This week, we launched a chaos-themed campaign showing traders how to get through the most chaotic market periods using the TT® platform. We’ve partnered with Anthony Crudele, host of the popular Futures Radio Show, to elicit stories from successful traders about the challenges they faced on the most chaotic trading days of their careers, how they managed against the chaos and the ultimate outcome.
Fari Hamzei is a nationally ranked market timer, the founder of Hamzei Analytics and the author of “Master Traders: Strategies for Superior Returns from Today’s Top Traders.” A self-taught trader, he started his career in the markets during the silver crash of 1980, trading equities with his own and his father’s money. Today, he focuses on equity options and index futures. He is very active as @HamzeiAnalytics on Twitter, where he has over 160,000 followers.
Fari talked with Anthony about the 2010 flash crash. Here, in Fari’s words, is his story.
I remember the morning vividly.
[Another trader] called me and said, “Fari, watch the market. Things are quiet…” I said, “OK, what am I supposed to do?” He said, “Well something comes up, give me a ring.”
So…I look at different assets by the DOM—depth of the market—you can see on the ladder price going up and down—and things are good.
I went to get some coffee and came back, all of a sudden they’re moving 50 cents to a dollar a piece. Last time that happened was ‘87. So it went boom. Pick it up, “Where are you, get back.” He goes, “I just got on the freeway, what are you talking about?” I said, “Stop talking to me. Turn around. Go back to your desk. Call me from there.” He goes, “What’s wrong?” I said, “They’re moving a dollar a point. Four ticks at the minimum.” He goes, “Oh my God.”
That was it.
So he gets to his desk, we get back on the headsets, the guys in the room are telling me, “Oh wait a second Fari. I can’t do anything with…” One of the screens froze. Well, three days before, they had dropped the margin to 500 bucks for ES. Everyone’s charging 2,500. These guys drop it to 500 to create more activity, and I told them a couple days ago, I said, “Guys, don’t do this.” You know we have like 50, 60 people in the room at a time in a little chat room. I said, “Guys, don’t do this. Be careful.” There’s a reason there’s margin there. I never get close to 2,500. I use 5,000, I use 7,000. I want to leave some room for myself. The market’s chaotic. You’re going to make some mistakes. Fast structure of the market creates a lot of noise. You can’t survive that noise.
Anyhow, these guys got evaporated about 20 minutes after this conversation…because at 500, they were in such a huge position, it was doing so much against them. They were done…
And then how did I survive? I was actually coming in a little bit short at that time…
So now I have a problem. Huge gain. But it can’t go on forever. There’s greed, and there’s a lot of fear. I usually have more fear than I have greed. So as it’s coming down, I’m saying, OK, somewhere I’ve got to peel off. So I peel off more, it gets very thin, I put some NQs ready on…I remember this vividly because it was massive..
We go straight down. I think we were down 100 points on S&Ps at one point, and then a couple bars up, a couple bars down, and I had just before that, I’d covered the last portion, and I went and put in another short.
Then [one of the guys gets] on the phone, he says, “Get the eff out, what are you doing short here?” He could see my trade on the platform, on the chart. He said, “Guys, what are you doing short?” I said, “It’s turning around!”
So I took the NQs long, and I started peeling off on ES. As the NQs took off—I usually do like one-third, two-thirds—the last third, I double bought. But NQs were leaving. I came back up.
[Some] made [millions] that day….
I didn’t make that kind of money. But I made some soup money. But it was done, I think it was done by 2:30. I was totally exhausted. I took the next day off.
This was the most chaotic I’ve ever traded. My commission cost was high. Not because….—there was a lot of trading back and forth—I was taking four, five, six handles up. I usually go towards three. But it was moving so fast. You would take it out, put another one on, and then we’d go on, we’d go on.
The biggest problem I had was on the bottom… And if it wasn’t for the hedging—I usually say that to my traders, when in doubt, hedge. Well the problem with the hedge is: A, you use more money, yes; B, it doesn’t go anywhere, it’s very slow. But that’s what it’s supposed to do. It’s supposed to slow down everything, so your mind is thinking, not your heart. You calm down. Your losses are smaller, your gains are smaller. But you get a chance to view where we are now, not where we were half an hour ago.
So down there, I put the hedge on to calm me down, I get very perspective. As I say, “Lose your bias.” That’s what I tell people, “Lose your bias. Get a fresh bias. Think what’s in front of you. Stop feeding yourself what you were feeding yesterday. Look at now where we are.”
You know John Gutfreund, Head of Salomon, once said, “We never look at a trade that close. We look at the next trade.” That’s the same thing here.
I read a lot. I’m a voracious reader. A bookworm. And especially on Kindle. These key guys—the titans of Wall Street—there’s a reason they were titans of Wall Street. Of course, some of them failed, but they went through a lot of trading to get up there. And there’s a lot of lessons there. One of them is: You can’t be wrong for too long. So if you have a bias that all of a sudden is getting into trouble—for example, this past Monday night, my bias was that Trump will torpedo Hillary. It didn’t work that way. It worked the other way. I did lose that bias. So I had an expensive night that night watching these two characters….
The long story short is that I got into a hole, it took me a whole week to come back up.
But…the 2010 Flash Crash. It’s vivid, and every time the DOM starts moving like that, I go through that panic. I think it’s coming. It could be another one. Because remember, they’re not going to knock on the door or send you an email and say, “Anthony, tell your people a flash crash is coming.”
Listen to the complete interview between Fari and Anthony here.