Stock or Commodity trading, which one is best for the individual trader?

by Anonymous

April 30, 2004 -- Before you invest your hard earned money in a stock that you have no idea whether it is going to go up or down, why not look at investing in commodities. Most people are afraid of commodities because of the horror stories that they have heard of having bushels of corn delivered to their home. This doesn't happen! Believe it or not, in today's investment world trading commodities sometimes is a better way to trade than stocks. The only way you can really know if a stock is going to go up or down is by being an insider in the company. This information isn't available to the average trader, and if you somehow acquire it you could end up going to jail.

Legal inside trading information is available for commodity traders. You can get this information for the U.S. Government agency known as the CFTC. Here we actually have the government putting taxpayers money to good use. The public really has no idea about this information that is available to them.

The CFTC (Commodity Futures Trading Commission) is a government agency responsible for monitoring & regulating the futures industry. They require that large traders holding positions above a specified level to report their positions on a daily basis. The CFTC tabulates this data and releases it to the public every Friday. These large positions are broken down into two categories: Commercial & Non-commercial.

Commercials or "Hedgers" deal in the cash market and consist of two groups: Producers & Consumers. Producers such as farmers, mining companies, and mutual funds, benefit from higher prices. The futures market acts as an "insurance policy” for them. Consumers of the commodity markets also benefit from this "insurance policy." Food processors, oil refineries, and manufacturing companies are all examples of consumers. Their objective is to minimize costs.

How do we use this information to our advantage? There are basically two ways to trade the futures market: Technically and Fundamentally. The majority of traders have a purely technical approach with total disregard to the fundamentals. While this can be profitable, it can also allow a trader to be completely blind-sided by the market. It pays to know the fundamentals. The fundamentals allow you to anticipate where the market is heading. The fundamentals we use are the data that the government releases. The data is called Commitment of Traders, or COT.

We use the Commitment of Traders data to determine what the fundamentals of the market are. We believe that the Commercials who deal in the cash markets on a daily basis know much more about the fundamentals than we do or anybody else for that matter. They have the money and the motive to pay the salaries of weather scientists, forecasters, research scientists & analysts from all over the world. We use their expensive
fundamental analysis at their cost, not ours.

We've found ways to analyze both past and present COT reports to gain insight on the current condition of the market(s) and what the commercials are anticipating in the near future. Remember, the commercials are the most informed group of traders. They are the ones who provide the supply & demand information to the USDA and other government agencies, which in turn release this data to the public in the form of S&D reports, crop reports and other reports in which the public tend to anticipate and react to.

Accessibility to the data is a unique and important tool in your trading arsenal. The way we present this data to you is in an easy to understand graphical format.