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Trading Tip #9 – Trading Styles: Do Not Have Just One

Trading Tip #9 – Trading Styles: Do Not Have Just One

In the late 1980’s, my venture into the trading world began in the Gold pit on COMEX. The first day was the Friday before Memorial Day weekend. I walked in and noticed that being in the pit with a badge on was very different from stepping into it as a clerk to give your broker his position. With my heart beating out of my chest, I made my first trade. I bought one contract (100 oz.) and sold it a dime higher. I made $10. After commission, it was about $8. I realized that, during the broker training practice sessions, everyone was a hero. Once you had real money on the line, trading was decidedly different.

David On Trading FloorI remember forgetting to get flat (having no position) at the end of the day. I was long one gold contract, and I did not sleep for three days. Looking back, I realize how embarrassing that was. Over time, my volume as a trader grew. As I wrote about in Trading Tip #1, it takes time to become aware of your own trading volume. It is different for everyone. Never compare yourself to anyone else. It is pointless and will screw up your head.

Each market reacts like a different person with its own mood swings. Just how angry it gets will determine the amount it moves. When I began trading, gold was range bound. Each day was tight and choppy trading. It forced me to learn to make quick trades. I never wanted to carry my trading position for long moves. It is true that singles added up at the end of the day.

In 1990, Iraq invaded Kuwait putting NYMEX on the map. During this time, COMEX and NYMEX shared the same trading floor. Crude oil was rocking. Every day I was pissed off that I was not part of the oil trading action. I finally convinced the person who put me in the pit (at that time most traders were placed in the pit and had a backer, who received 50% of their trading account) to allow me to leave gold and trade crude.

Stepping into the crude oil pit felt like traveling to a new country. It was an entirely different crowd. What I thought was a busy day in the gold market was nothing compared to crude. The market and bodies were flying. That is when I first felt the real rush of trading on the floor. Nothing can compare to being in the pit on a busy day. Look forward to that discussion in future blogs.

I tried to trade crude oil as I did gold; taking profits quickly. This was an issue for a few reasons. First of all, since the market had huge ranges, I was leaving a lot of money on the table by getting out too quickly. Additionally, when I got caught on a trade and could not react fast enough to get out, I got hammered.

Over time, I adapted and developed my second trading style. Look, load, and ride ‘em. When I was right, I rode the trades; and if I was wrong, I would just hit the first bid or take the first offer I could find. As I spoke about in Trading Tip #6, hit the bid, take the offer, and just do the trade!!

There will be fast times, slow times, and times the market channels in whatever market or product you trade. So many traders get slowly blown out by not adjusting their styles according to how the market is reacting. Do not be one of them.

Tips for trading when volatility shifts:

  1. When there is a sudden change in the market, cut your size. If the market volatility increases, trade smaller, but ride them longer.
  2. In higher volatile markets, when you are wrong, hit the bid or take the offer -do not hesitate. Remember, no market stays in a high volatility state forever. Be prepared to change your style.
  3. When the marks calms down, increase your size, but trade to chip it out. Short, quick trades add up.
  4. If the market channels and you are getting chopped up – walk away. There will be many more trading days in your life.
  5. Do not be an addict – do not trade just to trade.
  6. If the markets get real slow, NEVER trade out of boredom.

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