PROCESS OF TRADING

I’d like to describe the process of trading a little bit to give you an idea why we learned discipline and money management in those days.


First of all, all trading was done through a broker. There were no electronic orders with 1 second fills. So we had to call our broker. By the way, he got a $50.00 commission for doing this. It was not $4.80 like today. We had to call the broker for orders, fills, prices and anything to do with the market. We either had to call the broker or he had to call us.

The process of ordering was rather cumbersome. First of all we had to call the broker to place the order. He would then send the order by teletype or some mode of communication link to the desk that his firm had on the floor. That desk then would send that order ticket to a runner who ran into the pit to try to find their trader. Their floor trader would fill the order, and once he got it filled, he had to get in contact with the runner so he could give it to the runner who would run it back to the trading desk. The trading desk, assuming they were not out to lunch, would then transfer the fill back to the broker, who then in turn would call us. This process would fully take 15 minutes to 2 hours. Often, we didn’t know if we were in the market or out of the market.

Why is that important? It is important because we learned discipline and money management.

We learned that when we gave the order to the broker and also give him some further instructions at the same time. We gave him the stop loss order so as soon as he got the order, he could put in the stop loss immediately after the original order was filled and we also gave him a cover.

So if say we were trading wheat with a 1 and ½ point stop, we would put in the order at 50 and we got filled, we would put in a stop loss order of say 48 and ½. Our cover order would be 53.0. What we were doing was we said we would accept a 1 ½ point loss, but would not settle for less than a 3 point gain. That is a 2 to 1 ratio which is pretty much what I think you have to strive for as a winning trader.

This lack of information started to change a little over 20 years ago. That was when Quotrek came out with their service. You could get charts for the first time that were less than weekly. We also even had some indicators. For the first time, non-pit traders had access to real time prices from Quotrek. You didn’t have to talk to your broker. I have my old Quotrek here. I’ll pass it around so you can look at it. This is what we had to get prices about 20 years ago. We could see one future at a time – we could get the open high, low and last price. We had to scroll through it to find whatever we were trading. I am going to turn it on so you can see it. It still works but you just can’t get any prices with it.

Now we have internet information and indicators. That is really a problem with trading today. New traders are absolutely totally on information overload. There is so much information available, they can’t sort it out. That is a major, major problem in trading today.