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!
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