The Dubai debt crisis exploded on Thrudsday morning November 26, the day of Thanksgiving in the US. I cannot and I could not enter into the fundamental details of the story because I am not supposed to understand why something happens but just to take profit from it. I did not evaluate the situation so dangerous up to when fellow traders, hedge fund managers, journalists started to call me on my mobile in the evening of that day. I spent the Thanksgiving day here in my office so that I followed at a close end all the development of the crisis and I was impressed by the frenzy that caught traders in the late evening.

Everybody was calling everybody, people called me saying that already called another guy I know and then the guy I know was also trying to connect to speak. Panic, real panic. The most recurrent idea was that this crisis in the little emirate of Dubai would have sparkled a new world wide crisis where everybody would have ended up dead.

I do not like when I am requested to express an opinion on something which is happening much away from me and whom I do have just the news that my trustful Bloomberg is proving. It is really difficult to extrapolate something clever from such a huge amount of data. So as always I told my friend I would have relied on technical chart, which is the ultimate solution for taking a decision where all other tools fail.

On Friday November 27 in the morning something happened on the Europen stock indexes: let’s take the Dax index which opened with a huge gap down. All the quant traders know that Dax stock index futures and the other European stock index futures (Ibex, Cac40, SMI, Italian FTSE MIB, etc.) are a wonderful hunting field for gap trading. Due to the time lag with US markets the opening trading in Europe is much more profitable than in US an a simple gap trading system on Dax makes good money. And this is a really trustful pattern on European stock indexes. So what to do in that occasion ? Had I to trust fundamental / sentiment analysis, by which everything was going off, or to test an easy stupid pattern ? Since I have no more information about the Dubai crisis than whichever Bloomberg users I decided to play the gap pattern, that is stupid as much as you want but it makes money. So from the very beginning in the morning of Friday November 28 I played the trumpet of the buy opportunity. And I repeated buy on the many columns I write for Italian and French magazine, for my Italian website and for my customers.

Was I wiser than other traders ? Was I more informed than other traders ? Was I more clever than other fund managers ? No. Really not. I simply had a little formula, 3 lines long, which has been tested on many stock indexes and this formula was saying to me that it was more likely that prices would have gone up instead of down. Easy as that.

So this little and insignificant piece of code made me to 100% perfectly forecast the Dubai crisis. Frankly speaking I know that there are people in the industry that do not want you to tell that you rely on 3 lines of codes. They want you to give them at least 5 fundamental reasons to buy or to sell. For them trading is something logical, not something that comes from the stomach of the traders in the sense that you will never fully explain why something happens.

Dubai crisis was not a victory for Tomasini, who is simply a devote promoter and researcher of quantitative trading,  but a full and clear victory for those many traders around the world that traded what they was and not what they were feeling.

 

 

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About Author

Emilio Tomasini is Chief Editor of the Italian edition of TRADERS’ MAGAZINE (www.traders-mag.it), the leading monthly publication in Europe for trading and investment, and since 1999 he organizes the TRADERS’ CUP the most important real money European trading competition (www.traders-cup.it). His personal weekly free newsletter L’Indipendente di Borsa (www.indipendentediborsa.it) is one of the most reputable Italian financial media and counts more than 100.000 readers. His website in English is www.emiliotomasini.com

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