Nissenbaum: Winning The Game
Futures; April, 1997

Andrew Nissenbaum was lucky enough to be out of the market during the 1987 stock market crash, but he remembers the day well. He was sick and missed classes at his Milwaukee middle school. 

Nissenbaum, 23, wasn't the teacher. Founder of his newly formed commodity trading advisor (CTA), Hypothesis Capital Management in New York, a Wharton graduate and the son of a pharmacist, Nissenbaum has played the markets since his junior year in college, but he's been a speculator most of his life, buying and selling skateboards while an adolescent to earn money for his own television. 

His first "serious" trade came after he learned about the January Effect from Professor Jeremy Siegel at Wharton. Postulating that excessive publicity of the phenomenon that year would spark the small stock rally sooner, Nissenbaum got a cash advance on his credit card and bet $2,400 on a calendar spread: buying March and selling December Russell 2000 futures. 

"I really didn't know much about futures [at the time]," Nissenbaum says. "By the time the position settled, I had quadrupled my money." 

That spring, Nissenbaum continued speculating in stock index futures, claiming he earned 10,000% over the period. However true, the then-21 year-old must have had, some success: He leased a seat on the Chicago Mercantile Exchange and traded S&P 500 futures in the pit that summer. 

"Working on the floor wasn't the best environment for me," Nissenbaum admits. "Most pit traders are scalpers. All they care about is who's buying, who's selling and what's going to happen over the next 15-20 seconds. It's much more profitable to have a long-term view." 

After capping his summer with some lectures to J.P. Morgan traders, Nissenbaum returned to Wharton to graduate and find a job. He accepted an offer from the Union Bank of Switzerland (UBS) in January, commuting three days a week to learn the basics so he could start trading upon graduation. 

After graduating in May 1996, Nissenbaum worked full time as a proprietary currency trader for UBS. His performance caught the eye of George Soros' partner Stanley Druckenmiller, and Nissenbaum left UBS for a two-month stint as the head (and only) macro assistant to Druckenmiller in October 1996. Nissenbaum made the move because he believed working closely with Druckenmiller would better prepare him for becoming a CTA, which he left to do in November. 

"I was ready," Nissenbaum says about his short time with one of the most respected names in the business. "I had enough experience. I had a number of the necessary lessons down." 

One of the lessons, he says, is not to fear being a contrarian. "To really beat the market, you have to be able to do the opposite of the market place at times," he says. "When there is a psychological frenzy, you can't be scared of taking a position." 

Although Nissenbaum uses both technical and fundamental analysis, the heart of his trading is intermarket relationships. 

"There are different correlations the market follows," he says. "Sometimes the S&Ps follow bonds. Sometimes the dollar will follow S&Ps." 

Nissenbaum sets up trades when he sees short-term correlations he believes could "spark" another market. For example, if he thinks gold will rally if the dollar takes a hit, he keeps an eye on other dollar-related markets to see early evidence of a move. 

When technicians typically buy strength and sell weakness, Nissenbaum does the opposite. For example, he says about 80% of the time platinum trades above gold unless the United States is in a recession. So with platinum trading par to gold in a relatively strong U.S. economy, Nissenbaum goes long platinum, believing prices soon will revert to their historical relationship. 

Because he's a contrarian, Nissenbaum says he rarely catches tops or bottoms. Markets often move against him as soon as he initiates a position. To deal with that psychologically he begins his trades small and increases them as his position improves, "risking the cushion," he says. 

Nissenbaum also trades options and he's not afraid to sell premium. When bearish, for example, he'll sell at-the-money calls while buying out-of-the-money puts. If he changes his mind, he'll "leg in" and "leg out" of his position adding to current positions to create synthetic ones. 

The currencies are Nissenbaum's favorite market. "When you have consistent moves that are 10% to 20% each year, it's definitely a good place to speculate," he says. 

Currencies are well suited for traders with an international background and a fundamental bias, Nissenbaum adds. They require a deep understanding of the home countries and the realization that with the activities of central banks, foreign exchange isn't a completely free market. 

Nissenbaum contends he learned how to trade from the best in that market, admitting much of his success is owed to colleagues at UBS and Druckenmiller. But not everything can be taught, and Nissenbaum insists besides the knowledge to succeed as a trader, he has the personality. One key, he says, is not monetizing positions, focusing on how much he's making or losing instead of where the market will go. 

I don't look at positions as 'If I buy it here and sell it here, I can buy I new car,'" Nissenbaum says. "I look at it as 'If I buy it here and sell it here, I win the game.'"