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ICT Mentorship Core Content - Month 10 - Commitment Of Traders
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ICT Mentorship Core Content - Month 10 - Commitment Of Traders

Introduction

The speaker introduces the topic of commodity markets and provides a disclaimer that any trade discussion or idea should be viewed in the light of a paper trade, not an actual trade.

ICT Mentorship: Commodity Trading Lesson 1

The speaker discusses how he uses the Commitment of Traders (COT) report to analyze commodity markets.

Raw Data from COT Report

  • The raw data comes from a weekly report released by the CFTC.
  • Look for Futures Contract only in short format under the CME.
  • Focus on commercial positions in the center column where it says "commercial."
  • Subtract long positions from short positions to get net position.

Net Trader's Position Line Chart

  • Use www.barchart.com to plot daily chart with net Trader's position line chart.
  • Display at least one year's worth of price action.
  • Commercial Traders are shown as red line, large Traders as green line, and small speculators as blue line.
  • Visually see hedging programs by commercial Traders against price action.

Understanding Commercial Positions

  • Larry Williams' book "How I Made a Million Dollars Trading Commodities Last Year" was ahead of its time but looking at commercials alone is not enough.
  • Do more research because commercials are usually large corporate producers or users of commodities.

Understanding Commodities and Commercial Hedging

In this section, the speaker explains how commodities are tracked based on fundamental supply and demand factors. The speaker also introduces the concept of commercial hedging and how it is used to manage risk in commodity trading.

Following Commodities

  • Commodities are tracked based on fundamental supply and demand factors.
  • Hershey's has a trained staff to track these factors to keep an eye on whether prices are cheap or expensive.
  • If they think prices will be expensive in the near future, they will be more aggressive about buying to lock in lower prices.

Net Trader's Position Line Chart

  • The net trader's position line chart gives a graphic depiction of the overall net basis.
  • The zero line delineates whether traders are net long or net short.
  • A reading above the zero line means that traders have been net long for over six months, indicating a buy program.

Commercial Hedging Programs

  • Commercial hedging programs involve producers or users of commodities who use futures contracts to manage their price risk.
  • The red line on the chart represents commercial hedgers, while the green line represents large speculators and the blue line represents small speculators.
  • We only need to focus on the red line when tracking commercial hedging programs.

Tracking Commodity Prices from a Commercial Perspective

In this section, the speaker explains how to track commodity prices from a commercial perspective by looking at price action and understanding market behavior.

Price Action Analysis

  • To track commodity prices from a commercial perspective, we need to look at price action analysis.
  • We can remove unnecessary lines on charts once we understand how to read them effectively.

Large Speculators vs. Small Speculators vs. Commercial Hedgers

  • Large speculators represent big private traders with large position sizes, while small speculators represent the less informed crowd.
  • Commercial hedgers are producers or users of commodities who use futures contracts to manage their price risk.
  • We only need to focus on commercial hedgers when tracking commodity prices from a commercial perspective.

Understanding Market Behavior

  • By understanding market behavior, we can track commodity prices more effectively.
  • We need to look at the actions of commercial hedgers above and below the zero line to determine whether they are in a buy or sell program.

Using Historical Data to Track Currency Markets

In this section, the speaker discusses how to use historical data to track currency markets and determine optimal trade conditions for entries.

Downloading Historical Data

  • Download historical data about a specific currency pair of interest.
  • Download years worth of data on COT (Commitment of Traders) data and plot the commercials net long positions and net short positions.
  • Create an indicator that plots the net Trader's position for commercials only.

Analyzing Commercial Activity

  • Look at commercial activity when the market is below the zero line, indicating a bearish or short position.
  • Note when commercials swing from a net short position below the zero basis line to a net long position above it.
  • Use this information to determine optimal trade conditions for entries.

Analyzing Price Action in 2016

In this section, the speaker analyzes price action in 2016 and institutional order flow.

Institutional Order Flow

  • Institutional order flow was bullish from January 2016 or February 2016 until around mid-July.
  • Any time a short-term low was taken out, price rallied.
  • Any time price traded down into a down closed candle, it was supported as a bull shoulder block.
  • All premium PD arrays were always broken through.

Struggle with Japanese Yen Level

  • Price had issues getting above the 1.00 level on Japanese Yen.

Using COT Data to Track Institutional Order Flow

In this section, the speaker explains how to use COT data to track institutional order flow and interpret price action. The speaker emphasizes that even if the COT data is below the zero line, it is still possible to see buying and selling going on.

Understanding Institutional Order Flow

  • The speaker shows how using COT data can take tracking institutional order flow light years ahead of everyone else.
  • A bearish or sell program can be in place for many months while institutional order flow remains bullish.
  • Even though commercials are in a cell program, they can still buy aggressively and cause prices to go higher.
  • Just because commercials are below the zero line doesn't mean we can't see buying and selling going on.

Deciphering Institutional Order Flow

  • Anything above the zero line is bullish, anything below is bearish.
  • It's important not to limit ourselves to just focusing on selling only below the zero line or buying above it. We need to decipher what institutional order flow is telling us at any given time.

Tracking Japanese Yen Commitment of Traders Report

  • Anyone tracking the commitment of traders report for Japanese Yen may find it confusing as price rallies while commercials hold a net short position.
  • Price stayed higher going higher making higher highs and finding support at both shoulder blocks running out short-term lows and then rallying but finding their way through any high or premium array so the institutional order flow all the way through to middle August going into September was bullish.

