Trade Talk Blog

The official blog of Trading Technologies, your source for professional futures trading software.

← Back to Trade Talk Blog

As mentioned last month in Conquering Chaos: Fari Hamzei, Hamzei Analytics, we’ve partnered with Futures Radio Show host Anthony Crudele to ask successful traders how they’ve managed the chaos on the most chaotic trading days of their careers.

Today, we’re recapping stories from three of Anthony’s recent guests.

  • Dennis Parmelee is an independent futures trader who has also been a teacher, coach and real estate investor. He said his most chaotic trading day was a longer-term strategy trading options–specifically silver strips.
  • Miguel Vias, now with Ripple, was the Head of Precious Metals at CME Group when he spoke with Anthony last month. When asked about his most chaotic trading day, he took us back to the spring of 2007, when he was trading gold at Bank of America.
  • Jeff Davis, who currently trades privately, said his most chaotic day was early in his career when he was trading at a proprietary trading firm in New York.

We hope you enjoy their first-hand accounts of conquering chaos.

Dennis: A buddy said, “Let’s get started with options.”

We had embarked on a campaign to [buy] some strips on silver, and he said, “That’s in a long, narrow, sideways channel, it’s hovering between three and a half to five thousand, but someday this is going to take off.”

So I had bought a bunch of strips. He had left the business at that point, and I was on my own. But I was in love with it, and I went and bought tons of silver options about a year out. And as my last one was expiring…it started to break out and take off.

I didn’t know what to do. That was more of an omission in terms of chaos because I’d been hitting it pretty good in real estate, and I just said, “This is going to go.”

I was buying tons of options cheap when they were down, and I said, “OK, I’m going out one year in these things.” It took that long for this thing to take off. I think I didn’t realize…and my mistake at the time was that my last one was expiring. I didn’t do anything!

I didn’t get hurt, but I lost some money on what I thought would be a great trade that would set me up for the rest of my life…I got my head handed to me.

I told my wife, “Hey, we missed the boat. The ship has sailed, and I don’t know what to do.”

[But then I said], “You know what? There’s another opportunity. I lost some money, but it’s limited. It was a risk/reward trade that could have paid off big, but it didn’t. But so what? There’s another bus coming around the corner.”

I think from the sidelines we can think clearly. That philosophy has served me well where if I’m confused, I don’t need to be in the markets. I can go to the sidelines…. You have to cut your losses, and you have to immediately go to the sidelines and say, “OK, that’s my uncle point. I’m not going to lose any more. Let me reassess the direction, and let me reassess—not from a revenge standpoint, but from a common sense standpoint.”

If you’re emotional, you’re not going to be able to do that. It’s impossible. A guy runs a red light on you, you’re yelling and screaming at him—if that’s your personality, you’re not going to do well in this business.

This will test every ounce of our emotional control and our discipline.

Follow Dennis on Twitter at @eminiwizard.

Miguel: I put on a big risk reversal decision given to me by a very large investor. A million ounces a side, which is 10,000 ounces a side in gold. The day he put me into that position, I blew out all my risk limits and had an army of people at my desk.

I cut it down to a quarter of the position, which is still a pretty sizable position. Basically I was short the calls and long the puts, and trying to manage that. Quite fortuitously, two weeks after he gave me that position, gold fell about 50 bucks. When gold’s falling that fast and you’re long about 25 delta puts, it’s a good thing, but sometimes you don’t quite know what your risk is.

As the market was falling out of bed, I can remember the spot gold trader stand up and literally yell at me, “WHAT IS YOUR POSITION?” and me just saying, “I have no idea. Buy me whatever you can!”

He ended up buying 2,000 lots for me, which basically covered and ended up making me long.

We didn’t have real-time risk management on the desk, and you had to run your P/L after you put in trades and figure out where you were. Markets were just moving too fast to do that, so we kind of blunt-instrumented the process.

It ended up being ok. I think on the day, we ended up making a few pennies. But it was definitely scary when he jumped up and screamed at me because I really had no idea.

Jeff: One particular day, [when I was] fairly new in the prop firm, the market’s just hemorrhaging lower. And everybody in there knows—that’s all you hear, the talk, it’s getting stretched-—everybody’s trying to find the bottom somehow. And I’m a little scared, a little hesitant.

So this is the chaos for me: What am I going to do? How am I going to find the bottom?

I don’t really have a system for this, so I’m going to have to think out of the box here a little bit.

I knew I didn’t want to get in and not have a clue whether or not this was slowing up or not, so what I came up with pretty quick on the fly was: I’m going to trail the market down with a buy stop above by a certain amount, so at least when I’m getting in, the market has stopped the bleeding, at least momentarily, and then I know where the low is. So where my stop is, I’m going to at least be able to get in with some sort of risk parameter there rather than just getting in and not knowing.

The book was thin…things were going down.

As a day trader, it’s hard. If you’re day trading, you shouldn’t be getting into too much threatening your career. You should be trading with a stop. You’re not there to battle. You’re not making a fundamental stand like in “The Big Short” or something like that. Your goal is to come back and trade another day.

[And] I had a good day!

Follow Jeff on Twitter at @Shaq48_Trading.