We have touched on this term that we have called ‘conditional’ and its importance as a starting point to give us the best chance of making profitable trades.
Conditional, is what moves markets. It is the foundation upon which we determine which way the trade will go. It beats guessing.
We all know by now that I favour the COT (commitment of traders) report for my conditional; for information to help the probability of a trade being successful. However, a simple long-term or weekly trend is also an excellent conditional. The conditional is something that gives us an advantage.
For many (the crowd) the conditional is news events and the trading suggestions found in trading or investing publications. (Good luck on that one). Most trade decisions made by small speculators, the crowd, everyday people like you and me, get it wrong. A contrarian trader, someone who takes the opposite trade to the ‘crowd’ – if that were the only conditional method available – would be significantly more successful than the crowd.
The ‘get it wrong’ bit is no better for large speculators. The hedge and fund managers. Indeed, their record is little better than the crowd. The commercials, however, are correct most of the time. Commercials, depending on which categories we are talking about, are the producers or end users of the commodity or futures market. Big money.
Commercials tell us which way the trade winds might blow. They don’t tell us how hard it will blow. And we are not sure from the commercials whether it will blow next week or next month. But the commercials do tell us that the blow will happen sometime and in what direction it will favour.
Good enough. All we have to do is be patient and match the commercials, our conditional, with the specific recent trend and buy or short using our chosen price system.
Here is the past 3-year Gold net position of the Commercials. The October 2012 short position is clear. Notice where we are now, the green arrow. However, it’s early to buy gold as the recent trend needs to establish. But you probably get the general idea behind it all and the importance of conditional before anything else. It’s something that gives us that needed advantage when we trade.