Since the 1980’s commodities and equity index futures have traded using the open outcry system. This is a process where traders in person on a physical floor communicate with complex hand signals.
In 2019, very few physical trading floors still exist. Today, most trading is done on electronic exchanges.
Even though the art of the floor trader is lost in today’s society, it is very important we preserve the history of the art.
Today I share some secret tips of the floor trader.
Floor Trader Tip #1: Once You’ve Bought, You’re a Seller
Imagine that on a single day you have 200% higher volume than usual as a stock advances 5%. This is an indication of heavy buying on big size.
Now the retail trader thinks, if there is a lot of buying now that means will be a lot more in the future – I’m jumping in.
The problem is that once everyone who wants to buy has exhausted all their money, they are now sellers. They may not sell now, but eventually everyone exits the market.
Use this principle to stay on the right side of the market and avoid buying the tops like retail traders.
Floor Trader Tip #2: Watch Market Correlations!
This is a really big one, and super important even in today’s electronic markets.
Take a look at any image of video of floor traders, and you’ll notice they are all looking up. But what are they looking at?
The quote boards. On these electronic boards you can see the bid, ask and last traded prices with volume. This is a tool to help you look at multiple markets at the same time.
If Nasdaq futures are moving up, but SP500 futures have not yet moved, this is a great correlation trade opportunity. We teach you correlation in our futures day trading course in full detail. Learn how to spot high probability trading opportunities here.
Floor Trader Tip #3: You’re Trading the Person
Any stock market in the world has the only purpose of connecting humans together with common interest.
And wherever there are humans, there is emotion.
Therefore, as a trader or investor you are actually not trading “a market”, you are trading the person directly.
As you do analysis, always try to think of the mass market emotion. Does it feel like it’s over bought? Is it starting to seem like frantic buying?
At the end of the day, you have to remember you are trading against other traders. There is no all knowing entity called “the market”. There is a bunch of emotional humans seeking perfection in a market where it doesn’t exist. This is your opportunity as a trader.
Floor Trader Resources – Wanna Learn More?
Day Trading Lessons from Floor Trader Anthony Drager
I interviewed Anthony in Chicago, a good friend and humble trader who started on the floor, then worked his way up through a proprietary firm as an electronic trader. Anthony is a guy who made a successful transition, while some floor traders never could quite make the switch.
Floored: a 2009 Documentary about Chicago Floor Traders
This is a also a great documentary that shows you the fascinating story of floor traders. It’s a very good watch for traders and anyone interested in the stock market.
I believe as electronic traders, it is our responsibility to know about the history of the business and how we got here. I hope you enjoyed this article, and learned 3 amazing lessons from the floor trader era.
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The information contained in this post is solely for educational purposes and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.
