S&P Trader William Greenspan

S&P trader William Greenspan, standing   next to one of his trading commandments.

Like many S&P 500 futures traders, Bill Greenspan was a "day trader" long before day trading was a household term.

To him, trading is truly a nine-to-five (well, actually, 8:30 to 3:15) job. He's got it down to a science, he knows how to handle its ups and inevitable downs, and he sticks to a simple trading approach that he applies patiently, day in and day out.

It's an approach that has worked well for him. At age 47, after 22 years in the pits of the Chicago Board of Trade (CBOT) and the Chicago Mercantile Exchange (CME), Greenspan (trading badge: "WIG") has established himself as one of the more successful "locals," or pit traders--a fixture in the S&P pit where he trades almost all day, every day, playing his trading cards close to his vest and practicing his philosophy of making "a million dollars on a million trades, not a million dollars on one trade."

Spreading the risk

Greenspan got his start in the embryonic days of the financial futures markets in the late 1970s, when grains were still king and the veteran traders didn't know what to make of the new contracts on bonds, stock indexes and other financial instruments. He had a moving and delivery business at the time, but in 1978, when a friend who had made quite a bit of money trading soybeans suggested Greenspan try his luck in the fledgling T-bond market at the CBOT, Greenspan made a career change.

"I was an original T-bond permit holder," Greenspan recalls. "The exchange couldn't get the grain guys--the full members of the exchange--to trade the new financial instruments because they had made so much money in the soybeans. So the exchange was offering these permits to the public: 50 for T-bonds, 50 for commercial paper and 50 for gold. I got the last T-bond permit.

"The deal was, you'd pay $10,000 a year for three years. If you traded 125 trading day per year, you could, at the end of that period, pay another $10,000, and they would give you a seat. It was the greatest deal. They've never had anything like it since." (Such seats are currently worth more than $400,000.)

Greenspan was one of the original T-bond permit holders at the CBOT

Greenspan started out as a "spreader," taking simultaneous long and short positions in different contract months in the T-bond market (inter-month spreads) or between the T-bond and a related market like the Ginnie Mae (inter-market spreads). The spreader profits as the differential between the two "legs" of his spread widens and contracts, depending on whether he is long or short the spread. Greenspan thought there was more opportunity in spreading than scalping--and that it was less risky (because spreaders are both long and short in the same or similar markets).

Greenspan started to make money regularly after three or four months, and although he admits to some leaner times "during the Reagan years," he has been a profitable trader since. (He discusses some of the down periods, and how he deal with them, a little later.) He describes himself as an "enthusiastic trader, not a big trader," meaning he puts on a large number of trades per day but keeps his position size relatively small.

Scalping and beyond

Greenspan's approach is the essence of simplicity, honed over roughly a two-year period of daily trading in the S&Ps.

"In the beginning, I didn't really know what I was doing," he says. "I was scalping, just trying to get in and out. And then I began making trades off the opening range, making directional trades off the previous day's high low and close, or trades that went off the current day's high or low."

A typical trade is to play a breakout of the opening range in the S&P

The kind of trade Greenspan is referring to is to go long or short on a breakout of the S&P's opening range, the trading band defined in the first 90 seconds of the session. These are usually his first trades of the day. After that, he typically trades breakouts (in either direction) through the previous day's close, high and low, as well as intra-day highs and lows. (See Figure 1 for an illustration of these kinds of trades.) Also, like a true scalper, he reverses position when stopped out--that is, if long one contract, he will sell two contracts at his stop level, establishing a short position.

He freely admits to being something of a risk hawk, favoring stops that may be too tight rather than too loose. His basic approach may seem straightforward, but the fact that he has prospered for such a long period is a testament to its effectiveness.

Greenspan left the CBOT for its cross-town rival, the CME, in April 1987, roughly six months before the infamous stock market crash. It was there that he developed the trading style he uses today. He explained the move and the process of becoming a consistently profitable trader.

Mark Etzkorn: Why did you make the move to the S&P pit?

Bill Greenspan: I heard the Merc (the Chicago Mercantile Exchange) was the same ball game, but a different ball park. I initially wanted to trade cattle because I liked the hours (9:05 AM to 1:00 PM, Central Time) and I thought I could do well.

But it was a very 'cliquey' pit, very hard to break into, so in the morning I would trade eurodollars from 7:20 AM to 9:00 AM, then cattle from 9:05 AM to 1:00 PM, back to eurodollars from 1:00 PM to 2:00 PM, and then trade S&Ps from 2:00 PM to 3:15 PM (the close).

