Why Few Correctly Hear The Signal The COTs Send

The basic reason 85% of investors lose money on a regular basis is that they confuse themselves with a minnow in a shoal trying to avoid a predator or a goose in a flock flying south for the winter. They want to be part of a herd so they are safe. Mathematically 51% of people investing in anything have to lose money because of friction in the trade consisting of the bid-ask spread and commissions. If you want to be part of the herd, you will just give your money away.

To truly understand the signals coming from the Commitment of Traders put out on most Fridays by the CFTC you need to rethink most of what you have been told because virtually no one looks at the COTs correctly.

Think of Las Vegas. You go out, walk into a casino and look at all of the people. There are two different sorts. You have the gamblers, the punters as it were, and you have the house. Everyone is one or the other.

Trading commodities is exactly the same. In the commercials you have producers and consumers of the commodity. The producers are natural sellers at high prices and the consumers are natural buyers at low prices. In markets other than the metals, the commercials are normally neutral, one side wants to sell high, the other part wants to buy low.

On the other side of the trade you find the speculators, they are the gamblers in Vegas. You must remember, commodities is a zero sum game, each contract has a buyer and a seller. If you buy a contract first, eventually you have to close the contract by selling it or you must take delivery. If you sell a contract first eventually you have to buy it or make delivery. There are no “naked shorts” in commodities, it’s not possible and when you hear the term, you know you are dealing with a flimflam artist or someone so ignorant of commodities that they don’t understand the rules.

The speculators are the gamblers in Las Vegas and in the commodity pits. They are most comfortable buying at tops and selling at bottoms. They are the herd that almost always loses because of their emotions and desire to be part of the group.

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