PLUS: Why these traders resorted to yanking computer cables out of the wall sockets
What on earth can Frank Sinatra teach you about trading?
I read a magazine article on Sunday and it had a nice one-liner from ol’ blue eyes:
“Anyone who needs anything more than a microphone and a spotlight is a punk”
Now, it obviously refers directly to the craft of the singer but I think there’s a valuable lesson there for us.
See, in his heyday Sinatra needed no more than the mic and his spotlight to get the job done, to hold an audience spellbound for hours. But fast forward to today’s big music performers and there are very few who can say the same.
It’s all laser shows, computer effects and costume changes. And a lot of it is just props and gimmickry, don’t you think?
But how do we put that into comparative trading terms?
Well, as your ‘Sinatra trader’ – the traditional purist– you’ve got the tape-reader:
This is the old-timer stood around the glass-domed ticker-tape machine. You’ll sometimes see old photographs or drawings of him in trading books.
He lets the ticker-tape spool through his inky fingertips and literally feels the ebb and flow of the market from the price changes he reads on the tape.
The modern equivalent of the tape-reader is the price-action trader. No indicators, and sometimes no charts at all – he’s just trading off price alone.
At the other end of the scale we’ve got the trading props and gimmicks devotee.
Just for devilment – and with a nod to today’s manufactured music scene – let’s call him the ‘X-Factor’ trader.
This is the guy with all the gear and gizmos. He’s got twenty different indicators going on his multi-monitor charts, he’s got Bloomberg TV blaring in the background, he may even have – dare I say it – a ‘robot’ doing his trading for him.
Now I’m no angel here, I’m not trying to come across all holier than thou…
I know it’s very easy to get sucked into that shiny-new-tool syndrome; in fact, here’s something funny from my own illustrious past. It’s a screen-grab from my journal – a EUR/USD trade from back in 2004…
It gives me a headache just looking at all those lines. And you can only actually see one of my EIGHT indicators, the rest are on those greyed-out tabs
So if you’re overwhelming yourself with too much technology, I’d definitely take a leaf from Sinatra’s book…
Three Signs You’re a Sinatra Trader
You don’t need to go all minimalist and get rid of your favourite indicator, but maybe cast your eye over these three ideas and do a little audit on your current set-up. See if you can’t cut out a bit of dead-wood and start streamlining your trading approach:
- Are you keeping simple charts? Have a look at the indicators and data you currently display on your charts. Is the lagging nature of your indicators actually slowing down your reaction to opportunities? Do the different indicators give conflicting signals? Does each indicator you use play a distinct and useful role in your trading campaign?
- Are you using simple rules for trade management? Do you know -in simple, exact terms – what to buy, how much to buy, when to buy, when to bail out, when to take profits?
- Are you maintaining a clear and simple focus? Can you focus on mastering a single trade set-up or specialising in just one or two currency pairs? It can yield greater returns than taking a scatter-gun approach just for the sake of being active in the markets.
So what about when things go wrong, when simplicity gets brushed aside?
As an illustration, I couldn’t resist covering this story from last week’s Caixin Online:
‘The day Everbright had to pull power-plugs to stop erroneous trading’
On August 16th Everbright Securities messed-up in spectacular fashion on the A-share market in China. As part of their arms-race to the fastest dealing speed, they’d cut out essential risk-control from their order system.
In the space of two seconds, their computer model generated 26,802 buy orders! It carried on placing more and more orders when it didn’t receive feedback from the stock exchange.
And there was no upside limit to the order size!
Everbright eventually placed orders worth 23.4 billion Yuan – single-handedly pushing the whole Shanghai Composite Index 5.62% higher.
Problem was they didn’t have the capital to cover it.
If all their buy orders had been filled, the firm would need to have been liquidated to pay for the transactions. And this all happened in the blink of an eye!
Once the traders realised what was happening it was too late to stop.
They had to pull out the internet cable and also the power cord to shut down the computers.
Don’t you just love that image?
I see frenzied, sweaty men diving under desks and popping up with fizzing power leads gripped in their fist. I’ll bet that was one day in the office they won’t forget in a hurry!
But joking aside, there’s a serious problem brewing with the high-tech side of trading – particularly in stocks. Every couple of days it seems like there’s a new horror story of big computer trades going wrong.
I say stick to simply buying low and selling higher (or vice versa) and make sure you know the details of your trades. Don’t leave it to the robots!
Be Prepared: Market Moving Data Coming This Week (London Time – BST)
The US dollar was strong last week especially as Syrian concerns simmered down at the tail-end of the week. And GBP managed to stand up on the back of Mark Carney’s speech only to let it slide against the dollar on Friday.
We’ve got some big numbers due this week. Look out in particular for ECB and Bank of England interest rate decisions on Thursday and US employment numbers on Friday.
Yes, it’s that manic time of month again. Is it just me or does it come around again too soon? How time flies!
Tuesday 3rd September:
15:00 US Institute of Supply Management Index (USD)
Wednesday 4th September:
02:30 AUS Australian GDP (AUD)
09:28 UK Services PMI (GBP)
13:30 US Trade Balance (USD)
15:00 CAN Canadian Interest Rate Decision (CAD)
Thursday 5th September:
08:30 JPN BoJ Press Conference (JPY)
12:00 UK Interest Rate Decision (GBP)
12:45 EUR Interest Rate Decision (EUR)
13:15 US Nonfarm Employment Change (USD)
13:30 EUR ECB Draghi Speaks (EUR)
13:30 US Jobless Claims (USD)
15:00 US ISM Non-manufacturing (USD)
Friday 6th September:
09:30 UK Industrial & Manuf. Production
11:00 DEU German Industrial Production (EUR)
13:30 CAN Employment figures (CAD)
13:30 USD Employment figures (USD)
Hope you enjoyed this issue. Have a think about adapting a policy of simplicity in your trading and let me know what steps you think you might need to take to get there.