This is what real trading is

Why does anyone care about what trading was like back then. I visited the CME in Chicago about 10 years ago.. our man there showed me around. I recall standing amongst the chaps all shouting towards the pit, and watching as the guy next to me was showered in spit from the fellow behind him. And the place STANK of sweat. Oh, and my broker was 35 and had varicose veins up to his armpits. I'm thankful I've never had to endure that, balls or otherwise.

This thread is truly the biggest load of tosh I've ever read. I get more education from reading the Sun.

Tata
 
Even if you know everything you need to know about the trading systems, you can start and find new things every day. The real traders are checking the news and acting according,

David
 
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the electronic markets follow the pits, this is solid fact and anywhere with half a clue knows this. maybe the nae sayers in this thread would do better if they inbraced this fact instead of refuting it.
 
N Rothschild said:
thats whats funny, the guys who make the big money probably never even finished high school. they had the balls to go and take what they wanted
Click to expand...

i think perhaps its a common misconception about dropouts making big money in the markets. Its a romantic notion about dropouts going on to making fortunes in the markets against all odds and despite no formal education, and I can understand it appeals to a lot of people including myself.

Wow ... he did it ... with no education ..... but coz he had the balls.

However from most of the books I've read written by and/or about the best traders/investors of our time I'd say the overwhelming majority well over 90% not only went to school and college but went to ivy leagues and equivalent like oxford/cambridge/ LSE.

Warren Buffet, George soros, Monroe Trout, Victor Niderhofer, Bruce kovner, Ed Seykota ..... the list goes on and on. They all graduated near the top of their class from the best universities in the world.
 
Some good reads about back in the day, of course not everyone back then only traded order flow, so there is stuff that still applies today.

"Don Sliter: pit bull with discipline

Don Sliter, a "local" trader in the Chicago Mercantile Exchange's S&P 500 stock index pit, has fulfilled a standard dream of many of the traders who ventured to the futures pits in the gold rush days of the late 1970s and early 1980s: He's a successful trader, one of the largest locals in the S&P pit, has his own clearing firm, D&G Futures, works about four hours a day, and, at 39, is planning to retire (at least from the floor) in five or six years.

He chalks up his success to a couple of simple facts: He loved the business from the start, and he is disciplined. The love part was easy; the discipline came the hard way.

Starting in 1978, Sliter worked up to 70 hours a week as a runner, phone clerk and outtrade clerk until he saved enough money to try trading in the Chicago Board of Trade (CBOT) soybean pit in 1984 - just in time to see the market dry up after its big bull run a year earlier. He quickly shifted over to the Major Market Index (MMI), the CBOT's fledgling stock index contract.

Sliter was anything but an instant success.

"My whole problem was that I wanted to be a big trader right away," he says. "In my second week in beans, I traded three million a side. I had no discipline."

Because of losses, Sliter was twice "benched" by his clearing firm. He figured he had one chance left.

He turned things around when he entered the S&P pit in late 1986. He found trading a primary market with plenty of liquidity easier than the thin MMI market. He used stops and didn't overtrade, putting on only 10 contracts at a time when he started.

"You hit rock bottom," he explains. "You think you're on your last leg, so you better get it right this time or you'll be working at McDonalds. I felt a lot of pressure. But the whole game is discipline. If you have that, you can make it. You never want to risk more in a day then you can make. Just get the hell out of your losers, because the next trade is always there."

These days, as one of the biggest locals in the pit, Sliter says he's a consistent 50- to 100-contract trader. The largest trade he ever put on was 450 contracts - nominally worth $149 million (at late June 1996 index levels) with a tick value of $11,250. Sliter rarely trades off floor, in other markets or holds positions overnight, characterizing himself as a scalper.

"If I get a runner, I stay with it," he says. "I consider myself probably the most disciplined big trader in there. If I'm wrong, I'm out - immediately. If I'm right, I scale out of my position."

Sliter's approach to trading would probably be alien to most off-floor traders. About five years ago he abandoned all analysis, preferring to simply react to what was happening in the pit.

"I used to look at charts," he says. "I used to wake up at 5:30 a.m. and watch CNBC. Now, I don't listen to a damn thing. One guy's saying one thing, one guy's saying another. I don't want to influenced by anybody else."

He picked up one interesting technique, ironically, from an off-floor trader.

"Like most people, I trade strengths and weakness, but I approach it differently," he says. "If the S&Ps are trading strong to the Dow, I'm a buyer; if they're trading weak to the Dow, I'm a seller. There's a relationship of approximately eight Dow points to 100 S&P [basis] points. If the Dow is up 14 and the S&Ps are steady on the day, I'll initiate my trades from the sell side because we're weak. If you're an off-the-floor trader, you have a better shot trading that way, because you can use tighter stops, and there's always an offer above when we' re trading weak."
 
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Like many S&P 500 futures traders, Bill Greenspan was a "day trader" long before day trading was a household term.

To him, trading is truly a nine-to-five (well, actually, 8:30 to 3:15) job. He's got it down to a science, he knows how to handle its ups and inevitable downs, and he sticks to a simple trading approach that he applies patiently, day in and day out.

It's an approach that has worked well for him. At age 47, after 22 years in the pits of the Chicago Board of Trade (CBOT) and the Chicago Mercantile Exchange (CME), Greenspan (trading badge: "WIG") has established himself as one of the more successful "locals," or pit traders--a fixture in the S&P pit where he trades almost all day, every day, playing his trading cards close to his vest and practicing his philosophy of making "a million dollars on a million trades, not a million dollars on one trade."

Spreading the risk

Greenspan got his start in the embryonic days of the financial futures markets in the late 1970s, when grains were still king and the veteran traders didn't know what to make of the new contracts on bonds, stock indexes and other financial instruments. He had a moving and delivery business at the time, but in 1978, when a friend who had made quite a bit of money trading soybeans suggested Greenspan try his luck in the fledgling T-bond market at the CBOT, Greenspan made a career change.

"I was an original T-bond permit holder," Greenspan recalls. "The exchange couldn't get the grain guys--the full members of the exchange--to trade the new financial instruments because they had made so much money in the soybeans. So the exchange was offering these permits to the public: 50 for T-bonds, 50 for commercial paper and 50 for gold. I got the last T-bond permit.

"The deal was, you'd pay $10,000 a year for three years. If you traded 125 trading day per year, you could, at the end of that period, pay another $10,000, and they would give you a seat. It was the greatest deal. They've never had anything like it since." (Such seats are currently worth more than $400,000.)

Greenspan started out as a "spreader," taking simultaneous long and short positions in different contract months in the T-bond market (inter-month spreads) or between the T-bond and a related market like the Ginnie Mae (inter-market spreads). The spreader profits as the differential between the two "legs" of his spread widens and contracts, depending on whether he is long or short the spread. Greenspan thought there was more opportunity in spreading than scalping--and that it was less risky (because spreaders are both long and short in the same or similar markets).

Greenspan started to make money regularly after three or four months, and although he admits to some leaner times "during the Reagan years," he has been a profitable trader since. (He discusses some of the down periods, and how he dealt with them, a little later.) He describes himself as an "enthusiastic trader, not a big trader," meaning he puts on a large number of trades per day but keeps his position size relatively small.

Scalping and beyond

Greenspan's approach is the essence of simplicity, honed over roughly a two-year period of daily trading in the S&Ps.

"In the beginning, I didn't really know what I was doing," he says. "I was scalping, just trying to get in and out. And then I began making trades off the opening range, making directional trades off the previous day's high low and close, or trades that went off the current day's high or low."

The kind of trade Greenspan is referring to is to go long or short on a breakout of the S&P's opening range, the trading band defined in the first 90 seconds of the session. These are usually his first trades of the day. After that, he typically trades breakouts (in either direction) through the previous day's close, high and low, as well as intra-day highs and lows. (See Figure 1 for an illustration of these kinds of trades.) Also, like a true scalper, he reverses position when stopped out--that is, if long one contract, he will sell two contracts at his stop level, establishing a short position.

He freely admits to being something of a risk hawk, favoring stops that may be too tight rather than too loose. His basic approach may seem straightforward, but the fact that he has prospered for such a long period is a testament to its effectiveness.

Greenspan left the CBOT for its cross-town rival, the CME, in April 1987, roughly six months before the infamous stock market crash. It was there that he developed the trading style he uses today. He explained the move and the process of becoming a consistently profitable trader.

Mark Etzkorn: Why did you make the move to the S&P pit?

Bill Greenspan: I heard the Merc (the Chicago Mercantile Exchange) was the same ball game, but a different ball park. I initially wanted to trade cattle because I liked the hours (9:05 AM to 1:00 PM, Central Time) and I thought I could do well.

But it was a very 'cliquey' pit, very hard to break into, so in the morning I would trade eurodollars from 7:20 AM to 9:00 AM, then cattle from 9:05 AM to 1:00 PM, back to eurodollars from 1:00 PM to 2:00 PM, and then trade S&Ps from 2:00 PM to 3:15 PM (the close).

It was the only time in my career that I didn't make money. I was in too many markets and I couldn't get into a rhythm with any particular one . . . and I had a long dry spell.

The owner of my clearing house suggested I stick to the S&P pit, because that was the pit 'the Cadillacs were coming out of' at the time. There was plenty of action, but it took a little while to learn to be a scalper rather than a spreader.

spz91025.gif


Figure 1. Dec. 99 S&P futures (Oct. 22), five-minute bar. The potential rewards and very real risks of the volatile S&P futures market are illustrated by the intra-day action on Friday, Oct. 22, 1999. The light-blue lines mark typical entry points per Bill Greenspan's trading approach: playing the breakout of the opening range (far left), followed by successive breakouts to new highs, which proved to be a fruitful strategy until the last half hour of the session, when a dramatic drop took back much of the day's gains. Source: Quote.com.

Mark Etzkorn: Can you describe how much you typically risk on a trade and how you take profits?

Bill Greenspan: Initially, I'll typically risk 50 points. That's enough heat. So, you have to go for at least a 250- to 350-point profit. As far as getting out, nobody ever went broke taking profits. But as a scalper, I try to facilitate the market. I've been standing in the same spot in the pit for 12 years, working with the same brokers. You have to be good to the deck (work with the brokers, rather than fight them). I'll move in and out because I want to satisfy some of these customers.

If you only make 100 points (one S&P point) on a trade, it's basically a scratch, because you're going to lose 100 points very often on trades as well--just on your timing. Your direction may be right, but you'll lose money just getting in and getting out. So if you just trade for 100 points, you're going to be a scratch trader--if you've broken even by the end of the day, you're lucky.

Mark Etzkorn: How tight will you keep your stop after a position goes your way and you have a profit cushion?

Bill Greenspan: Around 150 points (1.5 S&P points). That's really not wide enough, but I place them that close because I'm a nervous trader.

Mark Etzkorn: Do you trade the entire session?

Bill Greenspan: I'm there from 8:30 AM (central time) to 11:30 AM, and 1:00 PM to 3:15 PM.

Mark Etzkorn: How much do you trade on a given day?

Bill Greenspan: Probably in the neighborhood of 60 to 80 trades per day. I try to trade about 180 contract per side (long and short), and I trade in increments of anywhere from 1 to 10 contracts, with my most frequent trades being 3 and 5 contracts.

Mark Etzkorn: Do you do any other kind of analysis to prepare you for the trading day?

Bill Greenspan: I don't really need it now. What I do now is check the Globex high and low, and the previous day's high, low and close. I make my first trade off the breakout of the opening range--I take the directional trade--then I just try to scalp and see if I can make $1500 to $4000.

I just try to trade the breakouts. With the market the way it is, you can make five, six, seven points on the momentum trades off these breakouts.

Mark Etzkorn: What about losing days?

Bill Greenspan: They're infrequent, but I usually lose double than what I make on my winning days because of the volatility and the vacuums that form in the market. The volatility makes the money less steady.

Mark Etzkorn: Are you flat at the end of each day?

Bill Greenspan: Most of the time. If I'm not flat, I'm short one contract.

Mark Etzkorn: Given your experience as a short-term trader, what advice would you give those who might want to day trade the S&Ps, or stocks for that matter?

