A day in the life – contingencies

Yesterday was a strange but interesting day, filled with small obstacles. 

At around midday, my computer turned itself off and the radio suddenly went dead. A quick check of the fuse box and light switches around the house revealed an electricity outage. I was fortunate as I didn’t have any trades on at the time but this could have been a trader’s worst nightmare, especially since the stop-loss orders on my intraday trades tend to be placed very far from the spot price – they are used only as emergency measures. That said, there was always the option of phoning the broker directly to close all open positions.

I couldn’t wait around for the power to return so I drove to my back-up location – the local library in the centre of town, where they have about 30 internet terminals. With only a few weeks to go before Christmas, traffic was chaos and finding parking was hell. I went around in circles and in the end I gave up and parked in a ‘permit holders only’ spot, expecting to receive my second parking fine in less than a week (I received a £40 parking fine at the weekend when I went to London). In the library, to my surprise, all but one of the internet terminals in the library were in use. I took it and after just under an hour of trading in small size I had made enough to close the day in positive territory, factoring in the expected parking ticket. I decided to call it a day. And luckily, when I returned to my car the windscreen, it hadn’t been festively decorated with a parking fine.

The day made me think about the importance of contingency planning. So many things can fall down: electricity, internet, broadband, computers, and even brokers. As a trader’s fund grows in size it makes sense to spend a little money on insuring against some of these potential failures (a second internet connection, two computers, multiple trading accounts etc).  Over time each of these failures will likely occur and even if a trader doesn’t have the money to spend on these contingencies it is important to avoid panicking by having a plan of action in place for each case.

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4 responses to “A day in the life – contingencies

  1. I remember the time when my mouse stop working and the cursor just stay there, uselessly stuck on the screen. Fortunately, my computer programmer/historian husband’s office is littered with the partial computer-related remains and complete rusting hulks of workable computers and peripherals. I managed to find a mouse, and rushed back to my own trading turret, replacing it after wrestling with the thick wad of twisted wires, and was back in control of the cursor.

    My main protection is putting in hard regular or trailing stops, sometimes a bracketed order, with a target price included. Because of that, I will foregone trading stocks that have wide bid/ask spreads and intra-charts that do not have tight, slightly overlapping candlesticks composed mainly of bodies and not shadows.

    Every trade that I do, I ask myself what would happen if I could no longer monitor the trade for whatever reason, including a sudden onset of illness. The best answer I come up with is bracketted orders, and that is why I have fine tuned my approach to accommodate using them.

    As a daytrader that uses her margined buying power to the full, I need to be assured that a position is not held overnight. Using advanced ordering like bracketted, a daytrader can for the most part be sure that the trade will be closed by the end of trading day even if she is recovering in a hospital or her broker has been nuked.

  2. Hi Michelle, I didn’t think about having a spare rodent but your story highlights how vital this is if you are using a desktop machine. If your mouse packs up, this can leave you ‘as impotent as the Nevada boxing commissioner’, and it only costs a few pounds to buy a spare.

    Also, it looks like you have thought through and tailored an excellent order-placing approach to fit with your trading style. This contingency measure effectively provides free insurance against the downside risk of many disaster scenarios (computer failures etc). Indeed, if stops are wisely placed, then investing in second internet connections, computers etc, becomes more of an issue of retaining the ‘upside risk’ in the event of a system fall down, i.e maintaining full trading capability in the market. Spending money on protecting ‘upside risk’ can make sense, but it’s clearly less important than insuring against downside risk, it’s more expensive, and I suppose it’s usefulness is also largely dependent on trade frequency.

  3. I have used a GPRS modem as a backup in Europe, now I have a wireless modem that connects to the mobile telephone network. Helped that I was staying in places that you couldn’t drop into the local library and use the net.

    London is a wonderful city but pretty expensive, 40 quid for a ticket ouch. Last time I was there in 2005 I noted there were 100 more Starbucks than my previous visit (0 to 100) and still too many people!

  4. Hi Andrew, London is exceedingly expensive, more so for tourists. As with most places, locals can hunt out cheap places to drink and eat. They have an informational edge.

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