[I]I continue now a new series here, I write here down my own thoughts about my second COT book as I read it. I write down anyway always for myself what I think is important to look it back later, so I decided why not to post it here too? Important: I write down the own words of the author, in the right order as it comes in the book. However I will not structure the different thoughts and do not write down which pages they were. I just want to mention the sentences which I find important for myself. This is not the same value for you as reading the book (hopefully you will all read it when you have the time for it), however it is better than nothing. I also make my own summary in the end of each post.[/I]
[B]Watching the Commercials[/B]
Small speculators: the public on balance loses money trading. This means we ant to do the opposite of them in almost all instances. They are great unwashed masses, uneducated to the ways of the markets. They are great unwashed masses, uneducated to the ways of the markets. Emotions and rumors rule their trading strategies. We can key off this crowd by doing the opposite of what they do. In fact, when I show you how I use all this data to construct some market indicators you will see that the public, or small traders, usually do just about the exactly opposite of the commercials.
[B]Understanding the Commercials[/B]
I prefer using weekly charts for several reasons: we get the information once a week, not on a daily time frame. There is less data to follow. I like to keep it simple, and these simple weekly charts are what I have always used.
I admonish you to keep this point in mind: it is the extremely bullish or bearish stances the commercials make that tip us as to what to do. If they have just begun more selling than buying, unless that is an extreme level, it means very little to us.
[I]Lesson one in using the commercial data: multiyear highs in net buying beget bull markets. Multiyear lows in net selling beget bear markets.[/I]
[I]Summary[/I]: you might ask if the book is very boring that I only write so little about it. Well it is not the case. The fact is that we already know everything and I have written it down from the other book so I do not repeat myself. I like the style of Williams. The introducing part was pretty much the same thought. So you might ask why do I write only about small speculators in a chapter when it is called “Watching the Commercials”. It has to do that I found in both chapter 1 issue where Briese and Williams do have different opinions right in the beginning of the book!
Here are the issues:
→ Briese was more cautious about small speculators, for this reason I chose to write out this section from the chapter. Briese says the small speculators are hedgers and speculators as well so it is hard to tell if they win or lose. Williams clearly states they lose money.
→ Briese states it makes more sense to follow non-commercials on net-positions extreme because their pocket are not as deep and might be exhausted on the extremes while commercials have deep pockets and can push through the extremes. At the same time Williams argues it makes more sense to follow commercials on net positions extremes because they have the best information and they are the people who know the most what to do.
I will read the book further on and keep you updated if they have different standpoint or they come pretty much to the same conclusions.
Make your bets before the event!