Using Volume at Price to Trade the Gold Market

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, 25 percent of all listed Precious Metals 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.

Continued on... Using Volume at Price to Trade the Gold Market Page 2