How would you like to be able to take advantage of insider information and trade with the most successful traders in energies commodities, stocks and commodities?
Well you can – with the commitment of traders report, published by the CFTC. This report shows insider commercial trading positions by professional hedgers!
The commitment of traders report is available free, but hardly any traders use it – yet it can predict tops and bottoms, with amazing accuracy, when used correctly.
What is the Commitment of Traders Report?
Insider trading is legal in futures markets as long as trading positions are reported to the CFTC and the report covers stocks, bonds, currencies and commodities.
The Commitments of Traders Report breaks down the open interest in major futures markets into three categories:
1. Commercials: They own the commodity and trade it for a living.
2. Large speculators: Are a group that hold large positions, and are legally obliged to report them – these traders are normally funds or asset managers.
3. Small speculators: Everyone else – but mostly small individual traders.
Every year many markets make extreme price runs – both up and down, where prices move far above, or below rational pricing.
This is crowd psychology at work – with the emotions of greed and fear to the fore.
Trader psychology is a critical element in trading, and traders very often push prices too far away from fair value – and a counter trend can occur at any time.
These emotional crowds form along lines provided to traders that are broken down by the CFTC report for easy reference:
Commercials: They are using their futures positions, to hedge their cash position – and are trading without emotion, as they are hedging risk, and not speculating.
These traders have an edge in fundamental supply and demand information – and have deep pockets, and a long-term outlook.
When price spikes occur they will fade the move – selling into price spikes, and buying into declines.
As they are hedging, they will only change their positions when prices move significantly away from value.
If you see large scale selling in a bull market, or aggressive buying in a bear market, chances are a trend change is at hand. This is especially true, if speculators, large and small, oppose these moves by holding the opposite view.
Large Speculators: This category is dominated by funds that make their money to a large degree based on their ability to sell a story, and greed to investors. These large speculators tend to have a poor performance overall as a group, and normally are caught at major trend changes – and lose heavily.
Small speculators: The poorest traders of all in terms of track record. Small speculators lack inside information, and this crowd tends to trade on the emotions of hope, greed, and fear – tending to be WRONG at every major turning point.
So, How do we Use the Data?
Small moves in commercial positions are not relevant – they own the commodity, and these moves should be ignored.
It is only when commercial positions buy and sell aggressively, that we know prices are away from fair value.
One point to keep in mind: We are ONLY looking at extremes here – and rapid changes from the commercials position, away from small, and large speculators. Once you see this, you can time your entry into the market, with normal technical tools.
Try using this data and you will see when major trend changes are right – the commercials are normally right – small, and large specs wrong!
Trade with the smart, professional, and savvy traders – the commercials.