The S&P 500 was down. Really down. Down hard. Then I heard the news on CNBC behind me.
“Another plane just crashed into the World Trade Center.”
I was short the S&P 500 E-mini futures. My system had me short. I had no idea what was causing the S&P to fall so much up to this point, and it had been falling since the May highs of $1320. I had been aggressively short selling since $1209 on August 8th, 2001.
The market had been selling off since March of 2000, the dot com bubble had burst, and we were generally in a bear market, trending lower and lower. By the summer of 2001, we had already sold off about 30% from the highs, officially entering bear market territory; but the buzz from the roaring tech bubble bull market was still a star in everyone’s eye. We all wanted that big dip buying momentum to return.
Spoiler: it didn’t.
When the news hit CNBC on September 11, 2001, I was already profitable well over 100 points on my short position. Each point in the E-mini S&P 500 is worth $50 per contract (multiply that by how many contracts you have), so I was well positioned at this point, with massive profits.
When I woke up that morning I had no idea what was happening. I checked my screen’s as I did back then when I first woke up (see my post from last week about my “new” morning routine); futures were down again, my trade was working, and I was ecstatic. This was the first time I had built such a massive position and it had played out. I thought about taking some profits, but held true to course as my system kept telling me to stay in.
I had a plan, but I wasn’t really sure exactly how to navigate these waters. This was unprecedented. I was in disbelief watching what was happening on TV, watching my screen as the market went “limit down,” and watching as the entire world stopped trading.
(Note: Limit Down means that the exchanges stop trading for a period of time to let things cool off a bit before trading can commence again. This event was so big that the market continued with this closure for another four days – the longest duration in modern history.)
As anyone around during that time remembers, prior to 9/11 the market had been selling off, and was selling off hard. I kept getting more and more indicators to add to my short position, so I kept adding. I had the maximum position allowed for me at that time.
There I was: massive profits thanks to a huge short position that my technical analysis had “predicted.”
I did everything according to my trading plan. I had proper position sizing. I increased my position as new levels were breached. Everything was “by the book,” minus the World Trade Center collapsing on live TV right before my eyes.
Other planes were still in the sky., The Pentagon got hit. This was unprecedented fear and chaos.
While trading was halted, there was nothing I could do but watch, and worry.
Where would they attack next?
Were there more planes out there ready to attack?
Would my location (Los Angeles) be hit?
Was it safe to leave? Should I go get food? Was anyone working today?
All I could do was watch live news coverage and listen to people speculate as to what might happen next.
The next four days, while the markets were closed, we all just watched and waited for more information.
Traders talk to each other day in and day out about the market, market analysis, market news, and what they think will happen. We speculated when trading would resume, how far the market would plummet before it was opened again, and if the government would intervene and support the market by buying everything until it stopped selling (aka the rumored “Plunge Protection Team”).
No one knew anything.
We started building out plans for the “what if” scenarios.
What if…when trading opens they only allow single contract trades, so I can’t cover my position quickly?
What if…the market is down 1,000 points on the open? Do I cover?
What if…the market is up 1,000 points on the open and I can’t cover in time?
What if…the market is open, but no one is trading, and I can’t cover my position?
What if…they don’t open the market until 2002?
On Sept 17th, they did re-open the market. The New York Stock Exchange was so kind as to inform the public when they would open, so other markets followed suit, and things resumed some sort of normalcy.
The S&P 500 opened 50 points lower on the morning of the 17th, and traded within a 40 point range.
It was insanity, complete chaos. Volume was huge, the world was ending, then the world was saved. This cycle seemed to be on repeat for days on end.
Believe it or not, I did not cover my short position.
Having the time to think through everything during those days off, I realized that I needed to stick to my trading plan and prove my thesis.
Why? If there was no signal to cover my short position, and my trade was sized correctly, then it follows that I wouldn’t suffer enough to take me out of the game.
This outlier event, 9/11, the most dramatic event to ever happen in the United States, was actually covered in my trading plan. Not by name, but certainly the rules were broad and effective enough to keep me in winning trades.
Eventually I did cover, and for a massive profit. But, I left plenty on the table, like nearly every good trade.
I learned a lot about myself in the days that the market was closed, reflecting on what happened.
I learned that the market can give you insight before something happens. There is speculation that 9/11 was heavily shorted by certain parties that participated in the planning and execution of the attacks. I can assure you I wasn’t one of those parties, however, my trading plan identified and planned for the events that followed the terror attacks.
I learned that taking time to breath, think, and relax is usually a better tactic than immediately reacting. I started to invest a little more in my meditation practice.
I learned to imagine and consider more outcomes and new threats. The crazier the better! Approaching the future in a reality that was entirely different and unexpected than the present resulted in my ability to create new strategies to handle the unexpected.
Trading is a job; emotions about the current state of affairs is not. I have learned that while I can be angry, sad or any other emotion about something that is happening, not letting that interfere with decision making is a muscle that needs to be exercised often. In the markets, math generally wins over emotion.
Most importantly, what I took out of this outlier incident is what led me to become a systems trader. I now trade mechanically and algorithmically instead of subjectively and discretionarily.
In the event you find yourself in another “outlier incident,” I highly recommend to do the same.
Focus on finding a slight edge in the market, then exploiting that edge with the most powerful tools at our disposal (position sizing and exits) in order to make meaningful and very consistent returns over time.
Remove your emotions from trading. Let your system do the work for you, and trust that it will do what it takes.
https://i0.wp.com/macro-ops.com/wp-content/uploads/2019/01/E-Mini-Futures.jpg?fit=996%2C633&ssl=1633996Chrishttps://macro-ops.com/wp-content/uploads/2016/02/Macro-Ops-logo-e1456504515714.pngChris2019-01-17 20:10:362019-01-17 20:13:47Trading During 9/11 Attacks And Why I Became A Systems Trader