Trade Stocks and Commodities with the Insiders: Secrets of the COT Report

CHAPTER 3

Understanding the Commercials

A Record of Their Buying and Selling

 

 

Timing has a lot to do with the success of a rain dance.

—Old Indian adage

 

 

 

Now that you understand who the commercials are, I want to show you the history of their actual buying and selling over the past 20 years so you can begin not only to learn their trading or investing style but also to better understand how these guys and gals operate in the marketplace.

The most common assumption is that if the commercials go net long (they have more contracts on the buy side than the sell side), prices will rally. This, as you will see, is not quite the case. Commercial buying and selling is not like a light switch that gets turned on and then markets immediately rally. Far from it—there is a subtle nuance to understanding the commercials and how to profit from them. In Chapter 4 I explain my favorite indicator to focus on their activity. Until you understand the basic way they accumulate and distribute, you will be confused. That’s the purpose of this chapter—no, not to confuse you, but to make certain you are fully cognizant of how the commercials enter and exit the markets.

It took me many years to appreciate and understand the subtleties of this esteemed group of speculators. My job, in this book, is to transfer as much of the knowledge to you as possible in the shortest period of time. I learned what I did by looking at charts—chart after chart, in fact, so I have a few for you to cut your teeth on. ...