Customer Reviews

Trade Stocks and Commodities with the Insiders: Secrets of the COT Report (Wiley Trading)

5 star:		(12)
4 star:		(5)
3 star:		(2)
2 star:		(0)
1 star:		(3)

 

 

I just finished reading Mr. Williams book. I do not know Larry and I have never taken any of his courses. This is the second book I have read by him and I loved it. It is interesting to read other reviews and how they like it or dislike it. Most of the opinions seem to be based on whether or not Larry's ideas mesh with their own view of the markets. I trade Bond futures short term, they fit my style. This book deals with a longer term horizon than what I am used to, but, I could'nt put the book down. In my estimation its easier to identify short term moves, yet Wall Street and the general investing public's obesssion lies in trying to guess where and when the markets next big move is going to come. As a short term trader, I can use the COT data he points out as a high probability set up to formulate my game plan. I want the best odds possible. Larry does a great job testing data with no assumptions to get real, usable data that could have a significant monetary value to your investments or trading by dispelling alot of commonly held beliefs about technical analysis. I am an avid student of Technical analysis and I think the Studies that Larry has conducted provide the BEST possible roadmap and probable direction of the markets ahead. Its up to the individual to use that information accordingly. Larry's COT indicators provide great setups. So now its time to think. How can you formulate a strategy based on your own game plan to capitalize on this scenario. If your looking for someone to tell you when to buy and when to sell, you're never going make and money in this game. Rmember what Henry Ford said. "Thinking is the hardest work there is, which is probably the reason why so few engage in it."

At first, skimming through the book was disappointing...There is virtually no discussion on trading stocks per se. The title is slightly misleading in that respect. However, if you are a commodity trader, it is likely that this book will reinforce some of the basics, and then provide additional insights into using the COT report to arrive at more "reasonable" trade decisions. A good portion of the introductory chapters deal with what the COT report contains and what to look for. Then, the author discusses the impact of actions of various groups' (commercials, being the primary group of interest) trading actions/biases. Issues related to volume, open interest, etc are dealt with interestingly. The central theme of the author does seem to advocate a very contrarian approach for most of the time, and the interpretations of the indicators he discusses support such an assessment. In addition, there is some indirect/subtle, not-so-annoying marketing of the author's products/website. However, the average investor who doesn't want to subscribe to any service that provides some of the "customizable" indicators the author encourages traders to use, may not find investing in this book valuable. But then, most commodity traders are 'sophisticated' and likely to have such services. In short, if you are a stock trader, avoid the book regardless of what the title says; but the book is valuable for a commodity trader or for someone who wants to understand some of the mechanisms involved in commodity trading.

In my opinion, this is Larry's best work yet. It is a trend-followers answer to retracement entries and gaining insight into which trends may be sustainable.

For stock traders, don't miss the point like some of the earlier reviewers did. If you are chasing beta, then this work will assist you. For example, many stock sectors will respond to a move in the underlying commodity, from the bond sensitives through to resource stocks.

With the growing importance of the trend followers to take markets to extremes, Larry's new work filters out the occassions when the commercials are not in control, ie, when they make up a low percentage of open interest.

All serious market participants should find this work insightful.

I have several of Larry's books and some are really good. But this one is probably the worst book I have ever read coming from him. The title is misleading, the subject of stocks is almost totally ignored. The information revealed on commodities is not worth much and a lot of the buying and selling points are very subjective. No exit strategy is ever discussed. The book has little content and a lot of charts and silly jokes.

The sole purpose of this book is to sell you Larry's paid recommendation services on commodities and stocks.

This is the best book on trading and investment I have ever read, perhaps "Intelligent Investor" by Graham comes close. You need to read this book with the COT data downloaded, a laptop and excel and work through it, like a textbook. The work is worth it. It has lifted the veil from my eyes, other methods are very hit and miss. The oscillators described are the most powerful "Nonsense/Noise Filters" ever. Elliot Wave, Gann, Swing, Geometry are all fanciful notions with no predictive abiity on their own. Classical tech analysis, Candlesticks and RSI, Volume Analysis are necessary but not sufficient indicators. The only thing that works is the real fundamentals which are impossibe to get, so this book shows you how to follow those who do have them. Jim Rogers once said, "I never met a rich technician". Soros never mentioned technical analysis in his books neither did Buffett. There are so many talking heads, and doom and gloomers. CNBC is perpetually bullish, who to believe? The advice is sound and no nonsense. There is no religion or dogma in trading, what works is what works. This book is a classic.

This is the first book that I've read that shows how to properly use the Commitment of Traders report. In simple language, Larry systematically walks readers through the use of the information contained in the COT report to set up trades -- he even discloses a new indicator that is much more powerful than any other index related to the COT report I've seen thus far. When I started using this indicator in my trades, I saw my profits soar. Definitely a must have for the serious futures trader -- whether an expert or a novice!