Bill Greenspan: I can't believe how many people are interested in day trading, because it is such a hard way to make a living. Everybody has heard the glorious stories. I've seen thousands of guys come and go over the course of 22 years between the CBOT and the CME.

Speaking in terms of someone who would want to trade the S&Ps, you have to develop the mentality of a trader--not just that you're going to be a 'day trader' and be flat at the end of the day. You have to be willing to make a lot of trades. You're going to be a better trader by making more trades. So, guys that want to make one, two, three trades per day, are going to get chewed up and burned out because they can't be that right about the market.

Mark Etzkorn: Do you still go through periods when things aren't working? What do you do to try to turns things around?

Bill Greenspan: That does happen. Particularly with a longtime trader like me, you get burned out, and you suddenly notice you're a step off, you're late hitting orders, or you're day dreaming in the pit--you just need to take some time off.

The market calls back to me eventually, but I don't have a problem walking away from time to time. My wife makes sure we take at least a long weekend every other month. It's like she tells me: Vacations seem to end up paying for themselves."

http://www.rogala.de/trading/$_Interviews/S+P%20Trader%20William%20Greenspan.htm
 
fugly said:
i think perhaps its a common misconception about dropouts making big money in the markets. Its a romantic notion about dropouts going on to making fortunes in the markets against all odds and despite no formal education, and I can understand it appeals to a lot of people including myself.

Wow ... he did it ... with no education ..... but coz he had the balls.

However from most of the books I've read written by and/or about the best traders/investors of our time I'd say the overwhelming majority well over 90% not only went to school and college but went to ivy leagues and equivalent like oxford/cambridge/ LSE.

Warren Buffet, George soros, Monroe Trout, Victor Niderhofer, Bruce kovner, Ed Seykota ..... the list goes on and on. They all graduated near the top of their class from the best universities in the world.
Click to expand...

none of those where locals in the pit though..
 
Lewis Borsellino, at the time one of the biggest S&P floor traders, retired when the floor started dying:


"Interview with Lewis Borsellino -
World Renowned S&P Trader

Lewis J. Borsellino, founder of TeachTrade.Com and author of "The Day Trader: From the Pit to the PC" . Mr. Borsellino is known as "one of the biggest and best traders" in the S&P pit by CNBC. Mr. Borsellino trades S&P futures on the floor of the Chicago Mercantile Exchange and off-the-floor at his Chicago-based trading firm.

1. What's the difference between scalping on or off the floor?

Scalping on the floor of an Exchange is dramatically different from scalping and/or day trading at a computer. When you're trading off the floor, the trades are usually longer in duration - 5, 7, 9 minutes, an hour, two hours, half a day � -- than when you're trading in the pit. For me, personally, when I'm trading in the pit, I can trade hundreds of contracts within a minute or two. That's if I'm truly scalping.

When you're trading on the floor - with the brokers and locals and amid all the market activity - you're part of the market. Locals in the futures pits are really like the market-makers in stocks, providing the bids and offers for the institutional players.

When I trade on the floor, I have a definite bias of whether I want to be long or short. I have my technical research that shows me the support and resistance areas that I want to buy and sell. For example, I may want to buy them at 1500 and have a mental sell stop in at 1496, and a profit objective of 1508. But when I'm on the floor and I see S&Ps go down to 1499, 1498.50, 1498 � I'll be buying on the way down too. Then as it turns around and goes above 1500, I'll be buying and selling out of those positions up to my profit objective. Off the floor, I buy 1500, put a sell stop in at 1496, and look to exit at 1508. I'm not scalping the way I would be on the floor.

2. Do you personally use pivots down on the floor?

Every morning my traders and I have our "Morning Meeting," which we also feature on the web site, TeachTrade, under Market Calls. We highlight the pivots that are likely to emerge for the day. We use a combination of technical analysis to determine these pivotal areas, above which the market is likely to be bullish and below which it becomes bearish.

3. Can a new trader with a good knowledge of the S&P's come onto the floor and have somewhat of a minimal learning curve, or do the rules of the pit differ dramatically from off the floor - such as your "spot" on the floor, whether the locals know you or not, etc.?

Wherever your trade - whether it's in a pit or off the floor - you have to know your environment. Trading on the floor is dramatically different than when you're at your PC in your home or in a trading firm. If you've been successful trading S&P's off the floor and you know that market well, you can make the transition to the floor, but it will take time to master that environment. It's not only your "spot" where you stand, it's also the pace of the pit, the ebb and flow of the orders, and trading with open outcry (shouting out your bids and offers) and using hand signals, instead of "pointing and clicking" with a computer or picking up a phone and calling a broker.

Another challenge of the pit is not to be unduly influenced by large locals as they 're trading and the overall excitement and emotion of the pit, which is very easy to become caught up in. I know there are some off the floor traders who really like the "squawk box" that gives them the action and the noise of the pit. Others are distracted by it because it influences them too much. When you're on the floor you have to be able to shut out the noise and the confusion.

4. What charts do the floor traders look at before the day and while they are trading?

There are not different charts for traders off the floor and on the floor. We're all looking at the charts. But one of the interesting things for on-the-floor traders is how do you extract yourself from the front-line action that is making those charts! Here's what I mean, when you're off the floor, you're looking at a support or resistance area that's being violated. You say to yourself, looking at your price chart, this is where I should buy or sell.

But when you're on the floor, you're in the thick of things. That chart you're looking at is really plotting what's happening around you. Off the floor, you may look at what appears to be a good top in the market, which you should be selling. When you're on the floor - having looked at that same chart - it's hard to sell when you see a lot of buys being executed at the top because some stops have been run, or to buy when you see the sells coming in.

When you're on the floor, you're living the action that's on the chart. You have to identify where you are as part of that chart without getting caught up in the emotion.

5. Do floor traders use beepers for alerts when approaching key moving averages?

In 1986, I was among a group of traders who bought the original rights to Gann. I put a chartist in my office and, every half hour or when need be, a runner would go up to the office and bring the charts down to me. Then we evolved to using a pager, which he would use to page me to tell me about a market move. Then we moved to alpha numeric pagers that he could use to send me a message. Now, at the Merc, we're allowed to use wireless headsets to connect with our technicians.

6. Do guys trade off the "basis?"

The basis (futures versus cash) is one indicator. But the key to being a successful trader is not being tied to just one indicator. There are so many possible indicators out there - the premium or discount to cash, correlation with bonds, the correlation among stock indexes, etc. A good trader knows how to look at all the indicators and decide which is dominant given the tone of the market at the moment.

7. How many people who come down to the floor make it to the point where they can make a living at it? And of those people what is the single biggest factor separating them from those who do not make it?

The rule of thumb is that for every 10 people who come to the floor to trade, 2 or 3 will be able to make some money. Then perhaps 1 trader will make a really good living. In any business, including trading, about 80% of the volume is done by 20% of the people. The biggest single factor that separates those who are successful from those who are not is discipline. This discipline - both mental and physical - enables you to stick by your plan, to control your emotions, and to handle both your losses and your profits without shaking your confidence or developing a huge ego.

8. How have you dealt with the transition from the floor to off-the-floor trading? Are there skills that you have acquired on the floor that are transferable to the upstairs trading desk?

Probably the biggest factor in trading off-the-floor versus on the floor has been the different dynamics. As I said earlier, when I'm trading on the floor, I can make far more trades than when I'm at the PC. Why? Because the action on the floor is instantaneous. I buy-sell-buy-sell-buy-sell in rapid succession. Off the floor, I make fewer trades, but when I do they tend to be a larger position and I may hang onto them longer. The skills that are transferable from the floor to the trading desk is the ability to gauge market sentiment. Watching the screen, you can see the market building momentum, for example, to break through a resistance level. Or, you may see a rally fade before it reverses. Either way, you have to be in sync with the market. You can't pick the top or the bottom. You have to let the market establish it's own levels.

9. You undoubtedly have seen hundreds, if not thousands, of traders come and go. What would you tell anybody thinking of coming down to the floor - or for that matter, what would you tell someone considering day trading - before they make that commitment?

When I first went to the floor, I began as a runner. Even though I was a college graduate, I had to start on the bottom rung. Why? Because trading is unlike any profession. You can have a PhD in nuclear science, and it won't do you any good when it comes to trading. The market demands and education of its own.

That's one of the reasons why I started TeachTrade.Com. It's an educational web site for stock and futures traders that includes market calls on stock index futures, stocks and options - as well as tutorials and lessons. The Market Calls, for example, allow you "look over our shoulders" as we trade - seeing where we'd get long or short or sit on the sidelines. That's essential, because the best form of education is imitation.

The goal is to help day traders know exactly what they're getting into. The media and the television commercials have portrayed day-trading as some sort of bonanza that will enable anyone to become a millionaire. The truth is 70% of stock day-traders aren't making any money, and the average life span of a day trader is about three months. Whether you want to trade on the floor or off the floor, you have to educate yourself.

10. When a big "A" local steps up to buy a falling market, is there a way to tell if he is covering or initiating a position? Will there be a different type of reaction by the locals.

Being a major player in the pit, there are other locals who will watch me when I'm buying or selling. I've used that to my advantage. For example, there are times when I really want to sell the market, I might be in there bidding, instead - and I'll use an order filler to execute my sell orders. If I want really want to buy the market, I'll do the opposite - I'll be selling and the order fillers will be buying.

On the other hand, the S&P pit is a small enough place that it's pretty easy to see when a big local is amassing a position. The other players know whether that local is long or short.

11. If you are listening in on the LOS player to the floor and the market breaks through a support level, and there is no noise (crowd roar) is that a good place to get long futures or stock? What would you be looking at to make your trading decision?

The noise can help you if you know how to interpret it. For example, say there is a big roar from the pit, as stops have been run, and then there is quiet. That quiet means there is no follow-through on that move. That's usually a good place to fade that rally or that break.

12. If you were a new trader, what would you look for to get experience?

If you want to trade on the floor, try to get an internship or an entry-level job at a brokerage firm. This will expose you to all aspects of trading and give you a good foundation from which to build. If you're doing this on your own --perhaps as a second career - you must educate yourself not only on the techniques (how to enter an order, etc.) but on the emotional and psychological aspects. As I say in TeachTrade.Com, I believe 90% of trading is psychological and emotional.

Whether you trade on the floor or off, you have to make this your life. You have to become totally dedicated to trading, the way the market moves, the emotional and psychological side of it, all the nuances �

13. How important is it for a new trader to trade small?

It's very important. Here's why. The biggest evil that can befall a new trader is trading too big. Truly, there is no such thing as an under-capitalized trader, I believe. There are only traders who trade too big for the amount of capital that they have and for where they are on the learning curve. Here's what happens:

A new trader begins with one S&P contract or 200 shares of stock. He does really well for one month. Then he starts thinking that if he had been trading 3 S&Ps or 600 shares of stock then he would REALLY be making some money! What happens is, he increases his trade size and, as a result, he's increased his risk level, which he's not used to. This then begins to change his emotional decision-making process.

The first commandment in our 10 Commandments at TeachTrade is to trade for success and not for money. But when a new trader suddenly faces more risk than he's been used to, he begins thinking about the money on the line. That will impact his trading decisions.

14. How about money management ideas for a new trader?

The key to trading is money management, and that entails keeping your risk and reward in balance. Our rule of thumb is that for every $1 you lose, you must make at least $2.00-$2.50. Put another way, for every $2.00 you make, you can't risk more than $1. To do that, you must keep your losses small and let your profits run. Plus, you have to know yourself and the kind of risk that you're comfortable with.

15. Would you recommend a new trader scalp or be more position-oriented?

As I've said before, scalping from the floor is far different (and easier) than scalping at the screen. That having been said, I think all new traders - on the floor or at the screen - have to get used to trading frequently. When I bring a new trader to the floor, I want to see him trade as many as 30 contracts a day, all one-lots. I want him to get used to buying and selling frequently, just for a scratch (or no profit, no loss). Same thing at the screen, get the feeling of buying and selling frequently. Get over being "trigger shy." And you have to know how to get out of position quickly, particularly if it goes against you. The hardest thing for most new traders is to get out of a losing position when the market turns against them.

