Archive for the 'Trading' Category

07
Oct
10

Oliver Stone’s Wall Street – 1987 vs 2010 – Part 1

I’ve worked on the trading floor, before electronic trading siphoned everyone off and turned the pits into a dwindling spectacle of free-market finance.

There is a certain romantic nostalgia involved whenever I hear an open or closing bell, the aggregate shouts of open outcry as prices are made by two opposite sides. One sound I’ll never forget is the time clocks after closing. The trading floor is empty, perhaps a few straggling yellow-clad clerks stuffing order dupes into an envelope for the run to the back office, cleaning staff sweeping up the papery remnants of a hectic trading day.

The air is still, and the clocks are clicking away. Each is calibrated to hours:minutes:seconds – but drift occurs and they aren’t all synchronized. In this relative silence you hear them, each cog nudging the increments in time with a multitude of clicks. Metallic crickets chirping out into the empty pits. It is one of the sounds I miss the most of all.

When “Wall Street” originally came out, I missed the actual theatrical release. I wasn’t in the market then and had no idea that I would be later, but once I was involved and working in the industry it became required viewing among the friends I had made. So I bought the DVD and checked it out. I loved it. The movie nailed so much of the actual market experience it was very gratifying. Oliver Stone had done his homework and talked to the right people, because it was a believable experience and filled with little details that only an insider would know to include.

Flash forward, several job changes later but still trading on the side. I hear that a sequel is coming out, and I immediately bookmark the date. On the edge of my seat, waiting to see the continuation of the brilliantly executed financial universe from the first film.

Then, I watched “Wall Street: Money Never Sleeps” and was massively disappointed.

There are highlights which I will detail below, so beware, spoilers ahead. I’m at a loss for why this turned out the way it did. Is the second-film-of-any-series-will-suck rule still in force? What the hell happened?

Before we look ahead, I’ll have to deconstruct “Wall Street” itself down to the scenes I really like and why before I go into the current movie.

“Wall Street” (1987)  (Timestamps are approximate, noted when the scene begins in minutes:seconds)

00:00 Opening Scene with city panorama and sinatra in the background

Oliver Stone loves New York, and it shows here. Perfect pick in music, you can’t polish a gem brighter or better than a classic Sinatra song intermixed with gleaming building shots and crowded subways. Street scenes where Bud Fox emerges with a crisply pressed suit and jamming into the elevator with everyone else staring forward uncomfortably makes it work, going from the macro-scale into the story with a single claustrophobic moment is brilliant. Pulls the viewer right into the film.

02:58 First shots of Jackson Steinem & Co. trading floor

Introduction to the trading floor, festooned with LED-Jet displays, a large time display showing hours minutes *and* seconds. Quotron machines sitting everywhere, their bulky monitors glowering like green-eyed cyclops. Some of my favorite lines are uttered here, starting with Bud Fox saying “I have got a feeling we’re going to make a killing today”. His buddy Marv replying,”Oh yeah? Where’s your machine gun?”. The back-and-forth between these two is absolutely authentic. Down on the floor, between the action of orders coming in we’d do the same thing. Dry humor, wit and jokes liberally salted with choice cuss-words was the order of the day.

04:21 Market opening

The trading scenes are what solidifies this film. You don’t have to have been on the floor to appreciate these scenes, it is detailed beautifully. The classic NYSE floor, the action dovetailing with Steinem’s brokers shouting at each other and writing out order tickets. Organized chaos that is bewildering to witness at first, but then you find yourself inexorably drawn into the action.

06:03 Marv on the phone “In ten minutes its history, at four o’clock I’m a dinosaur!!”

Always loved this line. We used to handle market-on-close orders, and sometimes the customer would hem and haw until the last minute and try to pull the order right on the close. And yes, if they delayed long enough, even a second, it would get filled and hilarity would ensue as we had to report back with the news. This specific scene emphasizes how timing really is everything on the floor.

06:19 Bud Fox on the phone with the give-my-options-back customer “He’s not here right now…. (to the manager) That’s what you told us to say!”

The look on the sales manager’s face is priceless.

06:30 Marv still on the phone, talking loudly enough to override the other conversation “How the hell was I supposed to know you were in surgery, what am I, marvin the mind reader?”

Again, another great moment from Marv. I’m focusing on this to contrast it with the later film. The dynamic between Bud Fox and his broker buddy really built up his transition from an honest broker to what he eventually became.

07:47 Marv “Aren’t you forgetting something, the Gekko phone call?”

