing. “Paper” is the nickname for customers sending in orders from outside the pit. That knowledge of how the public trades is still highly useful, even for trading off a computer screen.

JL: Any other big lessons?

SL: One of the biggest trading floor lessons is how easy it is to lose money. The business might look easy, but it can be very tough. A lot of wannabe floor traders didn’t make it because they didn’t have enough respect of risk. Others made millions of dollars, but then got sloppy and gave it all back. To make it as a floor trader, and keep what you make, you have to be very grounded in your approach and have solid money management rules. Risk management is critical. I really learned how important it was to cut my losses. When you make a mistake and recognize it’s a mistake, get out. Don’t wait for the market to take you out. The importance of that was really driven home on the floor.

JL: From past conversations, I know you did some business with the commercials, too.

SL: Oh yes. It was an excellent education seeing firsthand how the commercials operate. These are the players with the deepest pockets and the best information available. They are heavily active on both the futures side and the cash market side -- buying or selling the actual commodity -- so they have more knowledge than anyone. In the grains, for example, I kept a close eye on the big boys like Continental Grain, Cargill and Archer Daniels Midland. Understanding and following their strategies gave me an edge.

JL: Why did you leave the floor?

SL: For three reasons really. First of all, computerization was really beginning to change the business. I mean, computers have almost completely transformed things now, but even in the early days the changes were noticeable. As a result, I wasn’t enjoying it as much as I used to. Second of all, I wanted the ability to focus on more than one market at a time. With so many exciting new markets besides the agriculturals -- currencies, bonds, metals, indices and so on -- it got to be a drag being stuck in one pit, or else having to jump from pit to pit. And finally, I wanted more time to think and observe. As my interests grew, I developed a taste for trading in multiple time frames. I trade in multiple time frames to this day.

JL: Was it hard making the switch from floor trader to screen trader?

SL: I’ve heard that it’s hard for many floor traders -- especially those who were forced to make the move and never really wanted to leave. Fortunately, the move wasn’t too tough for me. I knew all the various “floor tactics” that many locals relied on to make a living, but I never grew dependent on them. My habit of trading smart paid dividends. As a woman on the floor, I was never one to throw my weight around; I had to rely on brains and wits instead. So my style transferred more easily to the screen.

JL: Do you trade with a system now, or are you more discretionary?

SL: I’ve tested a number of trading systems over the years, mainly because I think trading systems are interesting. For example, I can remember testing a “neural network” system back in the early 1980s. The idea intrigued me, so I downloaded a huge amount of information into the office computer one afternoon. Then I went home. When I came back the next day, the system was still spitting out paper and running calculations!
At that point I decided that trading systems can be fun to experiment with, but they really aren’t for me. My approach is more discretionary, meaning I like to apply judgment and make my own decisions. I research the fundamental side of a market and then overlay that knowledge with technicals. Except when I say “technicals,” I mean something different than most.

JL: Interesting. Maybe we can dig into that more next time, when we discuss your day-trading methods for contracts like the Russell and the e-mini S&P.

SL: Sounds great!

JL: Thanks for your time, Sally. We’ll talk again soon.
To be continued…