Famous Trader, Richard Dennis, Now Uses Computer Auto Trade Program

For years, Richard J. Dennis lived by his wits in the commodity markets--and quite a living it was. His knack for the quick kill made him an estimated $200 million in the 1980s and brought him fame unmatched by any other futures trader. Then his instincts failed him. By the early 1990s, having lost tens of millions for his customers, he quit the business. Now, he's trading again, with a difference.

Instead of acting directly on his thoughts, theories, and impulses, Dennis translates them into computer programs. When those bits and bytes align with market prices, the computer orders a trade. Under an agreement with a third-party broker who controls most of his customer funds, Dennis must follow the system. No matter what his gut tells him, discretion isn't allowed. So far, the deal has paid off: With a 111% gain in 1996, Dennis once again ranked among the world's top-performing commodity traders. ''The left side of my brain has put the right side out of business,'' the soft-spoken 48-year-old explains.

HUGE LOSSES. Dennis' transformation to robo-trader could prove significant. In derivatives markets, taming traders is the preeminent risk-management problem--just ask Barings PLC or Sumitomo Bank Ltd. A computer system that limits potential losses has great appeal. In Dennis' case, his goal was to separate a brain loaded with money-making insights from the heart of a gunslinger. By the time he retired in 1988, he had shot himself in the foot by making unusually risky trades--purchasing huge quantities of options just before they expired and became worthless, for example. In one day, he lost $8 million in a soybean trade gone bad. Losses in his personal accounts paralleled those of his funds. Adding insult to injury, an early 1990s comeback attempt flamed out in months.

Now, the system curbs Dennis' tendency to go off on fliers by imposing strict risk parameters. In programming the computer to evaluate price, volume, and other market data in search of profitable trades, Dennis says he employs only strategies that have survived rigorous testing and proved successful in the past. While many traders employ computer models, such rigid systems remain more the exception than the rule; most traders keep some discretion.