Adapt or Die!

What do we do now?  The ?Bubble? burst, Single Stock Futures, Pairs Trading, Automation, New Platforms and Access.  Professional traders are adapting to the new climate.

I?m often asked what traits are common in a successful stock trader, and although there are many, the single thing that I find binds us all together is ?adaptability??plain and simple.  We all thrived through the euphoria of the DOTCOM phase, and the NASDAQ meteoric rise through common sense into obscenity.  Many a genius was behind a computer when the ?buy and hold? mentality permeated the shell of proprietary trading.  Swing trading was born from the attitude that ?it?s gonna go back up, wait and see!?  TV and Online Brokers found gigantic audiences in the new ?stock market aficionado".  It seems that everyone has an interest in the market these days. It was only a few short years ago when we who made our living trading were thought of as blurry eyed speculators and freakish market technicians.  Who were these ?Market Wizards? and what do they really do?  The early editions of many stock market classics stayed on bookshelves, never making their way to the homes of Middle America.  I personally relied on my brother to read the Wall Street Journal, Barrons, and all the related market oriented publications (I would drive to the floor of the Exchange, he would read and give me the ?Readers Digest? version of the day?s events. 

In the late 1970?s there were Commodities traders in Chicago, and a few Option Market Makers on the various (new) option exchanges.  I was brought into this trading world by my brother who had entered only a few months prior.  He had developed  some option strategies based on research done by the early pioneers.  He ?adapted? his innate abilities for risk/reward evaluations to the ?back spreads,? ?front spreads,? ?straddles,? ?strangles,? ?conversions,? and the like to the Commodities based trading that was taking place in 1978.  We young (then) market makers would do our best to ?outsmart? the ?old guys? who came from the CBOT and other commodities exchanges to the new options trading floors.  I recall actually changing prices on certain issues when we saw certain people come into our pits.  We were ?so smart? using our ?sheets? with computerized valuations of every conceivable combination of puts, calls, and underlying securities?.ah, yes?so, so smart!  These ?old guys? would come into the pit, and buy calls from us that were overvalued (by our evaluations), we would sell what we could until we had to then go buy the stock to hedge ourselves.  Little did we know that these guys had already placed orders to buy the stock way in front of us?.causing us to scramble to try to buy back these ?over-valued? options?.resulting in our own little ?short squeeze.?  We soon learned that we were playing ?their game? in ?their house??.and we better adapt or perish. As Bob Dylan wailed, ?The Times they are a Changing??and boy have they changed over the years.  The one constant that we can cling to is adaptation.  You had to adapt quickly in this high dollar psycho-drama we call trading in those days, and you have to adapt even more quickly today.

After a decade in the markets, trading had become more than an enterprise, it became a passion. 

After spending more than a decade trading on the exchange floor, and watching the new products turn to ?old standards? with little room for exploitation, I thought that the trading world would come ?full circle??.back into the basics of single stock equities trading.  I shared that with my semi-retired brother, and he shared the feeling.  Adapting once again to market conditions and technology changes, trading resumed in the family?this time it was DOT based (Direct Order Turnaround) electronic trading.  .  The ?bug? bit harder than ever with this genesis.  Having ?single digit? numbered DOT machines, with the same access to the markets as we had on the trading floors, the electronic trading revolution was begun.

A few short years later, the newly aware public became involved in the world of electronic trading.  It was from this short lived phenomenon that ?daytrading? as many of us perceive it, was born.  (I always smile when I hear people talk about the ?birth? of daytrading having taken place in the 1990?s, when in truth daytrading has been going on for some 200 years). 

Several factors collided in the 1990?s that helped grow the ranks of those who call themselves ?traders.?  Everyone seemed to have a 401k that needed watching, IPO?s were all the rage and topic for cocktail party discussions, and the Internet had become the vehicle for bathrobe attired traders to ply their new found craft.  This is also when the markets were flying and everyone was writing books about their successes in various trading endeavors ranging from ?online trading? to ?covered call writing.?  Paper millionaires were sharing their exploits in chat rooms and video tapes.  Mainstream movies and TV shows portrayed young traders as pretty hip, and who doesn?t want to be hip?  Pretty hard to stay out of a game like this, right?  You bet it was!

As the masses got involved, something rather unique happened.  Rather than causing a dilution of trading strategies as had happened in the past, this addition of new ?traders? actually fed the fire for those who made their living from trading.  Much akin to having a newbie in a poker game or new tourists on the boardwalk, this ?new blood? created fantastic opportunities for those who, once again, adapted.  This adaptation came about in an almost round about way?sort of a ?back to the future?..type of thing.  Basic strategies were never learned by these new ?electronic daytraders? since who needed solid trading fundamentals when you could use a cool looking execution platform to trade with.  With everyone jumping on the band wagon, profits came easily to those with the fasted ?guns? ?.for a while. 

Professional traders found themselves in a familiar circumstance, one that they had seen before?.they better adapt or perish.  New strategies based on new platforms and new access capabilities emerged in this new century.  Although somewhat recycled, the results speak for themselves.  These strategies included mergers/arbitrage, pair trading, opening techniques and all the rest.  Now we have new ?stuff? in the mix.  Single stock futures (SSF?s) are coming online soon.  Mergers of Exchanges (NYSE-Archapeligo). Mergers of ECN?s and execution platforms (REDI/ARCA).  Licensing requirements for traders who want to do this for a living.  And yes?.AUTOMATION!  No limits!

Traders and software developers have been looking for the magic pill, the program trading software that will bring us riches with the click of a mouse.  I cannot count the number of ?trading programs? out there being sold to the unwary under the guise of technical propriety.  ?Buy when you see Green, Sell when you see Red??Use trailing stops, ?Filter for Fortunes? gee, if it were only that easy.  Let?s try to bring some reality to all of this.  Let?s get off of that cloud of fantasy and take a look at the things that make sense: Serious involvement in the markets.  Learning real, working techniques.  Trade for a living, or enjoy another field of endeavor.  Trading can be fun and profitable, if you?re willing to adapt.

Good Luck with your trading.

Don Bright is with Bright Trading, LLC, one of the largest professional trading firms in the U.S.  He started his trading career as a market maker and floor broker in 1979 at the Pacific Stock Exchange, where he remainded until 1989. As well as continuing to trade daily, he is a monthly contributor to Stocks and Commodities magazine, and produces “Stocktrading with the Bright Brothers” radio show webcast live every Saturday, which can be heard at www.stocktrading.com.

Don Bright is with Bright Trading, LLC, one of the largest professional trading firms in the U.S.  He started his trading career as a market maker a...

Rhody Trader

Senior member
Adaptation to the changing market environment is a requirement for long-term trading success, as discussed in this article.


Legendary member
Basic strategies were never learned by these new “electronic daytraders” since who needed solid trading fundamentals when you could use a cool looking execution platform to trade with.

This can't be repeated enough.



Established member
A relatively short article that tells it as it is. Sadly, the masses will miss the simple message it contains.

Mr. Charts

Legendary member
Excellent piece.
The markets change and evolve constantly so there is no Holy Grail, no magic bullet.
There are ways to trade profitably and consistently and understanding market sentiment and how to read it is the key to success.
Understanding, method, adaptability, self control and method again are what distinguish winners from the mass of losers.
Learn what works, why it works,(if it can't be explained in terms of what actually goes on in the market, it's useless gibberish), practice, experience
= success.


Experienced member
Would you not say the market has levelled out. Surely this 'tame' moment is not hard to understand?