The large users or producers can often identify deteriorating conditions in the physicals before any real deterioration in demand or supply is noted publicly. This lack of public notice is more or less due to a lack of interest at the right time. Why? The public tends to follow rather than lead. By the time the public finally reacts, a good bit of the move in the market has often already occurred.
The public (by way of the media) tends to focus on current events and not on future perceived conditions. The news is always focused on what is occurring right now. Today’s news, however, isn’t going to help anyone identify trends in the futures markets because the large commercial participants in the market are focusing on future perceived conditions. In fact, once the actual disruption in supply or demand has occurred and hits the news, commercials may have already adjusted their positions on paper.
Indeed, those paper adjustments need to be closed out to fully offset the initial preparation for whatever the current disruption. Hence, the trading adage: “Buy the rumor, sell the news.” The public is usually there, ready to take the other side of the trade, when it is time for the initial adjustments on paper to be closed out by the commercials.
Tools such as COT data, my Upperman Analysis, and IMPA trade setups make it unnecessary to trade based on current news, price activity, or the herd mentality. Instead, by pinning down the action of the market participants, identifying trends, and putting them into historical context, traders can position themselves in front of trends and ahead of the news!
Read More : Using COT Data
