Friday, August 17, 2007

COT report

The COT is again a bit more bullish than last week. The commercials are now back to doing what they do. They bought as the market went down.

Today I want to talk again about how I look at the COT and some of the mistakes that I think people make.

First off just because the commercials are long it doesn't mean that every commercial trader is long. I read posts that seem to suggest that investors think that since the COT is bullish then all the commercial traders are long and taking a beating during this decline. At any one time there are usually just about as many commercials shorting as there are buying. What I look at is the net position or the longs minus the shorts. There will usually be a difference one way or the other. When that difference swings a little bit too far in one direction then I start to look for a trend change. But just because the net is tipped in one direction that doesn't guarantee that the market will move in that direction. All the COT is saying is the majority of the commercial money thinks the market will move in a certain direction. That doesn't mean that the majority can't be wrong. It's just like a casino. The odds are in their favor but that doesn't mean that the occasional gambler won't win. But by having the odds in their favor a casino does guarantee that they will make money over the long haul even if they occasionally have a losing day or week. That's all I care about is will a system make me money over the long haul not whether every trade will be a winning trade.