tactical trader

Larry Pesavento has just finished an engaging two hour live trading session where he clocked up a profit of $1.20 trading Apple and Intel shares on a couple of thousand shares. There is a crowd of 20 or so people around him and he is telling a story about one of his experiences on the trading floor when he was trading gold.

Gold had been one of my favourite trading vehicles since President Nixon took the US off the gold standard in 1968. I had traded gold for most of the seventies and early eighties, but by 1982, after gold hit $865 on 20th January 1980, much of the excitement in the pit had died down. Gold was trading below $400 an ounce and the Merc trading pit (Chicago Mercantile Exchange) consisted of a group of locals (a “local” is the designation given to floor traders who live locally and show up for trading every day, often trading their own money), mostly of Greek and Irish ancestry. The gold pit was trading much less frantically than the financial pit so I would venture into the pit and trade gold once or twice a day. The average price swing was around $5 an ounce at that time. Contract size was 100 ounces so each $1 move was worth $100.

It was one hour after the open and gold was trading down $3 on the day. The pit was filled with about 80 locals and commission house order fillers. Order fillers were the safest to trade against. They did not trade their own accounts so there were no painful errors to hide. June gold was down $3 an ounce and sitting at a nice 61.8% Fibonacci retracement number from the last three days trading range. My profit objective was around $2 an ounce. Typically my trading lot size was between 10 and 20 contracts. On this particular day I was in the middle of the put surrounded by a consortium of Greek traders. Some of the locals had not cleaned their trading coats in years and the smell was unbelievable at times – it was like being in the midst of a sheepherder’s convention. Prices were within one tick of where I was bidding. One particular local was offering to sell 50 lots a couple of ticks higher than my bid. He was particularly dirty and smelly. He was really taunting me to take the 50 lots, but my maximum size was 20 lots. This melodrama continued over the next 30 minutes. Friendly teasing had escalated gradually into a real “pissing match”. By this time he was daring me to take the whole 50 lot offer, but I held on to my 10 lot bid. This continued for what seemed like an eternity. I tried to move to another area of the pit to trade but frankly I enjoyed his schoolboy antics. For some mysterious reason I was now in his face! Gold had hit my price, but no one was offering at the level. There were nothing but bids in the pit. The local was not spitting in my face and cursing at me for not taking the 50 lot offer 20 cents above where gold was bid. I couldn’t take it any longer! I screamed, “BUY 50 at 10!” He held up both hands and screamed, “SOLD” after which he added some nasty superlatives…