I like how he utters this line. Marv is trying to remind Bud of something basic, but it underlines something else. They back each other up. He lends Bud a “c-note” (100 bucks) when he needs a loan. These opening scenes reinforce the comraderie that develops in stressful trading floor environments. It isn’t combat, but it is close enough.

The blood gets pumping and you nearly forget the other side of a one-cancels-other order, the mistake caught by someone you work with – and you soldier on. You have their back and they cover yours. It isn’t completely altruistic, if you make a truly boneheaded mistake nobody will bail you out, but they will buy you a beer later after you’ve been fired, maybe get you a lead somewhere else so you can get back on your feet again.

08:43 First glimpse into Gekko’s office before the brushed patterned metal doors are politely closed in our faces.

Gekko was a villan, and I get that. But when Oliver Stone says he is surprised that Gekko became a role model, I think he missed something there. People are inherently drawn to power. We may even acknowledge that their actions are full of moral hazard and they may do things that cause us to tut-tut and wonder how anyone can go that far, but deep down – we wouldn’t turn down the chance to do *exactly* what we want with no repercussions.

None that are immediate, in any case. It isn’t even just about the money, but the access it provides to power. Having the ability to call someone up on the phone and get your parking tickets fixed, fly about in a helicopter and smirk at people stuck in traffic is not a perk someone would turn down if given the chance. It is about being above the frustrating bullshit of everyday living, having enough resources to not truly give a damn.

It is when we are presented with a character like Gekko, as sneeringly ruthless as he is, we can’t help but put ourselves in his shoes and wonder what life would be like – overcoming our obstacles with the effort of clicking a remote, instead of slogging for years and struggling to just maintain our standard of living.

I can’t tell you how many times the lines from this movie have been quoted, by traders, while the market was open. And it wouldn’t just be because the local cable channel happened to show it the night before. It has permeated the participants of the market, from the lowly runner all the way up to the top-step order filler and big-balls traders betting with size drawn on their massive bank accounts.

“Wall Street” isn’t responsible, but it was a canvas that others used to paint their own image of success, drawing some of them into the industry as a result.

I’ll be posting more on this, since it will be a long read – so I’m stopping here for the moment before part two…

Until next time…

Trader Tim

17
Sep
10

Most people disappoint

In my time on the internet I’ve met a few unsavory characters along the way. The internet is an abstracting medium, most who try to shock, embarrass, or just plain be rude do so with the knowledge that they will never face up to their targets. The cruelty of children may know no bounds, but neither does that of the internet troll.

I take things in stride, mostly, but there are times where I dig in my heels and say “enough, dammit”. I am usually disappointed in the results. I should know better, the same abstraction and fog of anonymity provides a perch for anyone dedicated to their purpose, that is – getting a rise out of someone else. And as much as I would not like to fuel such interactions and escalate, I can’t help but try to smack some reality into a troll or two.

I’m sure there exists in the trading world the same desire to dominate, as you can see when people who are wedded to their positions defend them vigorously against any possible view against it. Braggarts and scam artists infest every virtual nook and cranny, from the penny-stock pump-and-dumpers, to the prop-trading scammers trying to pull in some extra capital to abscond with.

As for the market, it doesn’t care how “shocking” your sense of humor is – you just have to do one thing, and that is to be right. I’ll take that over most people, any day.

Stay tuned for this coming week, should be plenty of fireworks. 🙂

03
Sep
10

Late Night Tradewinds

Like most who trade, I keep a different schedule than the usual 9-to-5’ers I see riding the subway or bus glumly at the end of the working day. I stay up and check my charts, run some more studies and see how the Nikkei is ticking along. Europe opens and I get a feel for the wave of buying or selling that will soon be crashing upon my native shores.

It is contemplative work. The charts may automatically draw themselves with a bit of help from diligent data entry, but in the end you are staring out into the trading abyss every day – peering out into the probabilistic chaos known as the ‘future’.

The future I see for the indexes isn’t good.

The final cracks in the market action are there, with those that have the proper instruments to see and record them. And all the while I bide my time until it is the right moment – flash in the order and let it all go. The currents will take hold and I’ll witness the waterfall as equities roar lower with thunderous rage.

We’re close – make no mistake. I fully expect some green before the tide turns. It will look good, and you’ll be tempted to setup a nice shack on the newly formed sandy beach of the bull move, maybe noodle around and get some fishing done. Don’t get too comfortable, your vacation spot is next to the falls – and I think I hear the creaking of barely secured pylons giving way under your holiday hut.

