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

CHAPTER 6

Large Traders ... Not Quite As Good As You Think

The Big Boys were buying today.

Numerous times I’ve been told by brokers and fellow advisers that the big guys had come into the market on the buy or sell side as either an explanation of what happened or perhaps a hustle to get me on one side of the market. The truth of the matter is, as you will soon see, that the “Big Boys,” the large traders from the “Commitments of Traders” (COT) report, do not have the stellar trading record you might expect.

There is a reason for that, which I will explain. First, though, let’s take a look at their net long/short position in a variety of markets so we can get a sense of how they interact with price activity and see if their trading might help us.

I’ll start with gold, for no particular reason other than it is widely followed and traded by the Big Boys all over the world. There are large positions—wagers if you will—plunked down every day in Hong Kong, Taiwan, London, Singapore, and Sydney on an assumption of the future direction of this market. Figure 6.1 shows the weekly price of gold and below it the net long/short position of the large traders.

This reading, when high, says they have been doing a lot more buying than selling. In fact, the further above the zero line, the more long positions they have. If the index is far below that line it means the large traders are on balance net short ... that they have a lot more short positions on than longs.

It may help if you know just ...