Much of successful trading, like economics, comes from making small changes that over time, affect the big picture. Today, we’ll discuss a marginal improvement to our Commitments of Traders swing trading calculations that improved performance across all of the markets we trade and that leads to big changes in the bottom line over time.
As many of you know, our our primary focus is the analysis of the Commodity Futures Trading Commission’s (CFTC) weekly Commitments of Traders (COT) report. More specifically, our analysis lies in finding and quantifying unsustainable position imbalances among the trader groups. In the past, we’ve measured this against both historical levels and recent changes in actions in order to quantify both market sentiment and market capacity among the different trading groups. Today, we’ll provide Equites.com’s readers with a first look into our new method of calculation. Why we changed and what it’s current telling us about the Chicago wheat market.
As most of you know, we focus on swing trading opportunities both for our own accounts as well as the money we manage. We do this for several reasons and we’ll include a short-term setup at the conclusion of this piece. However, today’s main focus will be on using Commitment of Traders analysis within an existing trend to determine an entry point and time in the current soybean meal market. The lesson, however, works across all commodity markets for which Commitment of Traders data is reported.
The grain markets may finally be perking up in spite of declining energy costs and record harvests. We’ve previously mentioned the oat futures as the first of the grain markets to budge in, “Combining Buy Signals in the Oat Futures.” Today, we’re looking at soybean meal and the set of indicators we use to drown out the voices of hyperbole both in print and on TV. Quantitatively speaking, the soybean meal futures have triggered a COT Buy Signal. More importantly, you can see the consistency and magnitude of these plays on the chart below.