Understanding Market Structuring

In this section, the speaker explains how to identify market structuring by looking at the six-month range of the highest high and lowest low. The commercial net position is seen with a shaded area, which helps in identifying shifts in market structuring.

Identifying Market Structuring

  • Look at the six-month range of the highest high and lowest low to identify market structuring.
  • Divide the range in half to get a clear depiction of what commercials are doing.
  • By keeping net positions below zero, their hedging program can be deciphered by looking at green nodules.

Analyzing Commercial Activity

In this section, the speaker explains how to analyze commercial activity by looking at different intervals ranging from six months to four years. He also discusses how commercials make highs and lows in markets through buying and selling programs.

Analyzing Commercial Activity

  • Look at different intervals ranging from six months to four years for analyzing commercial activity.
  • Green nodules indicate when their hedging program kicks in.
  • Commercials make highs and lows in markets through buying and selling programs.
  • Commercials build up a larger net long position above the zero line, indicating a bullish basis.

Plotting Net Traded Physician Line Chart

In this section, the speaker advises on plotting a net traded physician line chart to understand COT data. He also discusses institutional order flow and support levels.

Plotting Net Traded Physician Line Chart

  • Plot a net traded physician line chart to understand COT data.
  • Institutional order flow and support levels can be analyzed by looking at up close candles being broken as PD arrays.
  • Commercials have moved to a net long position, indicating a buy program. However, sell-offs can still occur.

Market Advances in Price Going Higher

In this section, the speaker discusses how the market sees the greatest advances in price going higher during certain time periods.

Bullish Market Trends

  • The market was bullish in the past and is currently bullish as well.
  • A fair value gap at 91.50 for Japanese Yen suggests where it might go on a short-term basis.
  • The hedging program is used as a basis for predicting where Japanese Yen might go.

Commercial Hedging Programs

  • Commercial hedging programs are used to lock in good prices for manufacturing commodities or goods.
  • Banks and lending institutions invest and buy based on supply and demand factors they assess.
  • Extreme net positions of commercials can indicate long-term trend reversals.

Short-Term Ranges

  • When commercials are below the zero line, it's a sell program; when above, it's a buy program.
  • Look for small short-term ranges to see where buying and selling is taking place.
  • Ideal scenario: institutional order flow bearish with net short positions by commercials at premium erase.

Understanding Commercial Hedging Programs

In this section, we will learn about commercial hedging programs and how to interpret them.

Key Points:

  • The green shaded area is the best place to buy when the market is creating discount arrays and institutional overflows bullish.
  • Look at the last highest high and lowest low in the last six months and 12 months even if they're above the zero line while that's a bullish buy program long term they could still be doing short term selling hedging programs in there.
  • Blend three different things: program of buying and selling whether they're above or below zero line, hedging program based on range of highest high and lowest lows of commercials in last six months in last 12 months, institutional order flow.
  • Best conditions are seen when both net sum basis agree with institutional order flow and PDA rate Matrix confluences.

Tracking Smart Money

In this section, we will learn how to track smart money by focusing on the 12 month and six month range of commercial net position.

Key Points:

  • Retail traders only look at whether commercials are that long for bullishness or net short for bearishness on the market.
  • If commercials are above Nets zero line focus on 12 to 6 month net long readings. If commercials are below zero line focus on 12 or 6 month range net short positions.
  • Blend these conditions with pdra Matrix and institutional order flow for optimal results in directional analysis.

Blending Everything Together

In this section, we will learn how to blend everything together for optimal results.

Key Points:

  • Everything that we teach in terms of PD arrays, institutional order flow all those things get blended together to get optimal results.
  • Decipher what the commercial actions are whether they're buying or selling and not relying so much on whether they're below or above a zero line as everyone else interprets price using this information.
  • Look at the 100 level here we can see how price went back to the 2014 January highs and July highs and cleared out those equal highs and fell short from that position all the way down to a level that was seen as a discount array in the January 2016 time period.
Playlists: 2017 ICT Private Mentorship Core Content Month 10
Video description

2017 Premium ICT Mentorship Core Content Video Lectures Audio and visuals are exactly as they were distributed in June 2017. CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN Trading performance displayed herein is hypothetical. Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance trading results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results. U.S. Government Required Disclaimer – Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with money you can’t afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results. Trade at your own risk. The information provided here is of the nature of a general comment only and neither purports nor intends to be, specific trading advice. It has been prepared without regard to any particular person’s investment objectives, financial situation and particular needs. Information should not be considered as an offer or enticement to buy, sell or trade. You should seek appropriate advice from your broker, or licensed investment advisor, before taking any action. Past performance does not guarantee future results. Simulated performance results contain inherent limitations. Unlike actual performance records the results may under or over compensate for such factors such as lack of liquidity. No representation is being made that any account will or is likely to achieve profits or losses to those shown. The risk of loss in trading can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. If you purchase or sell Equities, Futures, Currencies or Options you may sustain a total loss of the initial margin funds and any additional funds that you deposit with your broker to establish or maintain your position. If the market moves against your position, you may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice in order to maintain your position. If you do not provide the required funds within the prescribed time, your position may be liquidated at a loss, and you may be liable for any resulting deficit in your account. Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example, when the market makes a “limit move.” The placement of contingent orders by you, such as a “stop-loss” or “stop-limit” order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders.