And always talking about the Tomasini’negativity I would suggest my skeptical reader to purchase the book “Do you sincerely want to be rich ?”, by Charles Raw with Godfrey Hodgson and Bruce Page (Originally published André Deutsch, 1971, ISBN 0-233-96328-6; reprinted by the “Library of Larceny“, 2005, ISBN 0-7679-2006-6 ). It costs some dollars on Amazon and it open the eyes on one of the most symbolic events that shaked the financial industry bringing to the failure of many US and European banks.

Bernard Cornfeld, born in Turkey from a Romanian – Russian Jewish family but raised in New York,  at the beginning of his career, after graduation from the Columbia University, he was a social worker. Then he started his way in the financial industry as a marketing manager for the Dreyfus fund. In 1960’s Bernard “Bernie” left New York and after a period in Paris got a devastating intuition: to enroll the American expatriates in Europe, mostly bohemien idle persons, to sell mutual funds to the US servicemen in Europe, anxious to avoid to pay taxes on their savings.

Just a former social worker hardened in selling could have such an idea: the focus was on the selling not on the trading. And the Bernie soldiers were an army of 25.000 people many of them without a clear education and social identity. And the Bernie’s 18 funds, the IOS (International Overseas Services), raised more in excess than $ 2.5 billion. Even if Bernie was a supporter of the polygamy and was used to live with at least 10 girlfriends at the time (he founded also a model agency) in his many mansions and castles around the world, the IOS went burst and the investors lost their money. Courts acquitted Bernie after 11months in jail.

“Do you sincerely want to be rich ?” was the sentence the 25.000 Bernie’salesmen were used to pull out when they approached their prospective customers and it became the by word of Bernie’s success. If you analyze the story of IOS you will find the hallmarks of all the financial events – crisis / booms / busts – of the last centuries. It is really a sentence that  gives the real perspective of the trading arena. No other work no other business is so direct such as trading for money and riches. And paradoxically it is the most difficult job in the world, a job where just 1% succeed in the long run.

My dear German reader, take for granted that after reading this book you will really be happy if you will just make a decent profit in the long run leaving all illusions to the Bernie’s supporters. You will sincerely be happy when you will just make a living from trading. Sure.

I did some interesting research on the inter-months seasonal trends about stock indexes (DAX, SP500, CAC40, etc.) and it seems that there are weeks it is better to buy and weeks it is better to be short, there are months that are bullish and months that are bearish. Obviously tests are not much significant since, let’s tell us the truth, even if you consider all the historical Dax price series you will never have more than some dozen of January months or October months. And we know that just a sample of 100 or more observations is significant. This is the reason by which I keep the systems running on my computers, I check them periodically in order to gauge whether  they are making money or not but I am not so bold to trade them. And on this point is centred most of the criticism regarding the seasonality approach: if you have a system that buys in May and sells in September on a US commodity, for example, in any case you will have just 30-40 instances and from a pure statistical standpoint they are really few.

Another critique advanced against seasonal trading is that in order to overcome the significance problem because of a too small sample size if you extend too much the historical period, provided you can find appropriate data, then these data are not any longer in tune with the current economic situation. Western economies for example were much more dependant from oil in the Seventies than now so that also seasonal tendencies should have been much more robust in the past than nowadays. So why should you look for seasonal tendencies that are wrongly supposed to be constant in an every-day changing world ?

The truth is halfway from a pure statistical standpoint and a more practical approach to trading. I esteem that seasonality has a different degree of efficacy based on the different breeds of market you are trading. Let’s take the kings of all commodities, the cereals. Here huge stock supplies are brought from one season to the next so that there is a real economic reason why one season should be in synchronization with the next. We are not talking about figurative numbers, we are talking about real stocks brought forward from one year to the next by the storage industry. Stocks which next year production will take into consideration before deciding what to plant. We are talking about economic agents that have the same real needs year after year, decade after decade. Even if land cultivation techniques have changed a lot in the recent times, you can assume the Corn cycle is more or less the same than 100 years ago.