Do you know how to turn a day trader into a position trader? Have the market move against him. Then he'll hang on and on and on �

16. Are the floor guys concerned about all the talk about regulating day traders? Essentially, upstairs stock day-traders aren't radically different from the guys on the floor. So, presumably, if they regulate us, they'll lump you guys in as well.

I'm really not concerned about regulation of day traders. Retail day-traders and investors are already signing reams of disclosure documents, and many are still taking on too much risk for the amount of capital they have. How can you regulate people to protect them from their own greed? While I hate to draw an analogy with gambling, it's like going to Vegas and standing outside the casinos with a warning sign telling everyone their odds of winning. The casinos would still be full.

Instead, and as a matter of good conscience, brokerages and clearing firms should offer more education and resources to their clients. That's why TeachTrade has met with such success. Our site is for traders, by traders, and we have no commission-ties to brokerages. We tell people what it's like to trade, and with our market commentary, we let them "look over our shoulders" as we go short, go long or sit on the sidelines. Our motto is institutional-quality research (now available for free) at retail prices.

17. Being an "A" local, do you sometimes find it hard to buy a few hundred cars without all the other locals front-running you?

I don't believe front-running is a huge problem. But I can tell you one thing, when you're putting on size (taking a large position), if you're wrong, you can get all you want! Seriously, you can amass as large a position as you want. The only question is how far you want to step out to get them.

18. How frequently does the floor run stops?

The beauty of having an arena like the S&P pit is that there are so many people in the pit, all of whom have a different opinion. Those different opinions end up as different stop areas. True, sometimes they congregate around the same areas, since technical research tends to pinpoint similar levels. But the role of the local on the floor is not to set off the stops. That's what some people believe. The locals are there to provide liquidity and to take advantage of the markets during those times when the market is out of equilibrium because of big orders coming in.

19. How about the open outcry system vs. the rise of electronic trading? Could electronic S&Ps ever have the liquidity that the pit has?

I think liquidity could be a problem for a volatile contract such as S&Ps. The contracts that will most easily adapt to an electronic venue are high-volume, low volatility contracts such as currencies and eurodollars, which tend to be dominated by institutional players who trade "order to order." S&Ps, however, still have an important local presence in the pit. In fact, a recent study found that some 50 percent of all S&P trading is executed through a local, versus only 10 to 20 percent in eurodollars or currencies. The local is necessary in S&Ps during exceptionally high volatile times when speculative buyers and sellers must step in to handle the orders that come into the pit. At the same time, I believe that electronic trading is here to stay. Take a look at the success of Eurex, the all-electronic European exchange. Clearly this shows that an electronic exchange is viable.

What will happen, I believe, is that a hybrid marketplace will develop. Eventually, we'll see electronic trading of the S&P major (not just the E-mini) during the day, side-by-side with the pit. The customer will have the choice of how and where orders are executed. Where the volume goes, the market will follow. Open outcry will be here as long as locals on the floor are needed to provide liquidity.

20. Let's talk a little about your book. The book was entertaining and insightful, and I especially enjoyed your views on the "personality" attributes of successful traders.

Thanks. I wrote the book for several reasons. With the day-trading boom, I saw there was a real need to let people know that this isn't "easy" or a slam-dunk for retail investors. Trading is hard, and it takes discipline. That's what a lot of retail investors don't understand. They think they can buy the bid and sell the ask and be a millionaire. The fact of the matter, day-trading stocks or futures takes a professional approach. It's not for hobbyists.

The second reason is, as a floor trader, I wanted to give readers an inside look at what it's like to be "in the pit." And, I wanted to pay a tribute to my fellow traders and to futures trading in general.

I do believe that there are some personality attributes that are common to successful traders, including discipline - both mental and physical, the ability to assess and manage risk, the ability to devise and stick with a plan based on technical research, and so forth.

So many people responded positively to the book - they wanted to be able to trade as I do - that I founded the web site, TeachTrade.Com

21. Give us a little background on yourself . How did you get involved in trading? What were your early experiences as a trader? Did you get 'tossed' around and lose money when you first got started? If so, how did you overcome that?

When I started trading, I was in the gold futures pit. Gold was at $800 an ounce in those days and liquidity was drying up. I was having a very difficult time largely because I was under-capitalized, which is a common problem for a lot of rookie traders. I was also plagued by outtrades, and I found some traders tried to intimidate me into eating errors that weren't mine simply because I was new. But being an athlete - I played football at DePauw University - and not being the kind of guy you can easily push around, I didn't swallow the outtrades that I wasn't responsible for.

Still, I was getting discouraged because I'd make money two or three days in a row, and then give it all back --- and then some - at the end of the week. Most weeks I was barely making enough to make my seat lease. I had to earn money at night to help support my trading.

Then I had the luckiest mistake of my life. It was during the Falkland Islands crisis. Gold was moving on every bit of news. One day we saw a news flash that the Falklands had surrendered. Gold dropped $50 an ounce. Then came the second headline - there was no surrender. Gold rallied $50. I was trading fast and furiously and, according to my trading cards, I had bought at the low and sold at the high. As I checked my trades with another trader named Mike, however, we saw that we were "sell-sell" at the high. That meant we each thought we had sold to the other. Now gold was $50 lower. "I'll buy yours and you buy mine," Mike told me. That's what we did - and we each netted about $57,000 on the outtrade. I had sufficient capital for the first time, and I went off to the new S&P pit. That's where I've been ever since.

22. Do you use support and resistance numbers? If so, do you calculate support and resistance via the 'pivot' formula or some other method?

Trading without technical research would be like driving blindfolded. You have to use technical research that includes support and resistance numbers, pivots and so forth. If you don't use research, you might as well go to Vegas and put your money on the pass line.

23. Do you hedge while you are trading? If so, with what instruments?

No, I do not hedge. I go home flat most days. And the number one rule I follow is "buy low, sell high." I'm not being facetious. Too many times traders forget that rule.

24. Do institutions such as Merrill and Goldman hedge their proprietary S&P trades?

Very few desks on the institutional level take directional positions. However, if Merrill or Goldman, for example, is buying, that does not necessarily mean it's for their proprietary desks. It could be for a hedge fund that's a client, or for a variety of different trades. Some of those could be directional trades."
http://tradersvic.com/lewis_borsellino.html
 
"Speaking in terms of someone who would want to trade the S&Ps, you have to develop the mentality of a trader--not just that you're going to be a 'day trader' and be flat at the end of the day. You have to be willing to make a lot of trades. You're going to be a better trader by making more trades. So, guys that want to make one, two, three trades per day, are going to get chewed up and burned out because they can't be that right about the market."


so so true
 
Gotta a couple more, shall I keep em coming ?

Traders Interview: Lewis J. Borsellino Talks With Marc Dupee

Marc Dupee: In the last two months we've seen a big drop in the S&Ps to a three-year low and then a rally that has taken the index up over 20% off the September lows. I know that you're very good at integrating market dynamics into your trading plan. Could you discuss how you have incorporated market dynamics into your trading plan in the past few months, particularly at the inflection points: when the market dropped, and when it changed direction and came back.



Lewis Borsellino: I'm a firm believer that if we could take the news out, the market would have gone down there anyway. The news accelerated the process. Of course, you can't take the news out, but I think people tend to overreact in times of tragedy. They get up and go to work -- unfortunately, not the people in New York -- but the rest of the country, and they really haven't psychologically experienced what most of the people in New York have gone through. What happens is like it's a one- or two-week eulogy, and then people seem to feel they have to go on -- business as normal for those who have to survive the economic downturn.

So I look for inflection points like the August 1998 lows. It had to hold those levels. If it didn't hold those levels, I think there would have been a major, major problem. The only thing I had to fall back on there was experience. The two major ones that I've been through are two major world conflicts and a major correction in 1987. In '87, we saw that the market corrected percentage-wise more than what we've seen recently. But what I saw was when we looked like we were in trouble, the government and the Fed came to the rescue of the markets. Right now, with all the stimulus that is pumped into the market, the money that's being printed -- and it is printed money -- that's why the market has sprung back. People have kind of forgotten about New York -- if you're not in New York, you're everyday life hasn't changed. The panic -- there is still a lot of terrorism out there -- but the panic is sort of out of the market.

Marc: So you're saying you were expecting a kind of a eulogy sell-off to the August '98 lows and from there a snap back as part of the market dynamics?

Lewis: Exactly. What I've seen since Sept. 11 is the market dynamics are starting to switch, where the consolidations are starting to make lower lows and higher highs. And a big key area for us right now is in the 1120 area in the (S&P 500) cash, exactly where we've stopped. But the consolidation that took place and the way we defended the important 1050 to1060 area is key. Also the way the Dow defended the 9000 area.

For the first time in almost a year and a half, the sellers are jumping in up there at the tops and guess what, the market is not retracing like they expected. And I think that's what you saw in the 1050 area, they got short looking for a retest and they stampeded each other to get out.

Marc: Are you talking about locals in the pit where you see them doing that?

Lewis: No, you've got to remember that locals are always short. No, just people in general trading the market. The market keeps holding the key levels. The market dynamics right now, as far as I'm concerned, we're at the do-or-die point. We're going to have to consolidate now at this point between 1110 to 1120, 1100 possibly, basis cash. We need to consolidate this area because the next step is 1200. We're actually looking for 1160, then 1200. If the market can get to 1200 and the Nasdaq to 2000-2200, and the Dow can get above 10,000, we will finally be, for the first time in almost two years, out of a bear market and into a neutral market.

Does that mean we are out of the woods? No. What it means is we are going to have big, big volatility swings, big ranges.

Marc: A neutral market means big volatility, but range-bound trading?

Lewis: Yes. It will start with big ranges, and then it will consolidate with smaller ranges, and then when that happens, look out. Whatever way we break out from there will be dramatic.

Marc: You say in your book The Day Trader's Course that capital preservation and making a well-executed trade should govern everything you do as a trader. How do you define a well-executed trade?

Lewis: I would define a well-executed trade as one where my entry point gave me the least amount of stress and pain and worry from going in a positive direction. Everybody likes to buy the bottom and sell the top. But one of the most painful things that happens to most traders is when you buy it or sell it and it goes immediately against you -- within minutes -- and you're stopped out. And you're sitting there with this loss and you're asking, "What did I do wrong?" And you have to go back to the drawing board.

Marc: You want it to go in your direction right away.

Lewis: You'd like that to happen. The painful thing is that you may be trading in a consolidation area where it hit your stop and the market turns around and goes back. You would have been right. You've got to be able to identify what kind of market or what kind of time period you're in. You've got to develop a system that says "this market is trending, I can get in, I can ride this trend, and I can get out." A lot of times you get stopped out. I wish over the last 20 years I had a nickel for every time I was stopped out because I was too early in putting on my trade.

Marc: What's the lesson from that in terms of the well-executed trade? How would -- or have you learned to execute better?

Lewis: Well, it comes with being patient. And not believing that if you don't get into the market this particular time, that you're going to miss out. One of the things I love to look at is the Market Profile of tick data: where the market has spent most of its trading range for the life of the contract, where it's spent most of its trading range for the last week, the last month, the last day. I also break it down to hourly.

For example, let's assume you're bullish, and you think the market is going to go to, arbitrarily, to 1300. And the market is at (again, arbitrarily) 1200. And the market has a big range of consolidation trading between 1230 to 1235. And you also have a big range at the 1185 area, okay? So the market has spent a lot of time at 1235 and also at 1300 and a lot of time at 1185. You're at 1235 and think, "This thing is going to consolidate and go to 1300." Sure enough, you get up to 1235, you get in, and the market spends the rest of the time consolidating that day, not getting much higher than 1235. You put your stop in, let's say, 600 points (pit points = 6.00) from there, and you end up getting stopped out.

