Martin Schwartz Pitbull
Trading Strategy Explored

One of my favourite trading books is Pitbull by Martin Schwartz.

It’s just a damn good storybook about a trader quietly making millions using his own style and strategy.

I’ll try not to ruin the book for you but in chapter 6, Schwartz explains how he spotted an edge on the S&P 500 futures.

The setup was something like this:

• If bonds move up after-market then buy S&P before the pit close
• If bonds move down after-market then sell S&P short before the pit close

Hold the trade overnight and close at the open. Yep, that’s it.

Bond’s closed at 3 p.m. and S&P at 4.15 pm

So Schwartz would watch the after-market trading of the bonds and if they were up by a pre-determined amount he would buy S&P (via the pit) in expectation of a gap up the next day.

(For context this was 1982, so trades were executed on the floor and computers for watching quotes were quite new)

Trade one: $7,500
Trade two: $18,750
Trade three: $21,250
Trade four: $217,000

etc

At the end of the month, he was up $1.4m trading this strategy.

Could this edge be replicated today?

No. 

Times have changed, execution has changed, trading hours are different, algos are more prevalent. But the point is this… Schwartz observed this edge by watching the markets. He wasn’t given it, he didn’t read it. He observed, watched and was open-minded to every possible opportunity he saw.

Did it last forever, no, of course not. But it didn’t need to. He made a cool $1.4m from a very simple play.

Edge doesn’t need to be complicated, keep your eyes peeled, and don’t rule anything out…