Hannula, looking to next challenge

February 29, 2012 06:00 PM
Trader Profile

Larry Hannula is a 30-year veteran of the futures markets who started out, as so many have, on the floor as a runner.

He led a proprietary trading operation for a major bank, ran a trading program for a family office, developed a state-of-the-art trading system and created a consulting service that catered to some of the biggest traders in the industry.

Hannula began his career at the Chicago Mercantile Exchange for DLJ. One day his boss asked him to pick up the phone and cover an important customer because the regular clerk was out. This was a tremendous break and helped launch Hannula’s career. The customer was Peter Wehrli with Swiss Bank, and Hannula ended up spending the next 10 years servicing this one account. “I ran Swiss Bank’s trading operation on the currency desk,” Hannula says.

More importantly, he learned lessons in trading from Wehrli that he utilizes to this day. And Wehrli made sure Merrill Lynch hired Hannula when he moved his execution business there.

At the time, he was handling cash arbitrage trading, but Hannula had other things in mind. “All I wanted was to get a seat. They gave me a seat and I managed the account on the floor through the 1987 crash, doing all of the Swiss and D-Mark business.”

That experience planted the seeds for a technical trading strategy Hannula would develop later. “Everything that I learned from that experience, I put into my model. It is a culmination of Peter’s and Rich Mastadino’s (another Swiss Bank trader) teachings. “If you learn one thing about trading, it is you have to sell rallies and buy dips.”

He parlayed that knowledge into an advisory business, McHann Advisory Services, that catered to proprietary traders and numerous large institutions. Traders from Barclays Bank, Swiss Bank, JP Morgan, Bankers Trust, Lehman and Nomura Bank, as well as many floor traders, used Hannula’s service.

The strategy concentrated on foreign exchange, but he later would apply it to fixed income and equity markets.

“It is all algorithmically based chaos theory [using] predictive oscillator studies. I build a bunch of algos that predicts where the market is trying to reach in a positive period or trying to get down to in a negative period,” Hannula says. “It is an overlay of five technical studies. I use a momentum oscillator, algorithmically driven momentum studies that expand and contract with volatility and overvalued and undervalued oscillator studies.”

He took his model with him to ABN AMRO in 1996 where he served as senior technical strategist. Basically, he helped run a proprietary trading desk utilizing his model. “I wrote a technical commentary that would go out to all the institutional customers. We used the model as a valued-added tool,” Hannula says. “It is my life’s work. I made it clear in my contract when ABN hired me that I’m walking in the door with this model. They told me we don’t care if you use a Ouija board, just be right the market.”

The team had great success, but when the bank took a hit during the Russian debt crisis, Hannula was offered a buyout, which he took and moved to Florida to perfect his model.

Also in 1996, he met with future partner Layman Allen and began helping to manage his family office through a TIAA-CREF structure doing mutual fund timing. They did well over a 10-year period and Hannula ended up selling part of his advisory business to Allen.

Hannula offered the strategy as a commodity trading advisor but had difficulty building assets. He also spent a year in Australia, in 2000-01, building up a fund management operation for Macquarie Bank. The performance of the model degraded some with Hannula in Australia and he halted trading on his CTA.

In 2008, he began a proprietary track record based on his model and this year started managing customer funds. His three-year proprietary record has produced a compound annual return of 26.29% and a worst drawdown of 3.35%.

Over the years, Hannula has concentrated less on his advisory business, and this fall it basically closed with the bankruptcy of MF Global, his last customer. He lost more money at MF Global than all the losses in his three-year proprietary track record.

He runs his model on an an hourly, four-hourly, daily, weekly and monthly time frame. “I am looking for a correction from an overvalued/undervalued posture,” Hannula says. “I am overlaying five different oscillator studies over five different time frames. What I am looking for is if the market is going to top, the shortest-term time frame is going to turn negative first.”

He has narrowed the focus of his model to short-term trades in the equity index sector. “I work myself into a risk-free trade. I will get out of a position quickly or get out of half and let it run. If I can just get the regression from the overvalued posture, I can take a lot of risk off,” Hannula says.

After a lifetime of trading, Hannula is starting over, but has proven himself over the years and looks forward to this next challenge.

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.