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CHAPTER 6 - Large Traders ... Not Quite ... > THE INDEX APPROACH TO LOOKING AT THE...
THE INDEX APPROACH TO LOOKING AT THE LARGE TRADERS
We can use the same math to look at the large traders as we did when we developed the COT index for the commercials or small traders. It’s the exact same formula. The only difference is that when the large traders index is above 80 we want to look for sells, and when it is below 20 we want to look for buys. In essence we want to do the opposite of what the large traders do. A few charts should illustrate the wisdom of this approach.
Let’s begin with soybeans, perhaps the most important “grain” grown in the world due to its multi-usage in everything from soap to ice cream, tofu to soybean pseudo milk products (see Figure 6.7).
In the six years shown here, there can be no doubt that the best buy times came when the large trader index was below 20, the best sells when above 80. It is not a precise “sell today” index, but rather an excellent setup tool, telling us to get ready for the next major trend move in the market.