The next day the same thing occurs where you break down to the 1185 area. So what happens is the market moves between these consolidation areas and a lot of times, you get in on the wrong side of it because you're wishing and hoping and projecting that it's going to get to that 1300 area, and you haven't let the market make its mind up. You've got to watch what happens during those consolidation areas. If you look at most consolidations, they have higher highs and lower lows and then it goes down into a smaller range where you have lower highs and higher lows. When you're in a consolidation area and you need to be watching it down to the five-minute chart, when it breaks from that consolidation, that's when you want to jump on that trade, when it's coming out of that consolidation. Otherwise, you'll be stuck in a trade that has a chance of going to either of the two consolidation extremes.

Marc: In The Day Trader's Course, I like the way that you define support and resistance by calling it areas of two-way trade, areas of high volume where traders are willing to commit long AND short to trades, and generally, areas of high volume where the market trades for extended periods of time while it "makes up its mind." How do you locate areas of two-way trade, especially intraday when volume figures for futures have not been determined or released yet? Some range-bound trade that marks support and resistance comes with light, choppy volume.

Lewis: You don't need volume, you need price action. You need price and time. You can develop a gut feeling by watching how long it has been churning in that area. That's precisely what've we've been talking about right here. Consolidation areas are where everybody's different opinions come to meet. It's a period where my opinion and your opinion, where the bulls and the bears, are equally matched. I give the analogy that it's like the "Rocky" movie. Rocky is getting his head pummeled, and it really looks like he's going to go down in the first two or three rounds. But what happens? He keeps coming on stronger, the other guy gets tired, and Rocky ends up winning. It's the same thing with bids and offers. These ranges, the buyers really look like they are going to win on the top, but the sellers keep coming in. And on the bottom it's the reverse, the sellers keep pushing, but the buyers keep coming in. And eventually, one of them gives up!

That's how a consolidation gets figured out. That's one of the things we look at the most. One of the things we learn to do is to walk away from trading in a consolidation range. We wait for it to break out.

Marc: Is there any way to determine where two-way trade is going, or might occur, before it gets there, and where the market will trade to next?

Lewis: I would look at old tops, old highs. But it comes down to this. Once it breaks out, the people that were wrong are getting out, and the people who didn't get in during the consolidation time are jumping into the market, and what happens is they force it to the next level. And when it gets to the next level, you've got the people who were right cashing out. Then the new people are saying, "It broke out of that range, so I'm going to get long here."

The last time we got together (Oct. 5-6, at TradingMarkets 2001 at the Venetian in Las Vegas), you might remember I asked everybody in the room to raise their hand about what they thought would happen because of the (9/11 terrorist) bombing; Is the market going up or going down? Remember about a third thought it was going up, another third thought it was going down, and the other third had no opinion. Well, now you know why markets move.

Marc: I think all traders ask themselves what's going to happen when the spooz or any market approaches a key zone or level. When you're looking at potentially "key" zones that you determine in your morning meetings or zones that you let members know about intraday on TradingMarkets.com, these zones, what do you look for (what market dynamics) to determine if it is going to break through or hold at a certain zone? On the floor, you may be able to see this more readily with the pit heating up, with volume and order flow coming in, basically defining the move in one direction through a key level. How can you see that when you screen trade? Basically, how do you get an edge on whether the market will break through or hold at a key level or not?

Lewis: When it gets to one of our key or major areas, and I haven't been in the market yet, I basically step back and say, "Where were we? How long did it take us to get there? What time of day is it?" When you get to the end of a journey, you've got to be able to look and see where you came from and figure out what's going to be the next leg of this trip. That's exactly the way I look at it.

For example, the other day I'm looking at it on that rally -- we had a consolidation, we came up, rallied, made highs, and got up and made highs in at 1128. Early in the morning, though, on the opening, we opened up between 1114 and 1116. The range of the opening range was 1113.70 to 14-half. I sold 14-halfs because we had just come off a big rally from the day before, we had a gap (down) opening, opening up 500 lower (5.00), and I knew we had a big consolidation range between 1005 and 1008.50. And I had resistance up there at 1118.50 to 20. I let my opinion influence me. I said I think we're going to break down to the consolidation area because we've had a big move up, and I think this move is going to retrace a little, and we're going to move back to the 1108-1110 area, consolidate there, where I think it will be all right to buy it.



Well it opened up and rallied right to our first resistance area at 1118, couldn't get through and went back to the bottom of the opening range and couldn't get through the opening range. Went back to 18-half and broke back down to the opening range again. This all happens in the first half-hour of trading. When it consolidated above the opening range, I knew I had to get out, and I did.

Marc: How long did it take to bail on that position? When did you decide to get out of your short at 1114.50?

Lewis: After we failed the second time; after we failed to go back through that opening range again. When we broke through that 1120 level, the rest of the day it rallied and made a high at 1128. And it didn't sell-off until the close.

That was a bad trade, and I'll tell you why. I was basically sitting in the middle of two consolidation ranges. Here I was at 14-half, and we have strong resistance at 1118 to 20 and strong support from 1108 to 10. Here I am playing in the middle of the frickin' range.

Marc: Something you just said you choose not to do if you can avoid it.

Lewis: Right, but I did it. Twenty years I've been doing this, and I did it.

Marc: One of the things you say in your book is that each time you trade, you are weighing the success and/or failure of your plan (p. 50). Markets change; they are evolutionary beasts, similar to humans. At what point do you say your trading plan no longer works and create a new trading plan?

Lewis: Are we talking in a daytrade or in an overall scope?

Marc: However you want to answer it.

Lewis: Well, right now I think people are going to start reevaluating their plans because I think for the past two years people have been selling highs, looking for retracements. I think the evaluation of your trading plan is a constant process that has to be done every day. It's done every day. It's going to be based on your success, what works for you.

Marc: How does that tie in to the notion of following the discipline of your trading plan, if it is changing every day?

Lewis: My overall plan is I'm gonna buy low and sell high. That's my overall plan. Whether I'm trading from the short side or the long side, that's my plan. There are some traders that only feel comfortable trading from the long side, or only feel comfortable trading from the short side. If you know that's your personality, you have to find what your comfort zone is. You may miss out on a lot of other trades, but the point is if you only take the ones you're comfortable with and you feel you can manage, you'll be ahead of the game. Because if you get into the ones you're not comfortable with, you'll start making irrational decisions.

Marc: What about intraday? How do you go about creating a new trading plan intraday?

Lewis: It would have to be based on market dynamics. Different days might require a different trading plans. For example, today (Friday, Nov. 9, 2001), and last Friday (Nov. 2, 2001), and the Friday before that (Oct. 26, 2001), have had real quick moves between 8:30 (a.m. CT) and 9:30, and if you haven't caught that move, the market has spent the rest of the day in very small consolidating trading ranges. So there is a plan right there. If I haven't made my money by 9:45, I missed that move, and I just better forget about trading the rest of the damn Friday. That sounds like, "What kind of advice is that -- don't trade." But sometimes that's the best advice. Don't trade when you've seen a pattern of low-volume consolidation and no interest in the market on Friday afternoon.

The nice thing about being a trader is you have a whole array of plans. You have to be able to execute the plan that the market is dictating. People say, "How do you do that?" Look. Marc, you've been on the floor with me (click here to read the article). You walked in and saw what we had. That day we happened to peg the market absolutely perfect.

Marc: Definitely.

Lewis: If I would have gotten short and had gotten my stop stopped out, I would have had to re-evaluate what I was going to do for the rest of day. I'd have to step back and say, "Ok, this didn't work. Why didn't it work? Where is the market now, and where could it go from here?" I think that that is crucial that people don't do that. They tend to stick with the plan because it is very unnatural for them to take a loss.

Marc: Definitely. That is a difficult thing for some people to do that on the fly. In your book, one of the quotes you use in relation to an element of successful trading, or success in any entrepreneurial venture, is the capacity to "conceive, develop and merchandise a plan, an idea, a new trading strategy." That can be difficult, to determine a new plan mid-stream.

Lewis: Right. And in business, most people are used to putting a plan together, doing studies -- very methodically -- working out every detail of that plan. It is the same thing with trading, except your plan gets executed in fast forward. Trading is like watching a movie in fast forward. When you're wrong, it's like fast forward. When you're right, it's like normal speed. And when you're trading in markets that aren't moving, it's like playing it in slow motion. When you're right on in your trading, and everything's going according to your plan, it's like sitting down and watching a feature -- everything flows. The market hits where you expect it to.

It's almost like being a pro golfer. They tell these pro golfers all the time, "You gotta envision the shot, get up there, make your swing, and the ball should go where you envision it." Your vision should be determined by your technical analysis. And you should envision what the market is gong to do. And you should adjust you plan according to good research, experience and knowing you have the ability to alter the plan. Even if you get stopped out, that's really going according to your plan.

Marc: That's right.

Lewis: Because what you're saying is if the market reaches this level, this is the part where I would bail because my anticipation of the market was wrong.

Marc: And at that point, you would potentially shift your plan. Because it says, in part, that part of the conception and development of my plan was wrong.

Lewis: Well, part of my plan was wrong -- I got stopped out. Now, what do I want to do? Do I want to stop and reverse and use my point of entry as a new stop? There is a conceived plan, if I'm playing this as a support area and it doesn't work and I get stopped out. And now the market stays onto that area, and it tries to get back above it, and it can't. Then maybe it's time for me to short it and use that old entry level of mine just above it as a point to stop me out on the upside. Now that tends to be kind of risky because people get whipsawed. They get whipsawed when they trade consolidation ranges.

Marc: One of the other things you spell out in the book is how you use primary technical indicators like moving averages. And you use them in ways that I find more satisfying than, say, a moving average crossover technique. For instance, you say, (in an up trend) "the farther the market is above any moving average, the less likely it is to break below it on the first attempt." Now that's a valuable market dynamic. You relate this to "distance/energy" analysis, applied to moving averages. Would you like to expand on that?

Lewis: I think the other aspect of that is not only how far it is from the average, but how long it has been above it or below it. If you equate the time factor in there, you'll realize that the longer time it's spent above the average and the longer time it's spent below it will impact the move when it moves through the average. Ninety eight percent of most stock traders love to play the 50- and 200-day moving averages. Everybody knows that. So when a stock approaches those moving averages, that's when market activity increases. Everyone keys off them. That's when everybody's opinions are made. This is the time when it's going through the roof. "It's worked four times in the past. I gotta buy it."

Marc: So the longer time it has been away from the moving average, the more difficult it is to go through, like with price?

Lewis: I think it is just the opposite. Here's the way I like to see it. Intraday, it can dip below it. But I want to see a confirmed close above it or below it.

Marc: So if you're expecting a breakdown, you want to see a close below it; and if you're expecting a breakout, you want to see a close above it?

Lewis: Right. When you get a confirmed close below it, say, after six months or a year. That's when the energy on the downside will continue.

Marc: You mentioned in your last book The DayTrader, From The Pit To The PC, that you bought the Gann material. Do you use a conversion factor for the S&Ps?

Lewis: No. We use a smoothing factor for time. When you're talking about time, is it an 8:30 to 3:15 (CT) market, or is it a 24-hour market now? You have to use some smoothing factors because of volume. It's ironic, though, when you look at the night volume and the night ranges, they usually have a high and a low near two points that have been heavily traded areas -- they go there and test them again..

Marc: You had Maury Kravitz on last night in a live webcast. Maury Kravitz is a major veteran trader from back in the time when the Chicago Mercantile Exchange was the Egg and Butter Exchange and also traded onions. At one time, Maury had the biggest deck -- that is, did the most volume -- of any broker in the Chicago Merc's gold pit. The guy is something of a legend. You describe Maury as your mentor in the commodities markets, someone whom you apprenticed for. Besides discipline, which you guys are both huge on, what are some of the specific actual trading techniques or keys that Maury taught you that you still use today?

Lewis: Maury is a guy who got me into the idea of being very well prepared technically. He used to sit up there, before computers, doing his charts by hand. He had this thing about the 60-day moving average (simple) for the S&P index. He'd say, "Lewis, this is a big average when it gets over the 60-day." Maury is the one who said, "Look, when you get a confirmed close above or below this, you get your biggest moves." He did some historical studies.