At first i was a little aprehensive about buying this book due to the reviews. I have a couple books by Larry. I trade consistenly in the stock market and apply some of Larry's past setups with a lot of success. I am new to the futures game and this book made a lot of sense to me. It was easy to follow and understand. Great book!!!

COT report reveals some very interesting market correlation in currencies and commodities - at least according to my results. Do the testing and decide for yourself...

Larry Williams spent over 4 decades of trading and if you read all of his materials you can see a succession of theory development and coherent market analysis. Market environment constantly changes - so techniques may change over time - but the underlying market principles don't change. Smart money is ahead of the latest fad and strategy that performs well in the current cycle - it's their game.

This book tops my collection of 40+ books from all major trading materials - supported by patient study and backtesting.

If you are a beginner you'll probably try to beat the market with some mathematical setup. Good for you... also do some sports betting since statistics and math will tell you everything you need to know - right?

But once you experience few losses, emotional aspects of trading, understand capital conservation, and optimized money growth - you will eventually opt out for a more organic approach. You need some reliable information on market movers and shakers - it beats any mathematical system tested so far.

COT reports are like X-ray goggles of the market - so be a market doctor and learn how to read setups. It may not happen overnight just like anything worth learning - and they may be interpreted differently in some cases - so learn how to manage risk.

Also read some Smitten's books on Jesse Livermore. When Livermore was asked by his friend how to make quick money in the market - he replied: "How do you make quick money in brain surgery?"

(i).Thesis / Book Purpose
"I heard Goldman's was selling bonds the other day.... ",
"General Mills has a massive long futures position..."
We have all heard stories like that, usually when the market has been coming off some impressive rally or decline. However most of the times as the market turned the opposite direction, such statements proved to be equally short lived.
Nevertheless is there really a way of knowing what the "Big Boys" are doing on a collective basis ?
Welcome to Larry William's "Trading Stocks & Futures with the Insiders", the first (and only) book ever written on the subject of analysing commercial trader positions using the Commitment of Traders (CoT) data provided by the CFTC. The book's sole purpose it to get you in investment alignment with the largest participants in each futures and option market. It is an alternate way of viewing the fundamentals by tracking the footprints of the largest market participants' view of each underlying market.

(i) Organizational Structure:
The organizational structure of the book is not that apparent at a first glance, but the chapters can be roughly rearranged and "pigeonholed" in four different thematic categories as follows:

1. The Market Participants from a CoT point of view
Chapters 1 & 3 are about the commercials, an intro to their motives, mistakes and what to look for.
A thorough description of the CoT report contents as provided by the CFTC is given in chapter 2.
This is probably a chapter for those with the intellectual curiosity to know how the CoT data is gathered in its final format. Chapters 5 & 6 describe the operations of the Small and Large Traders categories (from a CoT point of view) respectively.

2. CoT Analysis
Chapter 4 is the first attempt to "quantify" commercial activity through the CoT Index (first introduced by Curtis Arnold). Chapter 10 features how to view the commercials vs all the market alongside other accumulation / distribution activity. Larry then goes to construct some custom (price-based, non CoT) indicators and then uses them in conjunction with seasonality. During the last part of the chapter, the EMH is "attacked" with some simple systems / tests. Chapter 11 presents a synthetic CoT index, however the specifics are not disclosed. Chapter 13 features another version of the CoT index, examples of how to use a simple CoT system that combines CoT data with a trend-following filter. Additionally, another intermarket system for Gold using the US Dollar is combined with seasonality. Lastly chapter 15 shows an example of CoT analysis on the bond market.

3. Volume & Open Interest
In Chapters 7 - 9, Larry deals with one of the most misunderstood aspects of technical analysis. Properties of volume and open interest (OI). Larry exposes myths and explains how these interact and how they can be used in context of the strategy. In chapter 9 Larry expands in the topic of OI, by taking a more thorough view that provides insight into OI quality.

4. Issues general about Trading
Chapter 12 is about stop importance and geared towards the novice. Discussions on preframing, and mental preparation, a sample long term exit strategy, entry & exit strategy adjustments according to the nature of the trend, bad trading habits. Chapter 14 is aimed at highlighting the use and abuse of technical analysis and the ineffectiveness of tools such as Fibonacci, candlesticks, chart patterns and formations.

(ii) Audience & Style of writing:

The book is the first on the subject of commitment of traders data analysis. Thus the largest part of the book's audience is by and large "beginners". Either literally or professionals uninitiated to CoT analysis. Larry however has managed to accommodate both audiences, by keeping on one hand the strategies and style of writing geared towards the less quantitatively inclined beginners, but providing enough ideas / hints for the seasoned professionals to work upon and to expand research methodologies.

