The Melding of Old School & High Tech
Coming up through the ranks on the trading floor here in Chicago pretty much set me on a low tech path. Throughout the 80’s and 90’s you didn’t see brokers, pit traders, or any one on their staffs monkeying around with computers.
About the only charting I witnessed down there was the occasional player keeping a point and figure chart on a trading card with a pencil, but even that was somewhat cumbersome in a crowded pit. If you were to survive on a trading floor you did it by keeping everything straight in your head. It wasn’t that difficult because you only operated in one market — one pit specifically. And you didn’t really need such things as an inside candle on support because you saw the locals buy evens and Goldman take all the.05’s and bid .10 on 1,000 with no takers. And you didn’t need to see an engulfing candle on a chart, because you could see the slower locals cover shorts up to .15, followed by Lehman taking .20’s and Bear racing Goldman for quarters and the last of the 30’s, because everyone knew that XYZ fund had left instructions yesterday to cover shorts above .35.
The pit clerks kept a card called the “players” where they reported who sold what at what level and they were very good at their jobs. The NY Street traders instructed thier phone clerks to coordinate secret hand signals between themselves and the guys on the pit, but even the slower clerks would have the code cracked within two sessions. It was a very small world. One of the clerks I used to fish with made a pretty good living selling Pivot Points to the traders who would line up to get the hand written numbers just before the opening bell. To this day I still shake my head at the memory of seeing one of the senior traders for the largest options market-making firm on The Board lining up with the other long-haired, disheveled looking floor traders, to pay cash to old Hupp for his Daily Pivot Points, written on a folded trading card, in pencil of course.
For many, many years, try as they might, the Wall Street traders with their batteries of super computers and legions of MBA’s couldn’t put the low-tech, street smart Chicago traders out of business. To a man the Chicago pit crowd knew it was only a matter of time before technology would eventually over take the floors, which only seemed to encourage them to trade larger and larger size. Even the biggest London and NY traders would marvel at how much one pit trader in Chicago would take on. One of the bigger traders in the bond pit, Tom Baldwin, the son of a meat packer, once told us how he lost $3 million in one day. To get back into the pit the next day he had to deliver $3 million in cash to the exchange. “Let me tell you”, he concluded the story, “it takes a long time to count out 3 million in one hundred dollar bills”.
The biggest advantage the Chicago floor traders had in my opinion was that they saw what happened on every time frame at every level. And they retained that information. They also knew the advantage of only entering trades they could exit in a second, meaning they only operated when there was plenty of order flow. Some traders would only trade from 7:30 AM thru 9:00 AM. Stock index guys might only trade the last hour of the session. This assured them that there would be both price movement and volume, both essential for trading. And perhaps the most important edge of all, they did not care whether they went long, or short. They only cared that they made money.
While the floors still exist to a degree, they are definitely a thing of the past. There will never be a central location where if you showed up every day and had sharp eyes, keen ears and a good memory you could pick up so much crucial, accurate market data so easily.
Most floor guys found themselves handicapped when it came to screen trading. Their previous multi- dimensional, interactive work environment was gone and they were left sitting in quiet offices looking at a price chart which to them was one dimensional, if not worse.
I’d pretty much forgotten about my floor days. I won’t say I didn’t miss it at first, but detachment to something at you know is ending is worse than foolish. What got me thinking about it, about that amount of information coming at you that fast, and being able to understand it, collate it, and utilize it at the right time, was when our new Tech Guru at Trading-U.com, Bob, who spent 8 years at Motorola, and then a stretch at Boeing, nodded his calm, sure nod, and said “no problem” to automating a chart presentation which was previously taking me a minimum of 15 minutes per market to set up by hand, not to mention having to manually update it after every iteration – trend shift. No matter how slick we get it though, we’re still going to leave a column or two open for the trader to put his own notes in — no pencil though. And off course we still use Pivot Points.
We’re still in the process of finishing up our trading courses at Trading-U.com, which is exciting for us for sure. But it’s the trading tools on the drawing board now that really get me excited.
Jay Norris