And I think that from being a young guy sitting in an arena, flinging numbers around, taking advantage of market gyrations, the biggest thing I learned from Maury was one, try to understand that fundamentals control your environment. Try to become in tune with them. And then base your trading decisions on the environmental situations. I thought most guys just went to work every day. And I think to this day, most of the guys that are floor traders are very bad technicians. Very few of them spend the time to actually find out where the market is and where the market is going to go. They're in there trying to take advantage of temporary market gyrations -- when the market is thrown out of equilibrium by institutional people and retail people putting orders in. So, I think the biggest thing I learned from him is being prepared and trying to understand what makes the market move.

Marc: Markets change. In recent years, are there any specific things that Maury has shared with you?

Lewis: You know, Maury is kind of retired from the business, and he's been chasing Genghis Khan. Actually, he came in and looked at what we are doing with our trading systems and said, "Lewis, you have far surpassed me in anything I ever developed." That man is one of the smartest men I know. And the gold market is his baby. Most people don't get it when he says gold is a demand product only.

Marc: Which do you think are the most opportune times of the day, week, month or year to trade and why?

Lewis: Definitely the first hour-and-a-half to two hours and the last hour-and-a-half.

Marc: And for days, Fridays?

Lewis: Friday, it depends. Fridays before a big holiday, you want to trade early in the morning. And then the best movement days? The day before a big number. It used to be the day of the number. But people are flattening out the day before. That's why you'll see volatility on the Thursday before unemployment (the report).

Marc: Or the Monday before the Tuesday Fed meeting.

Lewis: Well, no. That's one exception. But the Thursday or Friday before a Tuesday Fed meeting is very volatile. Here's an interesting point. We had a Fed meeting on Tuesday (Nov. 6, 2001). If you've come from a big move... Here's an example. The week before the Fed we had had a low of 1053. On the Thursday before (Nov. 1, 2001), we tested 1055 for the last time and closed the week up at 1090-something. So, we had a 3000 point (30.00) rally from the bottom. The reason being, the shorts gave up and 1055 had been tested before. Because we failed down at the 1055 level three times, the shorts gave up before the weekend, before the Fed meeting, and flattened out. People were talking about time. They're saying, "We're running out of time for this market to go through the lows, and we got Greenspan coming, and we know he's going to do another 50 basis points."

It's very simple. Just think if it were you or if you're a fund manager. You've got somebody who potentially can hurt you with a comment. So the market bottomed out.



Marc: And what about the best or worst times to trade on a yearly basis?

Lewis: I can tell you the worst time for me to trade as a trader is during the rollover. Because that two- to three-week period, the front month and the back month, the volume between the two starts to get distorted. So, you don't actually see the order flow. Plus, you have options expiration with people laying off positions.

Marc: That's where you'll cut back on your trading?

Lewis: That's when I'll take my vacations!

Marc: Interestingly, your mentor, Maury Kravitz, has been studying Genghis Khan for the past 40 years, and it appears he may have found the long-searched-for tomb in Mongolia of one of history's greatest conquerors. Khan and the Moguls conquered two-thirds of the world. Your friendship with Maury, one of the world's authorities on Khan, might give you a special insight. Do you think there is a similarity between great traders and Genghis Khan, and how do you think Khan would have done trading in the pit? He could not succeed if he killed everyone!

Lewis: (Laughing) I said that to him, that I don't know if I could make money being the only trader in the pit. I would say that Genghis Khan was aggressive and disciplined. He had to be to be the conqueror that he was. And he probably was a disciplined person.

One of the things I look for when I'm recruiting traders is a very well-rounded person who has been an achiever either athletically or intellectually, but well-rounded. I don't go for somebody that graduates number one in their class at Harvard. Engineers do not make great traders. You can't say, "Do this, this, and this, and here is the end result." But people who understand that along the way, that there are going to be bumps, that you have to adjust to the bumps in the road, those are the people who will end up becoming good traders. You have to understand that and have discipline and understand that everything doesn't always go right, but that when things don't go right, it isn't the end of the world. Then you have to have the strength to go on and make a new decision. People who tend to be high achievers don't like the idea of being wrong. And when they get caught up in that, they don't like the idea they did not pick the area in the market that wasn't the exact bottom or wasn't the exact top. I look for people who are well-rounded, disciplined people. Genghis Khan was probably like that, and not a one-way thinker.

Marc: Finally, what's changed, if anything, in your thinking about trading over the past 18 months, the greatest bear market of our generation?

Lewis: The biggest thing that's changed -- I have to go back more than 18 months. The biggest thing that's impacted the trading world over the last four years is the computer -- Internet access, heightened anticipation and participation from the American public at large. The world has now become traders. I think that is the biggest thing: market participation. In my opinion, if you think the last market surge we saw on the upside was big, the next one will make that one look miniscule.

Losing money in trading is like a woman giving birth to a child. When my wife gave birth to our first child, I said she'll never want to do this again. After, as we were talking, the doctor said, "There is a hormone that is secreted after the childbirth that kind of blocks the memory of the pain." And then the pleasure of having the baby and raising the child and then the maternal instincts take over, that's what allows one to say we're going to have more kids, more children. Well, the moment the market starts performing on the upside and people start making money again, they forget about all the pain."
 
"In The Pit With Borsellino

It�s a brisk fall day in Chicago, November 8th, 2000 the day after the presidential election, and the nation has awoken to the possibility that two rather unremarkable campaigns may now go on the warpath, waging battles in Florida courtrooms to decide the next leader of the free world.

The S&Ps have retraced about one-half of the point-loss sustained during a punishing autumn drop brought on by a string of disappointing corporate earnings, higher interest rates, and rising oil prices. A Bush victory could extend a choppy, two-week rally. Markets favor the more corporate-friendly Republicans and could move higher in relief. On the other hand, any uncertainty about the election�s outcome could exacerbate the bigger-picture bearish trend.



Lewis had asked me to sit in on his team�s morning meeting before we walked down to the floor of the Chicago Mercantile Exchange. I arrived at Borsellino Capital Management an hour before the opening of S&P 500 futures trading. I found him discussing the ramifications of the contested presidential elections with his team who were sitting in front of banks of computers with screens flickering charts and quotes.

Lewis greets me and while making introductions to his staff says, �Did you see the big Globex volume on the election results? It hit 4,000 contracts overnight. The low was made when the news said that Gore had won Florida and we hit the high when they said Bush would win the presidency.�

�No, I didn�t see that. How do you think the market will react to that?� I ask.

�Well, there could be an initial sell-off, especially if the drugs and Microsoft move lower. But I�ll probably look to fade whatever move occurs if the presidential election results are announced. If Bush wins, the market should rally. But because that's probably already priced in, we could see profit-taking. Now if Gore wins, we could see a selloff, but then the market might rally. This is one of those cases where you would buy the rumor and sell the news.�

Borsellino Huddles With His Team

We then moved to the conference room for the morning briefing, a room filled with signed helmets from football greats and other sports memorabilia. Six of us came to order around an oval walnut table with Trisha Crisafulli joining in on speakerphone.

Looking at one of the analysts, Lewis begins. �Let�s get going.�

"Today we have wholesale trade; import and export prices were already released but had no effect. Thursday is PPI, forecast at .2%, but everybody�s watching the election. We did unusually high volume on Globex with over a 20-handle range on the election news overnight with a high of 1455 and a low of 1432."

Lewis then detailed the major areas he would be looking at in the pit for Wednesday, November 8, 2000.

�Okay, 1445.50 was Tuesday�s (November 7, 2000) high. We have small resistance at 1450; then we have 1451.50, 1453, 1455-1456 and 1459; these are all small key areas. The major objective is at 1460.50.

�On the downside, we have 1445. And then 1442, which is very key.

�Yesterday, 1441-1442 was our swing area. In the morning we hit a high of 1441.80 and then broke down to the low. Then we came through 1441.80, we went up and made the highs. Below that is 1439.50, 1437.50, which is a major area, and then 1433.50. Yesterday's low was 1432."

Brad Sullivan then provided a briefing on possible action in the Nasdaq 100 futures and some of the other analysts added their ideas on the market for that day.

On The Floor Of The Merc

We then walked downstairs and over to the Chicago Mercantile Exchange, home to where Borsellino has achieved fame and fortune trading for the past two decades. First we go to the coat check where he suits up, trading expensive street shoes for tennis shoes and donning the requisite trader�s jacket with his well-known trader's badge, "LBJ," pinned on it. Less than ten minutes to go until the opening bell and Lewis is calm, making small talk about the exchange and various CME personalities. I, on the other hand, am finding that the energy and intensity of the place is giving me a dry mouth and sweaty palms and we haven�t even set foot on the trading floor.

After ascending another flight of escalators, Lewis signs me in. Security is very tight at the exchange, and you need a member to sign you in. I get a sticker with Lewis�s badge acronym LBJ written on it, my VIP ticket for the day.

After a security check we finally arrive at the threshold of the vast trading floor of the Merc. In a sign of the times, an official at the entrance makes Lewis sign a form in official receipt of what appears to be a legal document. As it turns out, the CME was recently �demutualized,� meaning the members voted to make the exchange a public entity. Members will become shareholders, and with the new currency of CME equity shares, alliances will be forged and the Merc will potentially be better positioned to manage its evolution, as financial markets everywhere go both electronic and global. A long-standing Merc member, Lewis knowingly signed the form and handed it to me, saying, �Read this if you get bored or want to know about us going public.�

Lewis then gave me a ringside perch and moved into his place on the second-to-the-top step of the tiered, octagonal S&P futures arena, a mosh-pit of hundreds of avaricious, high-strung entrepreneurs, trading one of the world�s most watched futures contracts.

Spots near the top of the pit are earned. New traders go to the bottom of the pit where they can get lost in the crowd, have an inferior view, and a more difficult time getting trades done at the best price. The top spots provide the best view of what the biggest locals are doing. They also let you better see the order flow from the major institutions coming in from the filling brokers who surround the pit. When top traders retire or decide to make the move �upstairs,� room is made for more junior traders to move up a step. Moving up the steps is a function of time, experience, and a trader�s capacity to stomach and manage risk.

The capacity to take big orders and stomach the risk is a complex and critical component of being one of the traders situated at the top of the ring. Institutions need the locals to take the other side of their big orders--30-, 50-, and 100-lots and sometimes larger positions. And the institutions are willing to pay the bid-ask spread and some slippage in order to get their paper filled. With a 100-lot position, every �100 points� (1.00 or �one handle�) is worth $25,000. The S&Ps fluctuate by this amount virtually every minute of every day during the open outcry session. Traders need lightning reflexes, a damage-control plan, and an iron gut to handle such size and risk.

The top step is where Borsellino has been standing in three different decades.

Moments after Borsellino had assumed his position in the pit, the opening gong sounds. I am startled because Lewis had literally just left me when the bell sounded. His instinct to be in the right place within a split second was a little unnerving.

So as trading opens, Lewis�s hands are turned in buying, fading (trading against) the market�s impulse to drop on the election result uncertainty. Surrounding me, brokers in cramped and pricey, standing-room-only cubicles bark quotes into banks of phones while simultaneously hand signaling bid and ask quotes and buy or sell orders to the filling brokers on the top ring, feeding the world�s orders into the pit.

On the open, the screaming and noise level surges in what initially sounds like a football team getting psyched for a big game. Instantaneously the pit comes alive, pouncing like a wild animal in a flurry of buy and sell orders. The frenzied chant seems to express itself like an insatiable hunger, simultaneously feeding and gnawing on what appears to me in this setting to be a bottomless appetite of greed and fear. Roars, cries, and growls emanate from the pit�s maw, as extended talons communicate the essential information of survival in this jungle: price and quantity, bought or sold. Five-fingered talons everywhere gesture, snatch, and seek to devour their prey. Other times, what they have snatched devours them. Spittle from the price-seeking visceral cries begins dusting the pit-organism as the animal-market endeavors to digest and price the news of who will be the first president of the new millennium.

