Be careful how you interpret the COT data KC as the different players will establish their positions for different reasons, especially in a crop market like corn where the commercials use Futures to hedge their crops...not to make money trading. Don't get Tom going on this...the COT reports have a tendency to make his blood boil. ;-)

While I will use COT's on occasion for input, I would NEVER trade solely off a COT chart. What I look for in a COT chart is the extent of the different players participation as well as the changes in their positions. I find this much more helpful than actually seeing which side of a trade each group is on.

Early in the month I kept writing about how "top heavy" the silver market was. To my surprise no one ever asked me how I knew the market was top heavy, even after prices made their rather drastic decline on December 8th. I knew the market was top heavy from the COT report. I could see that the way the players were stacked that the market could be due for a quick reversal after encountering serious resistance...which is what it did.

Briefly you need to understand that the Funds and Small Specs are in the market short term. If they're not making money right now, then they are out. The Small Specs have the least staying power, and "normally" don't control enough of the market to make too much of a difference either way. The Funds on the other hand normally control a huge amount of contracts and they're rather abrupt entry or exit can cause prices to swing considerably. This is how we end up with those huge one day moves apparently out of no where.

The commercials are the producers/end users of the commodities we trade. As I mentioned they use futures to hedge their positions and as such the side of the trade they are on is usually irrelevant to the small trader. A big change in the commercials' position can often lead to a rather substantial change in prices on the charts, although this can often take weeks to materialize...another reason not to trade the COT's blindly.

We'll have to get Tom to unplug his speakers one day at the webinar and I'll give you a quickie overview on how I use the COT charts. Remember, the key is INPUT ONLY...use the support and resistance on the charts to make your decisions. It's much easier and more reliable too.

Erich
http://www.tradershelpingtraders.net
http://www.supportandresistance.com