Commitment of Traders Plug-in
In this Track 'n Trade trading training video, I want to continue our discussion of the psychology of the Commitment of Traders.
We're looking at the Lumber or the random length lumber contract, it's the July 2004 contract. You'll notice that we've been going up through a very nice, long uptrend here. We were starting to get a retracement. We have our nice little head and shoulders formation in here. You can see that we've made our retracement, we've broke below the neckline, as we expected. The market is starting to drop and come back down.
Let's look at how the Commitment of Traders reacted to this market. First, I want to run through quickly and just look at some of our favorite indicators, and how they reacted to this market. We use them in a combination with each other. Make sure that we always do that with a combination of recurring price patterns, indicators, Seasonals, and Commitment of Traders.
Let's go through and we hit the AD; AD gave us a little buy signal right down here, very nice, very nice place to get a buy signal. We got a little bit of a whipsaw in here, as this market started to change it's mind, started to go sideways, lost some of it's energy. We have a sell off and then a buy again right in here. Here's a little whipsaw, then as this market made it up through this long trend, we got our sell signal on AD right there. Very nice indicator, we really like the AD.
Let's go onto the CCI. The CCI whips us around a little bit more, but what the CCI indicator does is it tries to get us to know where the tops and the bottoms are. As this market moves up in time, it doesn't know where the top is, any more than us, but when it gets a signal or a notification based on it's mathematical formula it drops in a little arrow and says this might be the top. Oh, no, it's not; mathematical formula comes in and says, well, based on what the prices are doing this might be the top. Market comes down, oh, this mathematical formula says this might be the bottom. Now, again, this is all based on mathematical formulas and how the price of the market is reacting to the math formula given.
We see the market coming up and then we start trying to pick tops again. Now, we're starting to try to pick bottoms again, in these little trends as we move up and down the market. Look at that, very nice picked the very top right there, very bottom right there. We got a couple more bottoms right there. But still, it's quite a few, quite a lot of little arrows in there; it get us a little confused. That's why you never want to use just one indicator all by itself.
DMI, again, very good indicator. Picking a top, a bottom. This one says this is a top, this is a bottom. Top of the trend, bottom of the trend. Moves all the way up here, doesn't give us a sell signal until a little bit later here. bottom of the trend, top of the trend. So there's the random length lumber with DMI.
Let's look at the Mac-D. Mac-D again tries to tell us where the tops of these trends are, here's the top of the trend, another top of the trend. It's doing a very nice job, right along there. There's a bottom, saying let's pick up some contracts, start accumulating. Here's a sell signal, another sell signal all the way up that trend, very nice. We really like the Mac-D, it's one of our favorites.
Momentum, momentum tries to give us a little bit more help. This tells us top, bottom, top of the trend, bottom of the trend, top of the trend, bottom of the trend. A lot of tops, a lot of bottoms here, a lot of arrows. Giving us a little bit of confusion here.
Let's look at the %R. %R again, tries to tell us where the tops of each one of these little trend reversals are. Bottom of the trend reversal, top, top, 3 right up there, at that very top. We're getting buy signals down here, even though our recurring price pattern is telling us to go short; trying to pick some of these bottoms in here. Still a little bit of confusion in there on the %R.
Let's look at the RSI. RSI again, tries to pick up some of these tops along the top. There's a top, it's picking a little bottom for us. Telling us this might be the top, no, this might be the top, no, here's the top, here's the bottom. So we like the RSI, it's pretty good. But as you can see we never want to rely completely 100% on the arrows given by the indicators. You want to use them along with our other strategies.
Our Risk and Money Management strategy. If you have that CD, you want to pick up the Risk and Money Management CD, it helps you move your stops and know what to do in those cases. Here's a nice little tops, being pointed out by the fast Stochastics all the way up the trend.
Let's go to the slow Stochastics, again, trying to pick the tops. Here's slow Stochastics in here. Here's a top, here's a top, here's a top, here's a top, here's a top. These are all indications and places for you to tighten up your tops. Say, okay, be careful this might be a top.
Now, let's go and look at the Commitment of Traders, and just see what the psychology of the Commitment of Traders is. These guys start telling you, look, we're going to start accumulating contracts here, and we're not going to stop until we get clear up in here and start liquidating clear up into this point here.
A lot less confusion using the Commitment of Traders as a guide. I have some confusion over here, you can see that they're even a little confused. If you look at the markets, you see down here in the Commitment of Traders where they're starting to decrease the number of contracts you're carrying. You'll notice that in this area, they're carrying movement right here, you can see, there's no movement, market is going sideways.
This is very powerful for you, you'll want to look for these areas on contracts. When you see an area like this where all the contracts area almost flat, almost zero, that's so powerful for you. What that is telling you, is that even when the market is going sideways, the commercials and the large firms, they're all indecisive right now, too. They're all neutral in the market. Generally what happens is when these things start to break out, that's the direction you're going to see a large run. You see the market going sideways like this, watch for these areas. See those big blue commercials starting to buy? That's when you're going to get a buy signal, that's when you're going to start to move up. Again, if they start to go down, that's when they're going to start to go down.
You as a little guy, a little trader, you want to follow what these big blue guys are doing. That's your big indicator. You want to watch what these big blue guys are doing, because those are the big commercial traders, they're not the hedgers, they're not the commercial farmers, they're not the factories, that's what these red guys are. You don't want to be doing what they're doing. That's not your position is. You're a speculator just like blue guys. The big blue guys move the markets, you do what they do, you follow their example using your own technical indicators and your own recurring price patterns, and you're going to be very well off.
You're going to be able to use them as a guide, using your own reasons for getting in and out of the market. You're going to have a fantastic experience trading commodities.