The Play by Play Action

It�s seconds or maybe tenths of seconds into the November 8, 2000, session. The opening�s assault on my senses seemed to have suspended me in time. Ringmaster Borsellino�s arms are extended with hands turned in, indicating that he is buying �four-forties� (1444.40) from one of the filling brokers. (Click here for a lesson on CME hand signals). He quickly notes the transaction on index cards in his hand. Chaos and a frenzied roar escalate, agitating the amorphous capitalist beast contained in its octagonal pen.

The market�s moving down. A local in Borsellino�s gaze signals he�s got contracts for sale at 1443.20. �Sold,� Lewis gesticulates, hands punched out as he offsets his opening purchase in a losing trade. Sometime during this opening flurry an announcer bellows over the PA system, �The opening range is five-even, four even� (1445.00-44.00).

Lewis continues his constant scan of the activity across the pit as his hands go back up. His hands are turned out again selling, this time �three evens� (1443.00). The market ticks down 42.80, 42.60, 42.50, pauses, then dips down to 1441.00 and starts ticking back up. At around 1442 even, I see Lewis buying, making what looks like a protective scalp of about a 100-point (1.00) gain. The Spooz keep clicking up and some of the other locals� hands are also turned in, buying or covering shorts, driving the market back toward its opening highs as locals fill buyers at higher and higher prices.

Lewis bids lower at this point, providing another trader with the opportunity to get a slightly better buy than what most of the other locals in the pit are bidding at that instant, and offsetting some of his 43-evens in an almost scratch trade. Borsellino makes a few rapid-fire trades in succession, performing the role of market maker by selling contracts 20 or 30 points (0.20 to 0.30) above where he buys then, capturing the bid-ask spread in scalp trades. But at this point his position size is small as he appears to be testing the waters and waiting for something--I�m not sure what--to happen.

We are just over 10 minutes into the session and the market is stalling right around the high of the session. For the next several minutes it trades over just a 200-point range (2.00), but mostly within just 100 points. Every time it bangs up to the 1444.50 level or 1445 high, I see Lewis�s hands turned out selling. Some of the other locals are doing the same thing when the market hits its head up against the high. But something has changed. Borsellino does not appear to be doing scalp or test-the-waters types of trades here. Rather, he is going exclusively on the short side, selling, and apparently building a big short position.

Now the market is trading 1444.00 offered and Lewis takes them. He then turns and offers to sell even more contracts at an even lower price, a gutsy move if the market does bang up against the 1445.00 high, break out, and rally. Other traders apparently notice Borsellino�s lower offers to sell. I see one trader look over at Lewis, pause, and go from the buy side to the sell side, offering contracts lower as well.

I remember from the meeting in Borsellino�s office this morning that he said that 1442.00 is a key area. Over the next few minutes, the market approaches this level, and the pace of activity quickens. Lewis keeps offering to sell contracts lower, staying on the sell side and amassing a position worthy of a shot of Pepto-Bismol.

The market at this point is very close to 42-even when there is an eruption of noise and a frenzy of activity as the market blows through �42.� A flurry of fear feeds the pit, seeming to overwhelm some in the arena and the market implodes five handles (5.00) in as many minutes.

In this steep downdraft, the pandemonium and roar notch higher. Clerks� and order fillers� movement and attention hasten. But most notably, the locals� pace and intensity sharpen. Eyes bulge, calls to sell are literally spat, and neck veins swell as arb clerks push fingers away from their chins, seeking to flash fill sell orders phoned to the pits. Other clerks�all twentysomethings and many females�deliver order forms to the pit too. No one is going to touch this inconclusive election above 1445 or above 1440. And as traders are wont to say, �If it ain�t going up, it�s (following the path of least resistance) going down."

Offering to buy into the panic, Borsellino covers some shorts in the 1437.00 through 1438.00 area. I glance at my notes from the morning meeting and remember that he had 1437.50 ear-marked as a �major area.� There is a brief respite in the action, a minute or three where the tone of the pit moderates, digesting the quick dip and probably some lambs that got caught in the gulp down. But taking profits usually has such a calming effect and so too can an upswing in a losing position as hope temporarily drugs with its palliative euphoria. The first taste of blood is always satisfying and so too is the hope of survival. But the lull is short-lived. The S&Ps begin caving again as the chant of �sell� fills the air and the kill continues.

I detect a flicker of a smile on Borsellino�s face, which is otherwise painted with concentration and intensity, and remember something he once said, �As the markets become more chaotic, I get more focused.� In the fifteen minutes since the S&Ps broke the key 1442.00 area, they have dropped 10 handles. And Lewis, or course, had a big position up near the high of the session. He�d come in with a plan of key levels to trade off of, stuck to the plan, and now the discipline and methodical stocking were paying off as the market slashed lower.

�Buy �em,� Borsellino booms, snapping up the incoming panic to sell nearly 10 handles below the 1442.00 area he�d identified as key. Fingers turned in and fanning toward his chin and mouth almost as if feeding, Lewis buys some more panic and the market begins to bounce higher. Observe, pounce, and feed: Read the pit, react, and write it on a card. It�s part of the successful hunt.



Touchdown

Lewis then came out of the pit, seeming quite happy and patting me on the back, �Hey, how was that?�

�What�s up, are you taking a break?� I ask.

�I�m done. It hit my objective. The rest of the position I�ll monitor back from the office. Come on, I�ll show you around.�

Although I had expected Lewis to trade longer that day, it dawned on me that his 1432.00 downside objective had been hit only 40 minutes into the trading session. Rather than stay on and trade willy-nilly, Lewis was following his own advice of (winning or losing) �congratulating yourself for sticking to your trading plan.� His job was largely done for the day. His plan of attack executed just as he had spelled out in the morning planning session.

To say I was impressed would be an understatement.

It�s one thing to read about the daily formulation of strategy in "Borsellino�s S&Ps A.M." and "Borsellino�s S&Ps P.M." commentary. It�s another to see it enacted nearly flawlessly amid the confusion and intensity of hundreds of traders and competing factions simultaneously battling in the belly of the S&Ps pit.

We walked around the pit, and up to the top of the other side of the ring. �These guys here, this is where they trade the outside months, the Marches, the Junes, and the Septembers of next year.� A smaller, less hurried bunch of perhaps a dozen traders were staking out this ground.

We then moved over to the arena adjacent to the S&Ps for a look at the even faster-moving Nasdaq 100 futures pit. Pointing to a bespectacled, late-twenties-looking trader, Lewis said, �That�s my cousin.� The Nasdaq 100 pit was pretty active and typically down even more sharply than the S&Ps. And this guy looked like he was on fire, totally focused, and certainly oblivious to us. �Sell five at seven,� Borsellino�s relation screamed.

�I brought a lot of these guys in, into both pits. I gave them a job clerking or helped them get in. Some started in the S&Ps and then moved over here when they started this pit. You�ve got to have a lot of balls to trade in that pit. I wouldn�t want to do it now,� Lewis said.

�Why?� I asked. �I know the S&Ps. That�s my market. This one jumps around too much,� Borsellino explained.

Meanwhile, Lewis�s cousin had turned and yelled, �sell five at seven.� But these were at a level a full 10 handles lower (in the Naz contract, every handle is $100) than the previous �five at seven,� a thousand dollar decline per contract inside of 90 seconds.

As if punctuating Lewis�s point about the extreme volatility in this pit, the Dec. Nasdaq 100 futures (NDZ0) had hit their intraday low so far of 3227.00 just minutes before our arrival and had pulled back from the low up to 3250.00. The 3250 area is where his cousin sold the first five contracts at 3247. The contract knifed down to 3237, where he sold the second five contracts. The market kept on tanking and within five minutes hit the first limit-down level at 3220.

According to CME rules, the first limit-down move at down 95.00 points means trading can occur only at or above, this level for 10 minutes. (The 95.00 point-value is established quarterly and is based on a 2.5% move). Again, each 1.00 point (1 handle) on the contract is $100 dollars. If Lewis�s cousin had covered his 3247 and 3237 short positions 25 handles and 15 handles lower, respectively, at 3222, then he would have made 40 handles on the positions, a gain of $20,000 (40 points * 5 contracts * $100 = $20,000) in the few minutes we were standing there. The Nasdaq futures fell as many as 260.00 points on the session, through a second limit-down level (down 190.00 points) before settling down 253 at 3061.



Continuing on our way through the packed trading floor, Lewis seems to know most everybody in the room. He exchanges light banter with clerks, traders and brokers, and introduces me to Ceci Rodgers, a journalist who sometimes interviews Lewis about the market and who covers the trading action at the CME for CNN.

Other Players

At this point, Lewis is ready to go back to his office but sets me up with Patrick Spears before leaving. Pat runs a pit-side brokerage, RBH Financial, as well as an online brokerage, Webvestor.com. Patrick has a stream of calls coming in and usually a phone on each ear. He maintains an almost non-stop dialogue into each phone while simultaneously hand-signaling orders to the pit and time-stamping and manually filling out order forms with account numbers, contracts transacted and fill prices. He also has two other guys working for him tendering orders as well as other broker-booths located around the pit.

�Do you have any questions?� Pat asks with a phone still attached to his head as he screams to get the attention of a filling broker at the top ring of the pit and gestures that he is buying contracts at the current price.

�Ah, yes, but aren�t you kind of busy?� I reply.

�That�s all right. I�m used to multi-tasking,� he says wryly, time-stamping the front and back of an order form before filling it in.

�No s___,� I say in response to his understatement, one of many so far this day, but presumably par of the action on the floor of the CME.

I asked Pat what was it that he did that made him different from any other broker, why a trader would use him. Pat said, �We�re more of a boutique brokerage in that we offer more attention, better fills, and sometimes a little hand-holding. Some of the other brokers don�t really give a damn where you get filled; they kind of go through the motions. I fight to get good fills.�

And then, as if by way of demonstration, Pat bought contracts back that he had just sold for a client. This had occurred as the pit noise level rose in a flurry that broke the market below 1430 (at 10:35 ET) and to a new low and got the client out of a losing short--a false breakdown--that could have been much worse without such quick reflexes and aggressiveness.

While hanging out up at Pat�s booth, I had a different view of the pit and a chance to talk with some of the other locals as well. What I learned was the traders in the pits come from a variety of backgrounds and use a variety of methods to trade, not surprising really, but a good reminder that there are a variety of ways to make (or lose) money in the market.

One trader I spoke with said he had a law degree but found trading on the floor of the exchange much more interesting than law. He generally did not trade in the pit, scalping in and out of positions. Instead, he would wait outside the pit and when he saw an opportunity, would use his local advantage to quickly establish a position at the price he wanted, using an acquaintance filling broker standing on the top ring to get his fills.

Explaining a trade he just made he started, �What I did was -- there was this Italian mathematician some time in the...�
�Do you mean Fibonacci, a retracement?�
�Yes. Well, I sold the 50% retracement of the high (open) and the low, which was at 1437.� (Here the high of the session was 1445.00, the low 1428.50--a 16.50 range-- leaving the 50% retracement 8.25 handles higher at 1436.75). Hence, he had sold 37s.
�Where did you buy them back?�
�At 33-and-a-half.�
�Why,� I asked, noticing that the market was at 31 and moving down?
�I wanted to take a profit, three handles, 750 bucks.�
His was a good strategy that worked out. Like many traders, I learned that one thing that was keeping him from greater success was that some of his losses were bigger than his winners.

I was also introduced to Martin Waxstein, a guy I was told who �provides technical analysis to many of the best (local) traders.� Waxstein said he �trades upstairs� off a screen but comes down to the floor to talk to the many traders to whom he sells his technical analysis.

"I�ve been doing this for 25 years,� said the silver-headed Waxstein with a no-nonsense brusqueness that served to underscore and substantiate his long-standing experience.
�I used to give these out to twice as many traders and have more headaches,� said Waxstein, showing me the sheet he provides to his trader-clients.
�Now I�ve cut back to half the traders, charge twice as much and have fewer headaches.�

Waxstein presented me with the levels sheet that he had prepared and provided to his client-traders on the floor of the CME that day (Nov. 8). Curious, I compared it with Borsellino�s:

Waxstein/ Borsellino

1460.50 1460.50 (Major objective)
1457.80
1454.80
1452.20 1453.00
1451.90 1451.50
1449.50
1444.40 Close daily/ 1445.50 (Previous high)
1442.00 1442.00 (Key)
1438.00 1437.50 (Major area)
1435.80
1433.50
1432.00 1432.00 (Nov. 7, low)
1431.70 Globex low

The interesting thing is that both the levels Waxstein provides to his client-pit traders and Borsellino�s numbers were substantially the same. While the levels were not identical, the �key� and �major areas� were within half a handle (.50) of each other, if not at the same price. Although this comparison is only one example on one day, I found it important information because it implies that many, if not most, of the best pit traders are looking at substantially similar levels. This is information I can use because it gives me greater understanding of the levels Lewis shares with us every day.