This is different from the case where you try to find seasonal tendencies in outright markets positions or spread positions that have nothing constant or in common, nor the players and the economic conditions, neither the vegetal seasonal cycle and the production and consumption behaviours. I see sometimes traders that look for seasonal spread tendencies in different and not related commodities markets, and this just because if you would have bought every first day of April and sold every second day of June you would have made a fortune. If you will put a monkey in front of a piano it will eventually compose a sonata, provided enough time is allotted. It is the same story.

So be careful about seasonal tendencies, and listen this from a trader that every week watch his seasonal trading systems making money without indeed trading them with real money. I believe to have all the right cards to have a respectable opinion on this subject.

If you reply to that question you will also reply to other pivotal questions like, for example, why everybody chase after the big dogs’ money. Let’s say that if you charge 20% over the profits of the big dogs’ money it is enough to make a 10% return over 100 millions of euro to bring home 2 millions of euro as personal remuneration. But put it in another way: if you trade 100.000 dollars and you want to bring home 2 millions you need to make a yearly return of 2.000 %. And this is a difficult task to achieve, believe me. Don’t you trust me ? Maybe you know the name of Jim Simons, that biggest algorithmic trader that manages a fund whose name is Magellan and that he made a cumulative composite yearly return of 40% over the last 15 years. And he became a world legend. A legend that even overshadowed the former George Soros’ fame. Soros did 40% for just … 10 years in a row. These are rough figures that are even not so much precise but that are putting you in the right perspective.

Making money is difficult. “If I consider also all my belonging invested in real estate and bonds – comments anonymously the biggest stock intraday trader in Italy – I would say that I made a dear whole 30% yearly composite return since 2000”. A wonderful result, I would say, if I think that this intraday trader sits over many millions of euro. But 30% is not 2.000%, a return, the latter, that is possible and that many traders did, but during some fortunate periods that happens once in a life (the 2000’s stock bubble for example). And usually the quicker you make the money the quicker you lose it, in cocaine or over the markets it does not matter, you lose it.

Life is hard, over the markets and outside the markets. So that when you come down to earth you discover that it is better to be an institutional trader than a private one. The motive is simple and compelling: you make more money with a smaller effort. But does this mean that an institutional trader is better or worse a private one ? If the markets are competitive it means that somebody will check in a way or another if you credible or not as an institutional money manager. So that it is supposed that you have an edge even over successful private traders. Sometimes happens that you do not have indeed, but often you have or you are supposed to.

What is the price for this ? Do not worry, there is always a price in life. And here too. The first price is bureaucracy. The second is that you will be very busy in convincing other people that you are good and not just yourself. The third that you can lose you reputation and, after that, your self-esteem.

So I present arms to Mr. Thomas Stridsman, the author of two acclaimed books on systematic trading such as “Trading systems that work” (Wiley, 2001) and “Trading systems and money management” (Wiley, 2003), and father of many systematic traders around the world (myself too among them), that decided to join the money management industry and launch the Alpha Commodity Fund in cooperation with Alpha Kraft AB, a Swedish money management company in the energy sector. A difficult task lies ahead for him. I think his hedge fund returns will be among the most researched and watched all over the industry because of his reputation and fame. And me I will be sitting in the first row to follow the show. Mr. Stridsman has a unique feature for me: I always manage to learn something from him. So the show can start !

The common tenet is that options trading is something that has to do with volatility and volatility is not something that changes every minute. Volatility is something that could surely explode in a matter of seconds but usually can stay unchanged for months or even years. So the options trader will make money boringly selling and buying volatility according to that ancient rule by which you should buy at the low and sell at the high. What is simpler than this ?