Reversal of fortune can indeed become the best of opportunities.

Good trading!

Trader Tim

21
Aug
10

Mental Exercise

Trading isn’t easy. Markets are not intuitive. If they were, we would all quit our jobs and trade full time. Obvious to some, but not to all. While trading I watch the financial news shows with the volume muted. Their market commentary has nothing to do with trading in real-time. It is about capturing that microslice of attention span. Forget the “24-news cycle”. We’re in the sub-hour cycle, if not sub-minute.

Scream the loudest, have over-the-top emphatic ways of projecting your viewpoint and you “win”. I don’t understand that kind of presentation, nor why it has become the prevalent method financial networks present their “debates” over current issues. I could replace a talking head commentator with a air-horn connected to a random timer and it would be the same result. My odious honking would prevail over the rest of the conversation – and I win!

But let’s circle back to my main point. Mental exercises – have to keep limber while trading! No, not some new-age poofery where I ask you to rub an oversized quartz crystal while humming your mantra – just a simple mental trick I use to keep my trading mind flexible.

I try to visualize the absolute worst thing the market could do to me while holding a position. This has two objectives – first, it allows me to see the other side of the trade (what if I am wrong) and second, it allows me to understand why I may need to hang in there if my main trading thesis is correct.

I’m sure we’d all love to put a trade on and have it go our way immediately – Sold the top! Bought the bottom! Drinks are on me! This rarely happens, however. What is more common is after researching a trade using your preferred analysis method, you consider your entry point and pull the trigger. Then the market goes immediately against you. Now what?

Once you’ve crossed that event horizon of decision-making, now the real fun starts. Part psychology, part strategy. The worst enemy you face isn’t the market, it is yourself. Period. That is why picturing precisely what the market would have to do to absolutely make you back out of a carefully considered trade is so useful.

It is the mental equivalent to annealing, a process used to increase the strength and hardness of metals. You’ve pictured the worst path the market can take, and how your strategy would be applied to contain the loss. Even if you’ve accounted for “X %” loss factor, or however you calculate it – by actually applying this to market action you make it coalesce out of abstraction into trading reality.

There is stark contrast between “I will only tolerate a 5% loss” to “I bought at 10,000 – based on today’s action the worst thing the market could do is trade down to 9,500 bounce to 9,850 and then go lower.”

Picture the path, and you’ll be more prepared for the emotional minefield that accompanies adverse conditions.

Good Trading!

Trader Tim

19
Aug
10

Bearish Prognostications

Like the dieter that promises himself that he won’t eat all the pizza, (but does so anyway), I made myself a promise that I wouldn’t put a bunch of charts and technicals up here. Sure, it is a trading-oriented blog – but I find dissection of charts a bit dry after a while. If I wanted CHARTS, CHARTS, CHARTS all the time, I would probably visit chart.ly and be done with it.

Hell, if they were more like this – http://chart.ly/qhym5k I most certainly would!

But I have had this interminable itching in the back of my trading mind for a bit, seeing the large wedges forming on the Dow chart, the breakout to the downside and subsequent upwards retrace – and it gives me pause. Condensing daily ticks to physical output, I believe we’re in for another slapdown.

Heresy, I know – the FED is going to pump some massive amounts into Treasuries tomorrow and Friday. But the setup still exists. Here’s what I’m thinking. Dow gets inflated via the “FEDjection” into Friday, then sets up for a good fade into the rest of next week.

Not that I’m suggesting you take this as specific instructions to drop your beer and tv dinners, rush to the computer and place some orders – just that if you agree with me (after doing your own due diligence and financial homework), I think we’re setting up for a good smackdown.

There I said it – it will be google indexed and replicated in a few hours. I can’t go back now! (Not that I would, mind you.)

Here’s to next week! Bombs away!!!

Update: Looks like we’ve gotten a head start for thursday, as of this writing the dow is down 182.78 points! Heck of a slide going into option expiration.

Good Trading!

Trader Tim

16
Aug
10

Financial Writing

Welcome to financial writing, or “how to get paid with hindsight”. While most websites that post market summary stories aren’t completely automated yet, (and I stress *yet*) here’s my easy guide for writing a market summary in less than five minutes.

Start with a template – something like this:

Markets <rose/fell/traded sideways> and finished <higher/lower/mostly unchanged> <day>, though a <better/worse> showing from the <tech/finance/energy/healthcare/transport/utilities> sector<decreased/compounded> the <gains/damage> as investors <ran for cover/fled to quality/strengthened their positions> as the <Economic Report> showed <increased/decreased> <uncertainty/optimism> about the economy.

