We can still learn from old-school traders who combine fundamental and technical analysis. Do not fight the trend; instead, load up on high-conviction trades.
Hemmut Waymar and Commodities Corp - Fortune Feb 9,1981
Over the next few months, the trading team spent many late nights devising a framework of controls that is still in use today. It imposes two principal controls. First, each trader is a profit center. At the beginning of each fiscal year, he is handed a "trading fund," based on his prior year's performance. The system grants the trader a free hand as long as he is making money, but it bears down on him if he starts to slip. If he loses 50% of his initial capital, he must sell off his position and take a month off from trading to write a memo to a management committee explaining what went wrong.
The second control formalizes the sort of guidelines Hostetter had been using for decades. The control is tied to the signals generated by the TCS system. If a trader holds cocoa futures, for example, and TCS detects that prices are headed downward, he is forced to get all but 10% of his capital out of cocoa. If he is authorized to trade several commodities in which TCS sees a downward trend, he has to get all but 20% of his total funds out of those goods. In other words, a trader can put up very little money bucking a trend. TCS has become the traders' watchdog as well as a robotized commodities gambler. TCS's trading record has won over even Samuelson. Today, in fact, the TCS fund manages some of his personal money.
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