Commitments of Traders : Strategies for Tracking the Market and Trading Profitably

222 Pages·2005·6.83 MB·English

by  Floyd Upperman

Commitments
of Traders
Strategies for Tracking the
Market and Trading Profitably
FLOYD UPPERMAN
John Wiley & Sons, Inc.

Commitments
of Traders
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Commitments
of Traders
Strategies for Tracking the
Market and Trading Profitably
FLOYD UPPERMAN
John Wiley & Sons, Inc.
Copyright © 2006 by Floyd Upperman. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Upperman, Floyd, 1966–
Commitments of traders : strategies for tracking the market and trading profitably /
Floyd Upperman.
p. cm. (Wiley trading series)
Includes bibliographical references and index.
ISBN-13: 978-0-471-71965-6 (cloth)
ISBN-10: 0-471-71965-X (cloth)
1. Commodity exchanges. 2. Stocks. 3. Investment analysis. 4.
Portfolio management. I. Title. II. Series.
HG6046.U66 2006
332.64—dc22
2005023676
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1
Contents
Preface vii
Acknowledgments xv
CHAPTER 1 The Commitments of Traders Report 1
CHAPTER 2 Trading with COT Data 15
CHAPTER 3 Understanding Net-Commercial and
Net-Fund Activity 31
CHAPTER 4 The IMPA Setup Trade: The Initial Steps 43
CHAPTER 5 IMPA Setup Trade: Placing the Trade 55
CHAPTER 6 Plunger Patterns 79
CHAPTER 7 Seasonal Influences 95
v
vi CONTENTS
CHAPTER 8 Swing Trading and Other Strategies 109
CHAPTER 9 IMPA Trade Examples 123
Appendix 151
Index 193
Preface
T
his book describes and explains my proprietary trading strategies, in-
dicators, and methods developed over the past decade. Among my
most treasured proprietary indicators are those derived from an ob-
scure weekly U.S. government report, called the Commitments of Traders
(COT). My approach to incorporating this data into my trading is the main
topic discussed in this book.
As insightful as I have found this data to be, there are limitations to its
use, and more importantly, there are proper and improper ways for a
trader to act on it. Traders need to recognize and understand the limita-
tions of any indicator or data when making financial decisions; it is ab-
solutely crucial to interpret the COT data properly and incorporate it into a
complete trading system that also uses traditional technical analysis. My
own position trading approach includes statistical indicators derived from
the COT combined with unique price patterns, price structures, and price-
derived indicators based on traditional technical analysis.
A common misconception with the COT is that the commercials al-
ways represent the “smart money” and that they are always or almost al-
ways right in the market. This is not entirely true, as I illustrate in this
book, but there is more to it. To unlock the potential of the COT data as a
tool for trading, the user must dig a little deeper into the data instead of
simply honing in on the net-commercial position.
The commercial data can be examined more thoroughly by separating
it into its two entities (commercial producers and consumers) and by ap-
plying unique indicators to each component. This is discussed in detail in
later chapters of this book.
Most of the COT indicators I have evaluated over the years focus pri-
marily on the net-commercial position. However, additional insight can be
gained by looking at the two individual entities that make up that position.
There is a balancing act going on here between the two commercial enti-
ties. One is the consumer of a certain commodity and the other is the pro-
ducer. In a perfect world, the producer produces just enough to supply the
vii