Since CoT data are weekly, and analysis is mainly geared towards big picture views, consequently the book is not recommended towards day-traders / short-term traders. Additionally among the medium/long term community, the ones with a contrarian slant will find themselves in line with the philosophy exposed. Although the material is primarily used by futures/option traders, stock investors may also be utilise CoT data either directly (through Larry's advisory service) or indirectly (focusing on sectors that exhibit a high degree of correlation to underlying commodities). So although CoT is not suited for individual stock picking, it could prove to be very useful for identifying sectors (which according to academic studies explain 60% of a stock's performance). Therefore criticisms that the Larry has not included much stock-specific analysis may be true, but fail to see past the obvious.
As far as style is concerned most of the work is aimed primarily towards discretionary (or quant-guided traders at best), not completely systematic ones. However there are examples of such attempts.

The book is easy to follow, non-technical and mostly narrative. Larry manages to keep reader interest by using analogies from life to trading (how fishing in Montana is similar to trading, p.80) the common aspects of driving and trading (p.123) and the common mentality shared by trapeze artists and trading (p.123). The "emotional" qualities of writing are apparent in the use of humour and wit.

(iii) Main Points / Bottom Line:

Trying to distil the author's words of wisdom conveyed in the book in a few points would be:

1. Markets carry an enormous amount of randomness, but are not totally unpredictable.
2. Focus on the "big picture" and the fundamentals.
3. A way to follow the fundamentals is through CoT analysis, and by focusing at the extreme readings of commercial activity in particular (among other CoT tool readings).
4. Technical Analysis on its own is not productive, thus it is advisable to follow the forces that "move" the charts. A lot of Technical Analysis tools are of little use.
5. CoT analysis is not a market timing tool. It is a "big picture" technique.
6. No methodology is perfect, and the same applies to CoT research. Thus best results are obtained if CoT analysis is used in conjunction with other tools, such as cycles, seasonality, technical triggers, etc.

(iv) Degree of analytical exposure :

After reading the book, one of the most obvious conclusions is that Larry is a stern master in CoT analysis and an authority in the field. A lot of the ideas he exposes are just an exhibition of how much work needs to done in this particular area of research.

All of the examples are simple in computational intensity (as the author is the first to admit), but serve as an "idea generation platform" to those that wish to look past the obvious. Those that are looking for "easy answers" (exact system rules) or "math intensive" illustrations, are missing the point that Larry makes.

The CoT data can be used in either standalone format (chapter 4), or as model components. The illustrations are simple but illustrative of the possibilities. A simple trend-following application for high probability setups (page 150- 153), CoT used in conjunction with intermarket analysis (p.154), seasonality (page 156), custom indicators, sentiment. Although the examples provided are simple in nature and not suitable for stand-alone use, they do provide a useful illustration of the effectiveness of this analysis technique and the importance of looking past purely price-based, trend-following methodologies.

The examples provided to make the aforementioned points are mostly chart based.
Quantification of the data is in the form of normalised indicators (such as the CoT index, in chapter 4), oscillators (to study open interest activity in chapter 8), trading systems / setups that provide threshold actionable overbought/oversold levels, ratio smoothings (chapter 13).

Hypothetical trade performance statistics are reported in the form of dollars gained on a per contract basis. Precise entry and exit rules are not provided since the main point is to highlight the magnitude of the trends that can be spawned by CoT "signals", rather than actual trades / positions. CoT analysis (as the author repeatedly states) is not a precise market timing tool.

However, although examples are drawn from all asset classes, it would be more beneficial to the reader if there was a more extensive market coverage, even in the form of an appendix providing visual / chart based evidence for strategies. Another omission, is that although the author does point out that the methodology is not perfect he does not provide in depth causation for commercial signal failure, how to identify and deal with it. These issues are dealt in his advisory service.

(v) Comparative Evaluation
Since the book is the first of its kind (solely devoted to CoT analysis) it is not possible to do a comparative evaluation, as it would not serve justice to authors that have devoted a few chapters on the issue.


(vi) Possibilities for development
It this writer's view that the there is considerable scope of further research for CoT analysis (several ideas already being in investigation progress), and applied as part of a Decision Support System or integrated into a more systematic structure (there are already some papers on the subject from the academic community). Like all pioneering manuscripts, this book sets the foundations and fundamentals tools upon which further research will be done. A fundamentally robust technique, which means that it is able to sustain market environment changes (regime shifts).


If you would like additional information,
please refer to the conversation/ interview I had with Larry
on the subject of Commitment of Traders Analysis and Trading

Alex Spiroglou

I have read the other reviews and found them to be inaccurate. The COT report is unique to futures however Larry has developed another indicator that provides a similar indicator that is applicable to stocks and futures markets that do not have COT reports available. Exit criteria are discussed on numerous occasions. While entrances are subjective Larry mentions this repeatedly, saying that trading involves 2 steps: 1) setup, which the COT reports can help provide and 2) entry trigger, which he provides some simple techniques he has used over the years.

While there are references to his advisory and educational services as well as the data/charting company that he uses they are not simply marketing gimmicks. When I study analysts, advisors and the like I prefer to be able to exactly duplicate their studies and verify them for myself and Larry's references are very beneficial in that regard.

Larry is truly one of the good guys in this oft misunderstood industry. He has been around for a long time and hopefully will be around for a long time to come.