Commodities trading, an incredibly complex process by many accounts, really
boils down to three simple words: predicting the future.
But figuring out the quality of next winter's Florida orange crop, the size
of next spring's cotton harvest or the price of crude oil six months from now is
by no means a simple thing to do.
In a recent interview with commodities broker Chuck Hackett, co-founder of
Access Futures and Options Trading of Woodlake, Calif., I got a taste of a few
of the complicated variables that influence the day-to-day predictions that
futures traders make.
The process begins simply enough. Electricity, computers and telephones power
the system, and the strength of the mind carries the rest.
"If you're day trading, you try to identify an area where the price is going
to move to and try to capture that movement," Hackett said, whatever it is that
you're trading. "The price bars all look the same on the screen, and since
they're all viewed by humans, they're all going to follow human patterns."
There's a variable in those patterns that keeps cropping up, however, and one
even less predictable than weather, politics, labor strikes and other unknowns:
that pesky thing called human emotion.
Whether a trader studies the fundamentals of supply and demand or makes a
play based on the pure movements of numbers over time, they will always face
shifts in the market that begin, grow and disappear because of emotion.
Investors, brokers and producers are all subject to it - the most human of
traits.
"There's a lot of stuff that makes no sense at all out there that people do,"
Hackett said. "There are things that take on a life of their own.
Self-organizing ideas that have their own product."
The Media's Role
Brokers know this. And they try to factor it in. But the public is often
under a different impression, because with a 24/7 news cycle, people have grown
used to having everything explained, and the media is basically compelled to
follow suit, Hackett said.
"If the media tells them that oil is going up, people have to know why. And
the reason doesn't have to be right or even remotely correct," he said. "A lot
of times, there's no reason that can be identified at that point as to why
something took on a life of its own to do something."
Except that people do things for reasons that they might not even be aware
of. Self-defeating reasons that sometimes don't have a thing to do with making
money, but everything to do with working out some kind of subconscious issue or
another, Hackett said.
It is the case with commodity traders more than one would think.
