In Hawaii I almost always dressed casually. A native of Colorado, I sweat profusely at the first hint of humidity. Not so my Hawaii partners, Howard and Matthew. They wore suit and tie to work every day!
A Night Visit to United Trading
One morning, and we opened about 2AM to accommodate the S&P traders, Howard came in with his suit wrinkled, no tie, and bloodshot eyes. I looked him up and down.
“You OK, Howard? Did you close up Butterfly [a Korean bar]?”
“No, Michael. Matthew found a small shop that trades Hong Kong gold and silver.” That was the so-called “Loco London” market, which trades in the middle of the night Hawaii time. “I’ll take you over later this week. Don’t worry, they are no competition to us, but perhaps some partnering opportunities. They also trade some Japanese futures markets.”
A couple of days later I met him at 11PM at the headquarters of United Trading on King Street. Inside I met the manager, a gentleman named Danny. “Mr. Archer! Howard tells me you are the chart expert. Can you look at my chart of the Japanese cocoon market [silkworms], please? Chart always looks so perfect but I always seem to lose money!”
The Perfect Point & Figure Chart
He took me into his office, where a large Point & Figure chart hung on the wall, a 3-box reversal right out of Cohen’s book, which he kept updated. “See all these nice double and triple formations? I ready for them but never in the market when they happen!”
I asked him to explain how the session worked. “OK. They have 1-hour trading, then closed for 15 minutes for settlement. Then trade another hour, then another 15-minute settlement. Final hour of trading, then final settlement.” He added: “You must enter stop-loss or they will kill you with huge move against you. So always must put in stop-loss order.”
Why Danny Always Lost
It did not take me long to figure out why Danny always lost. The Japanese floor traders were NYSE specialists on steroids. During “settlement” they would compare all the stop-loss orders, run as many as possible, then open the market and enjoy a large profit from the “nice double and triple formation” with no one left aboard to join them. Danny’s only hope was getting right back in as soon as the session opened and perhaps getting a very small piece of the move, should the floor traders feel generous.
I pointed to the long rows of Xs (on a sell formation) and Os (on a buy formation) that occurred just before the trade worked. “That’s you in there, Danny. I think you should stick to Loco London gold!”
He seemed to understand what I was telling him. But when the session reopened, he was back in, trying again.
The Lesson
A chart pattern is only as good as the market that prints it. In a thin market where insiders can see the stops, the obvious formation is bait. Know who is on the other side, and know when the market lets you out.
This post is educational commentary. It is not investment advice. Trading futures and FX involves substantial risk of loss.
Good Trading!
Michael Duane Archer
Related Reading
- I Meet Kim: A Krugerrand Story from Honolulu
- The Honolulu Commodity Exchange: A Bucket Shop Story
- Goodmanisms: Charlie Goodman’s Sayings on Trading, Explained
Keep Learning the Goodman Way
If this article was useful, these are the next steps:
- The Method: propagation, intersection and the 3-C Principle, drawn plate by plate.
- The Goodman Library: the books, from Goodman for Grasshoppers to The Goodman 6 & 6.
- The Trader’s Playbook: the Molokai setup in one printed, numbered volume.
- Mentoring: work one-on-one with the authors.