After trading <higher/lower/unchanged> today, the Dow Jones Industrial Average finished <points> points<higher/lower>, or <percentage change>, to <close>. The S&P 500 was <higher/lower/unchanged> at <close> and the Nasdaq settled <higher/lower/unchanged> at <points>, or <percentage change>, at <close>.

<Concern/Optimism> about the <recent economic event> in <day>‘s session following news that <economic statistic grew/fell> for the <1st/2nd/3rd/4th> quarter as <convenient implications from economic report>.

<Random official source> <predicts/expects/indicates> that a <short-term economic event> will <longer-term economic forecast>.

<Talking his position>,” <official source> said. “<longer term meandering to support my trade>

Overseas, Hong Kong’s Hang Seng <rose/fell/unchanged> <percentage change> while Japan’s Nikkei <rallied/slumped/fell> <percentage change>. The FTSE in London <rose/fell/was unchanged> <percentage change>, while the DAX in Frankfurt was <higher/lower/unchanged> by <percentage change>.

Hey, that is a mouthful. But with proper tweaking of the inputs, you can get a reasonable sounding summary like this:

Markets traded sideways and finished mostly unchanged Monday, though a better showing from the tech sector compounded the gains as investors fled to quality as the Empire State Manufacturing Index showed decreased optimism about the economy.

After trading lower today, the Dow Jones Industrial Average finished 1.14 points lower, or -0.01%, to 10,302.01. The S&P 500 was higher at 1,079.38 and the Nasdaq settled higher at +8.39, or +0.39%, at 2,181.87.

Concern about the ESM Index in Monday‘s session following news that UBS GDP forecast fell for the 3rd quarter as expectations for softer consumer spending showed further economic weakness.

Economist K. McSpenderson predicts that even at current levels of government spending will not cause overall harm to the economic recovery effort.

I think the pessimism is overblown,” Mr. McSpenderson said. “The government has shown ongoing support by passing legislation to help overburdened taxpayers make ends meet.”

Overseas, Hong Kong’s Hang Seng rose +0.2% while Japan’s Nikkei slumped -0.6%. The FTSE in London rose +0.01%, while the DAX in Frankfurt was unchanged.

My, it sounds so professional! The first person to reduce all these variables to a script is going to make MILLIONS.

Good Trading!

Trader Tim

15
Aug
10

Blowing Out – Live on video

Blow up, blowing out, faceripper, knife in the gut. There’s probably a thousand ways to describe the process that takes many new traders out of the market. Even if you are a seasoned professional, it is the dark cloud in the back of your mind, rumbling ominously. Did I make a mistake? Could something be horribly wrong, my risk parameters incorrect – or trading gods help me – my protective orders not filled right?

These are thoughts that keep traders awake at night.

I present for your consideration a link to a video that shows an unfortunate trader doing just that – blowing completely out. At first I thought it was staged – but from further research on the conditions and an excerpt from the original post by the trader after the video aired, I think it is real.

http://www.youtube.com/watch?v=NYeLrcWFitY

In his own words:

For those that didn’t see the video when it originally aired January 22, 2008, I lost over 30k holding a trade over the weekend being long the stock Futures indices. I was overleveraged, but I never thought the market would go limit offer (Dow Futures down 650pts) with the US markets closed on Monday in observation of Martin Luther King day. I sold my long before the market opened due to a potential margin call that would have liquidated everything. On Tuesday, the Fed did a surprise interest rate cut, and the market popped 500pts. The Dow dropped close to 1000pts in 3 trading days.

After viewing the video, I had to wonder – what did the equity curve look like in those short minutes? A bit of video scrubbing and noting the loss numbers gave me this horrific graph:

This is what a blowup looks like. All the market truisms triumph here – notably, “Cut your losses short”. This graphic should be printed out and put up next to every trading screen in the world. You don’t cut your loss, you are in for a bad ride to blow-out town.

This is the dark side to trading. We’ve all been there. If you have made a trade and let it ride just a “little bit longer”, you’re flirting with the same results. Is your pulse racing? Breathing faster? Good. It means you are alive and willing to learn from past mistakes.

I don’t know if this person is trading today. My research turned up a somewhat inactive blog with a post from July of 2010, so it is hard to say. I have to give him credit for having the balls to post this on the internet. You always see and read the stories of great success, but rarely do you get to witness the more common failures.

Keep your head in the game, and trade your plan.

Good trading!

Trader Tim