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Lesson 30: Robots on the Move

At noon on January 31st, 2001, Mrs. B notified her robots to take their market positions. The robots were given mandatory and discretionary instructions. The mandatory instructions require each robot to take his or her position "at the market at the close of trading on February 1, 2001". The discretionary instructions allowed each robot, in consultation with his or her pair robot, to pick the individual futures contract that each robot wishes to trade.

In practical terms this means that when trading ends on Thursday, February 1st, each robot will have a position in the commodity futures market. Two robots will be trading each commodity contract. One robot will be long that market; the other will be short. In addition, no two robots will ever trade the same futures month within the same commodity contract. The method used by the robots to decide which futures month to trade varies with each robot pair. Some robot pairs agree to allow the robot whose name is first in the alphabet to select first. Other robot pairs flip a hypothetical coin to see who gets first choice at the futures month to be traded. Some robot pairs let ladies go first. There is no absolute rule. Mrs. B has built in an element of artificial intelligence in her robots which allows them the ability to communicate with their opposite pair when it comes to selecting futures months to be traded. Her robots have this element of freedom. What Mrs. B demands, however, is that at the end of trading, February 1st, 2001, each robot have a long or short commodity futures position.

Once this is done, either in night sessions or European sessions or Asian sessions or as of the opening on February 2nd, 2001, each of Mrs. B's robots will start making money or losing money. Very rarely will a trading session end where any of her robots is in exactly in the same place that he or she was in on the previous day. Mrs. B's robots are on the move!

Remember that Mrs. B has never used any of her $5,000 yet to take any futures positions. It is her 60 robots that are taking the positions for her. At the end of every trading session, each robot will have had a good day or a bad day but Mrs. B will always have had a neutral day. She will have no more nor no less than $5,000 regardless of what happens to the financial welfare of any of her individual robots.

You might ask at this point, "Why then use robots at all if Mrs. B does not trade along with her 60 little friends"? The answer is that Mrs. B does not use robots in order to duplicate their trading; she uses robots in order to select the markets that she herself will eventually trade.

Think of it this way. Suppose you were a commander in the Korean War and the enemy surrounded you. There were five exit paths from your bunker, paths A, B, C, D and E. You had to send individual soldiers on a mission to test these paths in order to evacuate the 150 soldiers who remained in the bunker and depended on you. Soldiers A, B, C, and D failed to make radio contact within one hour of leaving the bunker. Soldier "E" radioed back that he was on the other side of enemy lines and safe within the protection of friendly forces. Your obligation as a commander would be to send your 150 soldiers down path "E" in order to secure their safety.

Mrs. B does not use robots so she can trade 30 markets at one time. She would be nuts to do so. Mrs. B uses robots to help her select which of these 30 markets she actually wishes to trade with her $5,000 risk capital. Mrs. B can guess which of the 30 markets she wishes to trade. She can risk part of her $5,000 in a random selection process to make her decision. Or, she can use robots. She prefers to use robots. If you had these three choices, wouldn't you use robots too?

Mrs. B, like any a military commanding officer, has told her robots to contact her on a daily basis to let her know where the financial path is smooth, where the financial path is rocky and where there is no financial path at all. This is the robots only task. And it will be from this information that Mrs. B makes her decision as to which of the 30 markets she will risk her $5,000 capital in. Mrs. B does not use robots so she can trade 30 markets at one time. She would be nuts to do so. Mrs. B uses robots to help her select which of these 30 markets she actually wishes to trade with her $5,000 risk capital.

How she does this will be the topic of the next lesson. For now it is enough to know that each of Mrs. B's robots will have a long or a short commodity futures position as of the closing of markets on February 1st, 2001. Each position will be unique to each individual robot. This will happen within the next 24 hours. What Mrs. B does after her robots take their commodity positions, you will soon learn. For now it is enough to know that Mrs. B's robots are on the move!

 

            Bruce Gould

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Always remember that stock, options, and futures trading may involve substantial risks and that past performance is no guarantee of future performance.