STiR coffee and tea magazine

38 STiR coffee and tea / Issue 2, 2017 (April/May) T By Dan Bolton Automated Trading Steve Hawrylik, commodity manager, NDCP, a $2 billion management firm serving Dunkin' Donuts franchisees. rading at the speed of light is not without peril. A fat-finger (keyboard input error) initiating the wrong buy or sell order in the coffee commodity market can be disastrous, says commodity manager Steve Hawrylik, but on the whole, the transformation from the open cry pit to the cloud has proven itself. Hawrylik, commodity manager at NDCP in Duluth, Georgia, illustrated his point with a timeline showing how technology has transformed trading at an accelerated pace, beginning in the early 1970s when NASDAQ became the first all e-exchange. Twenty years elapsed before E-Trade was founded in 1992. Sell-side retail matured in the late 1990s. By October 2007 one billion CME Globex contracts were traded in a single year. A decade later, on Jan. 12, 2017, CME cleared a record 1 trillion Mexican peso interest rate swaps in a single day (equivalent to $47 billion in notional value). The influx of cash from the extraordinary increase in trades led directly to the development of sophisticated metrics that, in turn, encourage trading. Online trades are very profitable for the exchanges, he noted. The market cap for Intercontinental Exchange (ICE) has increased 260% since ICE moved away from the floor, he said. Hawrylik puts a good measure of faith in the remarkably agile and sophisticated technicals that inform market decisions, but he cautioned that coffee traders must also understand basic human nature to avoid blindly following the herd. "The majority of market participants are reactive, not proactive," he said. When mistakes are made successful traders act decisively to find a way out. Machines don't. Hawrylik began his career before automated trading became prevalent. He tells the story of his uncle, a successful trader who painstakingly plotted trends on stacks of graph paper that covered an entire table when unfolded. No one has the arithmetic ability in their head to calculate technicals widely used today. Charts and technicals are far more accessible and big data is leveraged to facili- tate trades. Momentum indicators like RSI (relative strength index) measure when a market is overbought or oversold. Yet tools like the popular 9-day moving average are not obsolete. Coffee trades are swift and the trader's toolbox is more sophisticated but fundamentals matter Tech Stats 03/24/2017 The Hightower Report: Daily Commentary 3/24/2017 Moving Average Contract 20 Day 40 Day 60 Day MAY COFFEE 142.42 145.88 142.42 Contract Close RSI RSI 14 day Slow 14 day Slow 9 Day 9 Day Stoch D Stoch K MAY COFFEE 140.5 39.44 40.97 41.38 41.52

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