Hence, if you know Lewis�s numbers and are trading (like most traders) off a screen, you will know that there is a high chance that many of the top traders, including Borsellino, are often looking at the same levels. One might say that you could key off these levels with greater certainty, knowing that many of the top locals may be looking at the same thing. Importantly, these levels are given to you every morning in "Borsellino�s S&Ps A.M. column."

Some of the smaller and newer traders told me that they watch the big guys. They watch Borsellino, and when the market hits a key area and they see him selling--as occurred on this day at the 1442 level--they won�t trade against them. Since Borsellino was already done for the day, I asked who were some of the other biggest traders to watch. Traders said that besides Lewis they would watch PRS (Steven Prosinewski), MSLO (Mark Mislo) and Don Sliter, and that these guys' trading could affect what they did.

This response was typical, referring to the traders' badge acronyms. �When I�m putting on a trade, I�ll look at PRS, MSLO or LBJ (Lewis Borsellino). If I know that MSLO has sold 29s, you don�t want to buy them. You don�t trade against those guys.�

So I watched to see if this were true. The market had been trading mostly sideways in the �noon swoon� of lighter lunchtime activity, but had drifted back down from 1437 toward the 1429 low of the session. Prosinewski, a mid-thirties blond guy who looks like he could be just as comfortable wearing banker's pinstripes, had taken a short break from the pit when the rumble and noise level started to pick up and the market appeared poised to test the session lows. He hurried back down the aisle beside me and then down into the pit, raising his arms signifying, �I�m selling.� He resumed his place along one of the top steps of the pit, about five body-widths from where Borsellino stands. The market went 1429.00 and then 1428.50, the session�s low, as the pit jerked, spat and roared again to life. PRS sold into the breakdown and many of the other locals who had been scalping�buying and selling�were now just on the sell side as well. The Spooz tanked to a new intraday low of 1424.00 and then punched again lower to 1423.20.



Borsellino�s push through the 1442 area seemed like a key influence and here was another example. For me, it just reinforced the notion of the value of learning from "The Best" traders."
 
"Lewis Borsellino: Part II
By Marc Dup�e

n Part 1, veteran futures trader Lewis J. Borsellino answered the question, "Why have you succeeded at this game when so many others have failed?" His conversation with Marc Dup�e continues:

Marc Dup�e: How or when will you pyramid your trades while screen trading?

Lewis Borsellino: Do you mean how will I add to a position? Well, one of the things we never do is add to a loser. We never average. We'll pyramid the trade as we see different areas of support and resistance being tested and firming up and we look for consensus of all three of the indices moving in the same direction; definitely when we're trading Spoos and Nasdaq. If we get all three moving the same way, that's when we like to jump on and add to our positions.

Dup�e: I suppose that makes it a little clearer now, particularly since we've seen such bifurcation between tech and the blue chips.

Borsellino: Very difficult trading. I think from October to almost February of this year has been one of the most difficult times of trading that I've seen in a long time.

Dup�e: Really?

Borsellino: Yes, because of the disconnect. Here you are watching Nasdaq making all-time highs, and you want to buy the Spoos but they keep beating them up. Every time the Nasdaq makes a new high and you go to buy them -- the S&Ps get a little rally. Then the Dow sells off and the S&Ps sell off and you get chopped up.

Dup�e: Do you have a clerk near the Nasdaq pit?

Borsellino: Actually the Nasdaq's right in front of me. So I can see it and I can see the board. And I don't flash orders up there. If I want to place an order, I tell my clerk on the phone. He'll call the desk and put in the order for me.

Dup�e: You said you like to do low-risk trades; two to three bucks a stop.

Borsellino: Especially upstairs. Definitely upstairs.

Dup�e: Is that what you use as a stop loss rule?

Borsellino: My stop loss rule is, whatever your stop loss is, I want it 2 1/2 to 1. If I'm willing to risk $2 on a trade, than I have to make $4 1/2 in profit, it's a 2 1/2 to 1 ratio. For every dollar I risk, I want to make 2 1/2.

Dup�e: And will an upper channel be what you'll be looking for to determine what that upside potential will be?

Borsellino: Exactly.

Dup�e: How do you keep yourself balanced when you�re on a run?

Borsellino: (Laughs). You know what, it's just 19 years. In 1987, I made $4.4 million. In 1988, I made $90,000. Okay? So I'm the ultimate doom-and-gloom guy, and that's what I look at. You know most professional traders like to trade from the short side. Me, I've been a bull since I've walked into the pit: I love to buy them. I keep telling guys, you want this thing to crash? You remember 1988 when business dried up and brokerages laid off 30% of the people. You want a healthy market, let's keep going up. Look, I've seen up and I've seen down and I understand that you've got to stay calm. The minute you start to believe in all the accolades that they throw at you, then that's when the market's going to show you. I've seen it happen to the biggest guys. I've seen Richard Dennis take $600 million and lose 300 of it in six months. And Neiderhoffer too. (Famed trader Victor Neiderhoffer once traded for George Soros -- Ed.)

Dup�e: And these two were both trading off the floor . . .

Borsellino: Right, but I've seen guys on the floor who've had tremendous runs and then all of a sudden the next thing you know they're trying to borrow money from you.

Dup�e: So is that their egos--that they believe everybody telling them they're so great -- that had something to do with why they crashed.

Borsellino: I think that what happened is they had a temporary loss. They're very good traders, both of them. But what I think happened is they had a temporary loss of discipline. And they had too much pressure on them to perform from their customers. And when that happens, your plan and your logic sometimes get thrown out the window. I see it with my new traders. The worst thing that can happen for my new trader is he comes in and his first five trades are all winners. And I got a cocky kid on my hand and the next thing I know, he's in my office the next day telling me he lost everything that he made in five days plus double that. And, you know, he's got my foot up his ass and me telling him, all right, now you don't have a job anymore. It's because I preach that to them. I'm unusual. When I have a bad day, or a couple bad days in a row, or I've overtraded and I've lost a lot of money, I go out and I buy something.

Dup�e: Retail therapy?

Borsellino: I go out and I buy something. Not to make myself feel good. But to remind me what a dollar is and what it gets me. To remind me that I've been fortunate to be earning the living that I have over the past 20 years, and have been fortunate to have been good at what I do.

Dup�e: In dealing with losses you've said that you view losses as loans made to somebody else in the market, to somebody else in a zero-sum game. Can you expand on that a bit and on how that view helps your trading?

Borsellino: Well, that's my psychological edge. That's that competitive nature coming out of me. When I've had a bad day. . . in futures, for every winner there's a loser. It is a zero sum game, where with stocks it's not. It definitely gets my adrenaline flowing when I've had a bad day. Especially when I've made stupid mistakes, rookie mistakes. I go home and I work out and I try to exhaust myself because I know I'm going to be up all night waiting for the market to open and the bell to ring, so I can get back in there and get my money back.

Dup�e: That's what you write about in the book, that losses are loans to somebody else. But that doesn't really calm you. You still want to go get that money back. It's a temporary loan.

Borsellino: It's a temporary loan. Hopefully! That's the way I've viewed it over the last 19 years. And that's part of my competitive nature and the idea of trading for success. I've said it a million times to people around me; it's not the money. The money has been very good and it has been a product of being good at what I do. But it is the respect and admiration of your peers it's the ability of me to be able to compete against the other person and me against the institution and me against the market. Trading has the highest highs and the lowest lows, Marc, and hopefully throughout your trading life you experience them both and there are more highs then lows and you know how to deal with them both.

Dup�e: You mentioned that back in the days when they allowed dual-trading, the system worked to your advantage because you were already handling 30-, 50-, 100- lot size and bigger and it gave you the confidence to pull the trigger on your own trades, leading you to become the biggest trader in the S&P pit at one point, transacting up to 1/4 million contracts annually with a notional value in excess of $62 billion. Could you describe what is like to be, as you say in your book, �in the market flow� or in the �zone� trading, as you describe especially when you are in the zone trading that 100-lot size?

Borsellino: It's a two-edge sword. It's like being Michael Jordan. Going out there every day and everyday people want you to score 50 points. And you've got that pressure and you've got your own pressure on yourself and the ability to do it. And guess what, when you are in the zone and you've got everything going for you, you can't do anything wrong. You can throw 50-lots and 100-lots around and you're exiting them and turning profits with them and so on. And when you're out of that zone, just like Michael Jordan, and all of a sudden you're only hitting 15% of your shots, well it�s the same thing that happens with trading.

I compare trading to professional athletes a lot. The emotional side of it and the psychological side. When everything is clicking, you can do no wrong. And then when you've had a few losing days in a row, then you're out of sync. And when you�re out of sync everything you do is wrong, even if it's a five-lot.

But the one thing that I've learned is that you can't read your own press. You don't always have to be the biggest guy; you don't always have to be the biggest trader. You have to be the most consistent trader. And yeah, to this day I'll still take a 100-lot, I'll take a 200-lot. But more on my terms and not on the terms that I'm trying to prove to somebody, "hey, I'm Lewis Borsellino, I'm the biggest trader." At 25 to 30 you're a little more cocky then when you're 43. I don't have anything to prove to anybody anymore at this point.

Dup�e: Do you think it would be possible for a trader without the dual trading pit experience to develop that kind of sense, that you have trading size and being in the zone like that?

Borsellino: Oh definitely. I've been around some young, new stock traders that have had seven figure years already.

Dup�e: The SOES guys you were working with?

Borsellino: Some SOES guys and some people that have got enough capital behind them. You've got to understand that you look at some of those Nasdaq stocks. They have more volatility and more swings and more volatility than the S&P itself. So if you jumped on Rambus (RMBS) and caught a $180 move, or if you caught Qualcomm last year, than you caught some of the opportunity that is out there. We are actually doing a lot more stock trading than we ever did.

Dup�e: Yeah, with the volatility there in some tech stocks, it makes sense.

Borsellino: Not only volatility, the trading programs that we have for commodities are working better with the equities than they are with the commodities, because of the volatility in the equities.

Dup�e: I read in an interview that you did with an European journalist, that you mentioned that your" biggest weakness stems from the fact that you�ve been successful as a trader with a propensity for making profitable trades". What does that mean?

Borsellino: I said that? My biggest weakness?

Dup�e: Yes, does that ring a bell? With an Italian journalist?

Borsellino: Oh, all right. I think what happened was when I've talked about other business decisions that I've made outside of the trading realm or even in the trading realm, I've never been the type of person to get involved in other business and so on, because of the independence that I have as a trader. The independent life that you get and the ability to say to somebody, look, I don't need your business idea, I don't need your investments, I've passed on some very good ideas that were very profitable. And it makes you sometimes too independent, and maybe sometimes closed-minded in your business decisions. One of the reasons the money management . . . here I am explaining to people why I'd be a good money manager. I've survived for 20 years guys and I still have people questioning me. Not that I'm egotistical but when I look at other money managers, I'll ask them a series of questions and I'll find out they haven't had 1/10th of the trading experience as I have. So that is where I think he quoted me from.

It's hard for me sometimes to explain why I would be good. But that is why the Web site took on the focus it did. Here it is the democratization of information and I'm finally able to open up my brain and show people what you have to do to be a successful trader. Not that I'm the best trader who ever lived, but I've lasted 20 years and this has been my formula of success. I often make the analogy to that to the golf swing. You look at all the different golfers out there and they all have different body types. And they all have different swings--except at the moment of impact, they all look the same. So there are a lot of different traders out there, different personalities, different makeups, but when you get down and you do that interview with them Marc, you'll find out they all have the same qualities when it comes to discipline, structure and so on.

