The futures markets they are always a-changin'

Come gather round traders,
wherever you are.
We know that these markets,
are harder by far.

Accept that this change,
is just part of the deal.
Follow your plan,
with unwavering zeal.

You should look to grow,
in these difficult times.
Resolve to be the trader,
who advances during declines.

For the futures markets, they are always a-changin’

The markets, so far this year, have been hard to trade.

Traders ask me if they should change their strategy to accommodate the new reality of 2009.

Are the good trading markets of the past gone forever?

From my vantage point over 37 years of trading, I can tell you that the markets they are always a-changin’.

Today’s difficult markets are, in part, the result of a fundamental change in market participants that I have seen several times over my career. This fundamental change is the result of formerly-important market participants leaving the markets, never to return.

My experience shows that new major players will eventually come to fill the void, but until these new major players emerge, the markets will be volatile, illiquid and hard to trade. Importantly, my experience shows that these difficult times are excellent for learning to trade and for improving, honing and deepening you trading skills.

During the tech bubble of the late-nineties, people left their jobs in droves to make easy money as stock day traders. Tech funds flourished as the stock in dot-com companies with improbable business models rose to impossible levels.

When the bubble burst, many of these players left the market leading to several years of dull markets. Between October 2003 and June 2007, the VIX, the CBOE’s index of volatility, spent the entire time below 20.

Today, the VIX is 40. At the height of last fall’s volatility, the VIX reached 80. When the VIX first went below 20 in 2003, traders told me it was impossible to trade S&Ps. In time, most of these same traders adjusted their trading to the new lower volatility and did well.

In the early-eighties, many grain exporters merged or went out of business. Throughout the seventies these same exporters were among the biggest players in the grain markets.

Initially, the grain markets were illiquid and hard to trade without these important participants.

Like today, traders wondered if the markets that we had known were over, never to return. In time, the merged grain exporters became even bigger players. These larger grain exporters and a new category of major player, funds, became the biggest traders in the grain markets. The markets did not return to exactly the same markets as before, but they did become highly-liquid and very tradable once again.

The same thing will happen today.

The hedge funds and investment banks that left the market in 2008 will be replaced by another group of major players.

Who they will be, I cannot say. But, they will bring liquidity and they will bring opportunity.

Until the markets return to the liquid, flowing markets of the past, I would trade conservatively. I would not throw out my proven trading strategy in an attempt to adapt.

Instead, I would make certain that I was:

• confident in my setups,
• resolute in my risk management, and
• sure in my ability to execute my plan.

My goal would be to grow as a trader and to go forward in my trading account, albeit, at a slower pace than in better trading times.

I can help you use these times to prepare for the good trading markets ahead in my Electronic Trader Mentoring Program. You can find out more at: www.ElectronicFuturesTrader.com.

Wishing you success in your trading, Jeff

Copyright © 2009 by Jeff Quinto
All rights reserved