Its not the size of the ship but the motion of the ocean

I keep telling my wife that. I hope to convince her one day ….

As per the last Commitment of Traders Report published last Friday for data ending the prior Tuesday, the open interest for the minis was 2,496,089 contracts and 322,306 contracts for the Bigs. Five minis is equivalent to one Big so on a dollar based volume there are almost 1 1/2 as much e minis outstanding, ($150 billion minis vs $96 billion Bigs)

You would think that the screen traders are in control of the market. They carry the biggest open position. They crush the open out cry traded contacts 1:1½. I have heard a lot of screen traders say that open out cry is dead, they just don’t have the muscle like the old days. There are now too many wiz kids out there with algorithm black boxes trading VWAP. Just like at the poker table the punk kids with online gold bracelets can now take on Doyle Brunson and make him hope he’s wearing Depends.

Well nothing can be further from the truth and nothing can be a substitute for experience. This is one reason the “kill” rate is so high in this game. The worst thing that can happen is that you start out young and bold and make a killing in your first few trades. You will become invincible until they come and repo your car.

There is an old saying; “There are old traders and there are bold traders but there are no old bold traders”.

Old traders learn that it’s not the size that you trade but the timing that yields the greatest gain. There are a lot of old trades at Goldman and the reason that they are the most profitable investment bank known.

The other day the market was breaking hard from heavy selling by Swiss Bank. I know many stock traders and e mini screen traders don’t believe that a single house selling the S & P Bigs could possibly move the markets. My best friend is the first to state this. He will argue that “the markets were overbought”, “the broad market was in a 3rd wave” , “the lunar cycle and the 6 weeks cycle were waning putting downward pressure”. Uggg!. He will give every excuse known that it had nothing to do with 1 simple brokerage house selling the futures in Chicago that caused all the markets and most equity stocks, trillions of dollars in value, to break. Well the truth is even harder than that. I have personally witnessed 1 single man, the largest trader in the S&P pit, Joey Borsellino, completely reverse up ticking markets in the Dow, Nazdaq, Russell, Nyse composite, Crude and the US dollar. I am certain he reversed many other markets around the world but I wasn’t watching them at the times (yes-more than once). The story of how he does it is for another time but it has mush more to do with timing and the motion of the ocean than it does with size.

The other day Swiss was selling and the locals were buying because that’s what they do. No other houses were selling, just Swiss. Swiss put a lot of downward pressure on the markets because they were aggressive in filling their sell order. The locals who were already long from sellers off the open couldn’t absorb anymore supply from the Swiss’s selling. They kept lowering their bids but Swiss kept hitting them. The locals know that just 1 house is selling, no other houses are selling. So its just one trader somewhere in the world who woke up this morning and said “SELL ‘EM”. That trader called Swiss and gave instructions something like “Sell 1,000 cars in the first 15 minutes off the bell.”. Once the order was filled and the selling pressure is gone there is a window of opportunity for the long locals to bid the market up. However this day had a better opportunity. The price that it traded down to alerted some old trader at Goldsman (probably a 23 year old wiz kid just to make me look bad) who said this is a great area to buy the market. Prices where below value and a bargain so he gave an order to buy 150 cars. This order came in just about at the low of the day and the market has rallied with out much of a pull back since.

It wasn’t that the size of the Goldman order, 150 cars, that made a difference in the market rallying (other than providing the locals some confidence that buyers were starting to step in combined with the fact that no sellers were in sight), it was the timing of the order. Long locals, no other sellers, a pull back in a bullish market and the right choice at the right time is what made a great trade. Oh yeah, I keep a Time and Sales strip up so I can keep an eye on all those kid screen traders, there wasn’t heavy buyers until after the market was up ticking.


Tim Mack