It was the only time in my career that I didn't make money. I was in too many markets and I couldn't get into a rhythm with any particular one . . . and I had a long dry spell.

The owner of my clearing house suggested I stick to the S&P pit, because that was the pit 'the Cadillacs were coming out of' at the time. There was plenty of action, but it took a little while to learn to be a scalper rather than a spreader.

Figure 1.    Dec. 99 S&P futures (Oct. 22), five-minute bar. The potential rewards and very real risks of the volatile S&P futures market are illustrated by the intra-day action on Friday, Oct. 22, 1999. The light-blue lines mark typical entry points per Bill Greenspan's trading approach: playing the breakout of the opening range (far left), followed by successive breakouts to new highs, which proved to be a fruitful strategy until the last half hour of the session, when a dramatic drop took back much of the day's gains.  Source: Quote.com.

Mark Etzkorn: Can you describe how much you typically risk on a trade and how you take profits?

"If you only make 100 points (one S&P point) on a trade, it's basically a scratch, because you're going to lose 100 points on another trade"

Bill Greenspan: Initially, I'll typically risk 50 points. That's enough heat. So, you have to go for at least a 250- to 350-point profit. As far as getting out, nobody ever went broke taking profits. But as a scalper, I try to facilitate the market. I've been standing in the same spot in the pit for 12 years, working with the same brokers. You have to be good to the deck (work with the brokers, rather than fight them). I'll move in and out because I want to satisfy some of these customers.

If you only make 100 points (one S&P point) on a trade, it's basically a scratch, because you're going to lose 100 points very often on trades as well--just on your timing. Your direction may be right, but you'll lose money just getting in and getting out. So if you just trade for 100 points, you're going to be a scratch trader--if you've broken even by the end of the day, you're lucky.

Mark Etzkorn: How tight will you keep your stop after a position goes your way and you have a profit cushion?

Bill Greenspan: Around 150 points (1.5 S&P points). That's really not wide enough, but I place them that close because I'm a nervous trader.

Mark Etzkorn: Do you trade the entire session?

Bill Greenspan: I'm there from 8:30 AM (central time) to 11:30 AM, and 1:00 PM to 3:15 PM.

Mark Etzkorn: How much do you trade on a given day?

Bill Greenspan: Probably in the neighborhood of 60 to 80 trades per day. I try to trade about 180 contract per side (long and short), and I trade in increments of anywhere from 1 to 10 contracts, with my most frequent trades being 3 and 5 contracts.

Mark Etzkorn: Do you do any other kind of analysis to prepare you for the trading day?

"Day trading is such a hard way to make a living"

Bill Greenspan: I don't really need it now. What I do now is check the Globex high and low, and the previous day's high, low and close. I make my first trade off the breakout of the opening range--I take the directional trade--then I just try to scalp and see if I can make $1500 to $4000.

I just try to trade the breakouts. With the market the way it is, you can make five, six, seven points on the momentum trades off these breakouts.

Mark Etzkorn: What about losing days?

Bill Greenspan: They're infrequent, but I usually lose double than what I make on my winning days because of the volatility and the vacuums that form in the market. The volatility makes the money less steady.

Mark Etzkorn: Are you flat at the end of each day?

Bill Greenspan: Most of the time. If I'm not flat, I'm short one contract.

Mark Etzkorn: Given your experience as a short-term trader, what advice would you give those who might want to day trade the S&Ps, or stocks for that matter?

Bill Greenspan: I can't believe how many people are interested in day trading, because it is such a hard way to make a living. Everybody has heard the glorious stories. I've seen thousands of guys come and go over the course of 22 years between the CBOT and the CME.

"You have to develop the mentality of a trader...you have to be willing to make a lot of trades"

Speaking in terms of someone who would want to trade the S&Ps, you have to develop the mentality of a trader--not just that you're going to be a 'day trader' and be flat at the end of the day. You have to be willing to make a lot of trades. You're going to be a better trader by making more trades. So, guys that want to make one, two, three trades per day, are going to get chewed up and burned out because they can't be that right about the market.

Mark Etzkorn: Do you still go through periods when things aren't working? What do you do to try to turns things around?

Bill Greenspan: That does happen. Particularly with a longtime trader like me, you get burned out, and you suddenly notice you're a step off, you're late hitting orders, or you're day dreaming in the pit--you just need to take some time off.

The market calls back to me eventually, but I don't have a problem walking away from time to time. My wife makes sure we take at least a long weekend every other month. It's like she tells me: Vacations seem to end up paying for themselves.