Dup�e: You wrote for CNBC.com last January (2000) where you say �one thing never changes: If you want to know what the setup for the market is today, study where it�s been for the past several days or longer.� You mentioned earlier in the interview about price points and about your analysis. I'm curious how you use volatility, how you put that into your analysis, of technical support and resistance?

Borsellino: Let's say you're trading in a real volatile market, you buy the 1500s and you're willing to risk 400 points because that's what your research is telling you. Well in real volatile markets, it may go down and stop you out at 94, turn around on a dime and rally through your 1500 and go another 1000, 1500 points and here you've missed the move because you got stopped out. And what happened was because the markets are volatile and the volume that's being traded, you know, it has a bigger whipsaw. So when we see those, when we see that sort of volatility, what we'll do is we'll cut our size back and then expand our stops so that we ultimately have the same risk but we're adjusting for the volatility.

Dup�e: Or if you have a strong directional bias, you could benefit by doubling up on your order.

Borsellino: Yeah but when you're talking about volatility what will happen though is that the bounces, say you're short, the bounces will be bigger. With extreme volatility you're better off cutting the size back and expanding the stops so you don't get stopped out of the move. Normally, if you're getting a trending market, that's when you can sell 'em sell some more, sell some more and it trends very orderly to your exit point. Same thing with buying, in an upward trending market.

Dup�e: Is there a standard, or most common method of calculating pivots in the S&P pit?

Borsellino: No. Everybody does different pivots. And the terminology that they use is different. One of the good pivots that people like to use is when you got the opening range. And we've traded below the opening range and then we come back and go through the opening range. And then you have your moving averages that people use. We use a combination of a lot of different things. We use a combination of a lot of different research. I mean we use stochastics, we use Fibonacci we use Gann we use a combination of things together that I don't think other people do. And the thing about technical analysis is--think of it as being an auto mechanic. You've got your engine but they're always tweaking it to try to get it to go faster and try to run smoother and that's the same thing that we do with our technical analysis. Sometimes the bonds are the leaders and you're watching the bonds and they're going to give you an indication of what the market's doing. �Sometimes there are different underlying stocks or a group of underlying stocks that will tell you what the market is doing. So that's why we have our analyst with 25 different screens.

Dup�e: So in the S&P pit, what a lot of people look at in the pit is the opening range. What time frame is that, the first half-hour?

Borsellino: Right, no the first five minutes. I mean the first minute that the market opens up and the opening range is established. That's a big one. Old highs, old lows, intraday highs, intraday lows, those end up becoming pivots.

Dup�e: I spent a day in the S&P pit on Veterans Day last November (1999). One of the clerks pointed out that the e-mini volume was exceeding the volume of the S&Ps, and apparently that was unprecedented. How do you think electronic trading will affect open outcry or have your opinions on this subject changed since you wrote the book.

Borsellino: As the public becomes more educated in the trading of futures, I think eventually open outcry may fall by the way side, depending on how big and if the volume comes. But you have to remember what the role of the local is: he's there to provide liquidity. And until there is enough retail and institutional participation to absorb that liquidity, then the open outcry will exist.

Dup�e: If you were starting out now what would you do differently?

Borsellino: I don't think I'd do anything differently. (Laughter) I think that I may have expanded more within my field.

Dup�e: What does that mean?

Borsellino: I would have branched out and done other ventures and have been more open-minded about other things.

Dup�e: Other markets?

Borsellino: Other markets, but then I'm a firm believer that you can trade Eskimo futures, ice futures, as long as you're a trader and it moves you can trade it. But I think I would have gotten into the equities more. Like I said three years ago we started doing equities. I think I would have been into the equities more than I have, because I've always watched them. We have 65-70 stocks we watch every day, to give us an indication. And I've watched some big moves go and didn't participate in them because I was participating in the S&Ps.

Dup�e: It's hard to have your attention focused everywhere.

Borsellino: Right. But here we're watching these and we've seen some big moves made in them and that's why two years ago we started trading more equities. And we're actually getting more involved in that.

Dup�e: For someone starting off now, how would you advise them to proceed?

Borsellino: First thing, I would advise them to do is get as much education as they can about the markets. Try to get a job at an exchange or at a brokerage firm or find a reputable person who has been trading for at least a couple of years so they can align themselves with them. I'd also tell them to go to Teachtrade.com and get some very good lessons on what they're going to experience as a trader.

And I would ask them to attempt some simulated trading; it's a good idea but my experience with simulated traders is they are always eight out of ten winners. But then when they get to the real thing they are lucky if they have one out of ten. So what I do with my new guys is I make them simulate, I make them work on the floor, and I make them do all of our research. Right now we have three of our stocks guys doing all of the charting updates and so on, right now. And I make them do from three to five hours of research a night. And independently of one another, I make them give me the research on the 60 stocks and their opinion of how it has been formulated. That is what a lot of trading is, it's consensus building. I have three different analysts who work analyzing S&Ps and so on and they're not allowed to talk with one another.

Dup�e: It sounds like you bring others along with you whom you sponsor.

Borsellino: At first I brought my brother, my cousins and when I became successful I got so many relatives that found me! And I did it because they were my relatives and friends. And then about four years ago I started sponsoring people. We have four guys on the floor trading and we've got six guys up here trading. And I have another four people in training right now doing research that are wannabe traders. And then we have on staff three more people that do nothing but technical research. We have a team concept and we include the people that are doing the research in the profits with the traders. Which is good, because what I've found over the years is a lot of people who are good at research are terrible traders. They just don't know how to pull the trigger.

Dup�e: That's a good way to pool different people's talents. How or where does the average trader go wrong?

Borsellino: That's another thing about trading. There have been so many guys over the years where I've said, "This guy will definitely make it," and he doesn't make it. And there are guys I go, "This guy doesn't have a chance," and he ends up being my best trader. It all comes down to one thing. I call it the emotional side of trading. And people who are good at discipline and controlling their emotions and knowing how to pull the trigger and not worrying about the losses�you have to worry about the losses, but not becoming like a deer-in-the-headlights sort of trader after you've had some losses�and able to handle the winners without getting a big head -- those are the ones that succeed. So I never know until I throw them into the battle. You know we get them pretty well prepared, but when we throw them into the battle, that's when we see."
http://www.tradehard.com/.site/futures/pros/Borsellino/

Had these on file, no idea where the questions marks popped up from.

Should make some good reading anyway.
 
Doesn't matter how many times I've read this guy and I'm still laughing my head off :clap::clap::clap:

COMING TO AN EMBASSY NEAR YOU !!

Here's an example for you mate - Sep '92 and we're in the chopper ready to go to Kosovo ( or was it Marbella ? ) anyway, tensions were running high as you can imagine. I had a brand new, and rather fetching, balaclava that military mum's mum had knitted for me between clients and a new pack of Juicy Fruit - I was primed for action. Suddenly our man stands up, cocks his weapon and shouts to the driver " Oi Shag - forget the Balkans we're going to Brussels. Land on the roof of the EU building and look sharpish sonny" With that he sat back down with a wry smile on his face but with fists clenched. Do you know what he did next ? Do you know what he did next ?
GOT STRAIGHT ON THE SAT PHONE AND TOLD GEORGE SOROS TO KICK STERLINGS **** !
Analysis ?? This is the stuff of legend mate !

Bloody marvellous

Bill and MM - classic examples of good men sent off the rails by the system.

We had some times didn't we ? What do you think pushed you over - the Napalm or the vaccinations ?

Still - memories eh ?

I remember one time in Bangkok when we were on leave. Me and the guv'nor went to see some Thai boxing in one of the suburbs. Picture the scene:

A hot balmy Thai evening as we pulled up in the jeep outside what can only be described as a large tent. The occasion was the final of the Fuc King Wan Kin un-licensed boxing tournament. These boys were tough - ever seen boxing gloves with Kitchen Devil knives strapped to them ? Ever seen boxing shorts with broken glass glued to them ? It wasn't often men like us were granted leave and when we were we played hard. And drank hard. And did all the other things that hard *******s do on their days off.
Anyway, there we were looking forward to what promised to be the fight of the century. Forget the Louisville Lip, forget the Brown Bomber, forget Flowerday and Balboa this was the real deal - the ruckus in the....er....tent thing.

Anyway, the guv, fresh from giving a technical analysis lecture at Pong Fanee University ( where he reportedly killed a student who failed to recognise a descending triangle ) decides he wants to have a bet. "Come on Boss" I said " You already have those condors on can't you leave it alone ?"
I didn't have a chance - when the guv'nor wants something he goes for it.

Little did I know he'd had a leak ( not in the American sense of the phrase ) and knew that Lee Hung Low was going down in the fifth. He lumped on with all the evil looking Thai bookies and we sat back to enjoy the show.

In 20 yrs service I have never seen anything so gruesome. It was worse than when John "Legsy" Leggsville mistankenly thought a stick of brown dynamite was one of his Havanas. Blood, guts, noodles - it was everywhere. Sure enough, both fighters came out for the 5th and 30 seconds in under a flurry of blows Lee Hung Low crumples to the canvas never to rise again.Deads.

There was pandemonium. The guv'nor and I went to collect his loot and were immediately surrounded by the evil looking Thai bookies. "You cheating round eye *****" they shouted whilst reaching into the shoulder holsters concealed under their Palm Tree print shirts. **** ! Now me and the guv have been in some tight spots I can tell you. This was tight. Tighter than Wheeler in a bar-room, tighter than Knighty's combats . Tight !

I looked at the guv. He nodded at me - our special secret signal that we had used for years. In a flash the guv's arm had shot out. Do you know what he did ? Do you know what he did ?
GRABBED ONE OF THE BOOKIES SAT PHONES, CUT HIS CONDORS AND SPOOFED 10000 SCHATZ.

All the bookies dropped dead in surprise. We hot footed it to the nearest whorehouse.

Hard men at work and play.

Bloody marvellous

http://www.elitetrader.com/vb/showthread.php?threadid=28911&perpage=6&highlight=sas&pagenumber=4

bloody marvelous indeed !!!

:LOL::LOL::LOL:
 
BSD said:
Lewis J. Borsellino, founder of TeachTrade.Com and author of...
Click to expand...

It's funny because if you read half the sh*t on T2W you're led to believe that only failed traders teach others and write books...

;)

Nice post BSD.

P.S. Speaking of what "real trading" is, I came across this book in Waterstones this morning...http://www.amazon.com/Greatest-Trad...=sr_1_1?ie=UTF8&s=books&qid=1269181915&sr=8-1

Paulson spots a bubble,
Does the fundamental groundwork, crunching numbers and analysing spreadsheets,
Comes to the conclusion the market is going to collapse,
Finds the money,
Works out the timing,
Bets the farm....

Makes $15 billion.

And the best part?

"Initially, Paulson and the others lost tens of millions of dollars as real estate and stocks continued to soar. Rather than back down, however, Paulson redoubled his bets, putting his hedge fund and his reputation on the line.

In the summer of 2007, the markets began to implode, bringing Paulson early profits, but also sparking efforts to rescue real estate and derail him. By year's end, though, John Paulson had pulled off the greatest trade in financial history, earning more than $15 billion for his firm--a figure that dwarfed George Soros's billion-dollar currency trade in 1992."

Which really backs up what I've said all along.

You don't make billions of dollars (and financial history) risking 2% and moving to breakeven when you are 50 pips up.
 
Last edited:
Haha I can tell you like your pits Rothschild !!!

:LOL:

Let's not forget some spunky gals while we're at it !!!

51S6QH8VJHL._BO2,204,203,200_PIsitb-sticker-arrow-click,TopRight,35,-76_AA300_SH20_OU01_.jpg

http://www.amazon.com/Leg-Spread-Adventures-Trillion-Dollar-Commodities/dp/0767908554

Her buddy did both, trading from home and on the floor when the urge overcame him, although not in the pit but from a terminal when on the floor.

Tom, Paulson, great guy that, had a very good read about him somewhere about the really tough time he got from clients when the trade wasn't working yet lol.
 
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