By; Lisa Erdmier, President, www.chart-ex.com

With the explosive growth of electronic trading, the market landscape has changed. The screaming voices of the traders are now numbers that flash on your computer screen in nanoseconds. You are clicking to make trades, not flashing hand signals high in the air to make them. Your computer screen is the trading pit. In the hey-day of open out cry, the landscape of the trading floor was a sea of colorful jackets, arms flying in the air giving hand signals to buy or sell, traders with  red-hot sweaty faces jumping up and down, and in general, people screaming and yelling in your face. You could hear, see and feel the market dynamics. Thousands of dollars were made or lost in minutes or seconds; you saw and felt the pain or glory first hand.  Darwinism theory at its best.

When I worked on the Chicago exchange floors as an account executive, I had to relay the market conditions in the trading pit to my customers: Was it busy or slow, were the locals long or short, were the big players in the pit, what houses were putting paper in and which way. You had to have thick skin, know how to push and shove to get orders filled in seconds. You kept your eyes wide open and observed all the market signals, the traders and their nuances. You had to know who the big traders were and how, when and why they tried to move the market.

I remember this one big trader on the floor who was known for getting short, pushing the market down fast and hard. When he walked into the trading pit, the sell orders would come flying in, both from the phone desks and locals, trying to get short ahead of him. Sometimes he would sell, and sometimes he would just stand there and watch the traders hang themselves by shorting the market in anticipation of him selling. He stood on the top step right in front of my phone desk, so I was able to notice that when he started to tap his right foot in a quick repetitive movement, he was getting ready to slam the market. I held my traders back from trading until I saw him tap his right foot. As soon as the foot started tapping, I started to put the sell orders in or pulled my buy orders. Believe it or not, just waiting for the confirmation of the foot tapping often made or saved my customers a lot of money.  Every little edge a trader gets is an advantage.

Another nuance that I observed when working on the trading floor, was from one broker that held a large deck. The “big brokers” got the paper from the trading houses that would move the market and set the trend. Traders, both locals and desk, would scramble and pounce to try to enter or exit the market right behind these orders. This one big broker had a poker face; traders seldom knew what was in his deck. He would stand on the top step of the pit, watching and waiting, letting the locals and paper set up the market for him, he would know who was short/long and by how much. When the time was right his arms would go up in the air silently, and the cherry picking began. I was often able to get my traders in and out safely and profitably by noticing that this broker had a habit of rubbing his mustache seconds before he would start his order execution. Again, every little edge.

Screen based trading is in the infancy of its hey-day. The e-cbot^® platform for its metal complex is achieving record volume daily. Month-to-date in May, 2006, 40 percent of all listed Gold futures contracts and 26% of all Silver futures contracts traded in North America changed hands at the CBOT. The Gold market in the late 70’s was doing a vertical ride on the upside. To get orders filled in the pit, I literally had to grab a broker’s tie to get his attention. Some 20 odd years later the gold market once again has geared itself into a perpetual mode of making new daily, monthly and yearly highs. Today’s dynamic electronic trading environment demands that traders have trading tools that will give them an in-depth dimensional value behind the market numbers. There are no ties to pull to make a trade, just clicks.

Data Visualization Charting Example;

The CBOT Jun06 100oz. Gold contract has been making new weekly and new monthly highs. The Week vs. Day Chart-Ex Commodity Chart for the CBOT’s Jun06 100oz. Gold contract confirms the weekly high volume area of 632.00 – 626.00 is giving support to the day's high volume area of 632.00 – 635.50. This comparative format display confirms that traders are reentering the market in its established high volume area /value area to continue its’ bullish trend.

CHART-EX COMMODITY CHART FOR CBOT’S JUN06 100OZ. GOLD

WEEK VS. DAY

 

In this specific example, traders would use the perimeters of the high volume areas/value areas of each trading range to derive entry/exit points. With the closing price at 634.2 and the trend on the upside, the entry point for the day’s trade would be a buy at 632.00 with a stop loss at 626.00; thus limiting your risk exposure to 6 points. Using high volume areas as support levels allows traders to enter the market with minimized risk. When markets are rising at a rapid pace, it is important to have high volume correlating with the price action.

The landscape of the market place has changed but the objective of making profitable trades has remained the same. Traders say that a number is a number, but the competitive edge of hearing the noise level, seeing the panic in a trader’s eye are lost a flat panel computer screen. Historical cumulative volume at price data is a trading tool that displays a static volume histogram for a trading range. You can’t see if a trader was tapping his right foot or rubbing his mustache, but you can see where traders set up their market entry/exit points.

About the Author

Lisa Erdmier is President of Chart-Ex, LLC.  www.chart-ex.com is a web-based company that offers a new proprietary data visualization tool that displays comparative price action on a single central axis with cumulative volume at each price. The Chart-Ex display keys into the growing demand from traders and investors that want to see volume at price in one concise model.

Chart-Ex's co-founders, Lisa and Doug Erdmier, each have over 25 years experience and involvement in the securities and futures markets. Lisa Erdmier began her 25-year plus involvement in commodities and equities as a technical analyst for Merrill Lynch, John Eckstein, and Discount Corporation. Doug Erdmier, a long-standing Board of Trade Member, has gained a trader's knowledge of the motivations of market players and uses this knowledge to develop trading tools that facilitate the analysis of market data.  Contact Lisa with any questions regarding this strategy info@chart-ex.com.

Click on www.chart-ex.com to use the FREE trading tool that uncovers the dynamics of the market's momentum by offering Market numbers and Volume at price.

 

DISCLAIMER:  Futures and options trading are speculative and involve risk of loss. The information here is taken from sources believed to be reliable.  It is intended for information and education only and is not guaranteed by the CBOT as to accuracy, completeness, nor any trading result.   It is not intended as investment advice, nor does CBOT endorse or support any product or service represented in the article.  The views and opinions offered by individuals or their associated firms in written articles are solely those of the authors, and do not necessarily represent the views of the Chicago Board of Trade.  The Rules & Regulations of the CBOT remain the authoritative source on all current contract specifications & regulations.  "Dow Jones," "The Dow," "Dow Jones Industrial Average," and "DJIA" are service marks of Dow Jones & Company, Inc. and have been licensed for use for certain purposes by the Board of Trade of the City of Chicago (CBOT). The CBOT's futures and futures-options contracts based on the Dow Jones Industrial Average are not sponsored, endorsed, sold, or promoted by Dow Jones, and Dow Jones makes no representation regarding the advisability of trading in such products. Information provided is taken from sources believed to be reliable but is not guaranteed as to its accuracy or completeness. The Rules and Regulations of the Chicago Board of Trade should be consulted as the authoritative source for information, rules, and contract specifications.