Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often?
When one of these groups acts, “the odds become high for a change of trend”
by Bob Stokes
Updated: November 19, 2020
It's useful to know who is doing what in particular financial markets.
You'll find out why as we proceed, however, let's first start off with some basic background information.
The Commodity Futures Trading Commission follows the activity of three different groups of participants in the commodity markets: small traders, large traders and commercials.
A classic Elliott Wave Theorist provides insight as to why only one of these groups is usually right at key turns:
Small traders are typically on the wrong side of the market at the turns. You might think that large traders, because they have a lot more money, are right a lot, but they are likewise usually wrong at the turns. The commercials are the only participants in commodity markets who generally buy low and sell high... Commercials are in the business of manufacturing, not speculating, so they think economically rather than financially. They do not perceive commodities as investment items, so they're not participating in the herd.
Large speculators (or traders) are comprised mainly of hedge fund managers. Let's focus on this group, along with the commercials, as we review the commodities market.
Here's a chart and commentary from our November Elliott Wave Financial Forecast:
The top graph on the chart shows the weekly CRB index from March 2011 to the present. The middle graph shows Large Speculators' combined net-long position in 17 active commodities as a percentage of total open interest. The bottom graph shows the same for Commercials. Large Specs are trend-followers who usually increase their net-long positions as prices rise, and vice versa. When their size becomes extreme relative to historic norms... the odds become high for a change of trend. The Commercials usually take the other side of the Large Spec trade... Large Specs are currently net long 25.46% of open interest, their largest position on record.
This information about the actions of major participants in the commodities market is valuable, yet -- an investor needs to know more -- namely, the Elliott wave count of the CRB index.
This information is provided to subscribers and you can find out what they know.
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