Another view of options trading consists of something that is wrongly assimilated to betting: if your opinion on a stock or on the market is bullish then you buy the call, if your view of the market is bearish you buy a put on the stock or the market you believe will plummet and you wait up onto to the expiration. And at the expiration or you will find a present or you will withstand a loss which in any case will be not more than the ticket you bought to jump on the bandwagon. There is nothing falser than this. Or at least you can say that these two ideas of what is options trading belong to the large army of the losing traders, which accounts for at least the 99% of the market participants.

Conversely it is really interesting to follow some seminars around Europe and to read some books that teach exactly the opposite: in order to make money you need to sell options not to buy them. This is the best way to make money with options. A quick question: when you go to your insurer company and you insure your house or your car who is making the most money from the deal, yourself or the insurance company ? Obvious reply, the insurance company will make the most of the money from the deal and this precisely why it will sell you an insurance that is an option and conversely you will lose money because in any case you will buy the insurance contract that is an option.

So professional traders on the pit make their living selling options and checking prices during all the trading session in order to prevent to be wiped out by extreme adverse movement of the prices. No quiet living, not peace and relax for them. And the biggest part of the work is to select those options that deserve to be sold, a task that could account for at least 50% of the work for an options trader. And the second task will be to try to find a way to hedge your short positions buying the same options with a longer expiration and the same or different price strikes.

Finally the rest of the day will be busy with an intense watching of the markets in real time. This is the bloody life of an options trader. It happened to me to follow a seminar done by Romain Delacretaz, a French trader teaching the real professional methodologies and I am so satisfied that I would recommend it to the readers. Romain Delacretaz is the president of the Institut de la Bourse in Paris and a world-known trader. After the seminar you will stop thinking that trading options is an easy job !

OPEN TRADERS

Before the success of Globex trading, everything was at the right place and in the right order. There was the opening price, the closing price, and the world was quite orderly. Then suddenly everything has changed: from pit trading we went to electronic trading, from the ancient world to the new one. And traders were forced to adapt their trading methodologies. What is the difference from the past ? Everything. If during the regular session you had a strong trend, during the Globex session you will have the retracement. If during the regular session you had the retracement then during the Globex one you will have the strong trend because of the Asian markets.

Ultimately the new rule is that there are no rules. And mechanical trading suffered the biggest impact: once for example the open price was one of the most important prices of the day. Opening range breakout, opening fading, open counter trend trading strategies, how many methodologies we deviced in order to beat the markets ? Thousands. And today ? Nothing, the impact of the open price is quite reduced, still a viable piece of information, but nothing so much sensible as before.

There were traders once that went to the office 4 hours before the others fellow traders, when the sky was still dark and the night deep: they were a strange race of warriors, they where the “open traders”, those guys whose job was very easy: at the opening bell they were looking for an open price much different from the closing one and then traded in the contrary direction. If the gap was up they were shorting the stock. If the gap was down they were buying the stock. If they were wrong sitting on the wrong side of the market they were quick to take a little loss. That’s it !

Easy job. Open traders made everybody envious because from outside it seemed an easy job: just go to the office 5 minutes before the opening, check the stocks that had a huge gap, short or buy them, close the trade by mid-morning or at the most by midday. Then they were used to go home and lunch before the tv in the dining room before a nap on the couch. Good life !

It was not true: an open traders was due in the office much earlier that the fellow traders in order to check the stocks that were liable to be prey for gap opening. In those times there were now software allowing you in a second to have the biggest price gap over 5000 stocks in a matter of seconds. Then there was also a feeling for fundamental data reading so that for open traders it was easy to spot where the market, after buying strongly a stock for example, would have been disappointed or simply scared the following day, giving the birth to a wonderful gap.

Markets in the future will be more and more interlinked, more and more globalized, 24 hours a day, 7 days out of 7 days per week. Strategies will change, old ones will stop working because markets have changes and accordingly traders’ behaviour has changed. This is how the story goes and the events unfold in the financial industry: nothing is for forever.

Columns published on trader’s magazine on February