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

CHAPTER 5

For Every Insider There Is an Outsider

One man’s pain is another man’s gain.

The old comment that God must love poor people because he made so many of them is a fitting reference to stock and commodity traders. I have seen estimates stating that as many as 90 percent of public traders lose money trading, down to what I think is more accurate—that about 80 percent of public traders are net losers.

To me that’s just great news—they have to lose that money to someone, hopefully me. It is also bad news—I don’t exactly take pleasure in others’ financial demise. But it needn’t be that way. If the great unwashed masses would just study, learn, and buy a book or two (as you have), they would greatly enhance their ability to walk away winners. Instead they take tips from brokers, bankers, brothers-in-law, barbers, and babes. That’s just so dumb.

Want to see how dumb that is? I’ll show you. Once a week, along with the “Commitments of Traders” (COT) report, the government guys also give us the net long/short position of small traders, “others” in their report. In this fashion we can see what the public is doing and see how right or wrong they are about the markets. Figure 5.1 reflects weekly prices of the commodity in question, and underneath the price area you can see (in the “COT Small Spec” area) the net position of the little guys, short subtracted from long. Look for the bold horizontal zero line on the chart in Figure 5.1 to see their net long/short position.

What you will ...