I have received emails from readers who asked why I trade purely based on the COT Proxy. Some have also asked me why I didn't cover stocks or instruments by looking at fundamentals such as financials ie balance sheets, profits, losses, assets, debts, dividends etc.
I do trade fundamentals ie The Commitments of Traders (COT) Proxy. Basically it simulates what the commercials (smart money, big boys), the specialists (hedge funds, investment companies) and the speculators (small traders like me) are trading. Just like the real COT report released by CFTC, it simulates the trade the commercials are taking. The commercials are the ones moving the market and we want to follow them. Hence the COT Proxy tells us what these big traders are doing.
However I do not analyse stocks based on their financials. As you know financials can be manipulated. We have seen even big companies cooking the books. Enron, WorldCom anyone?
Even if securities commissions or local monetary authorities try to keep tabs on listed companies, there are some that fall through the cracks.
Have you noticed that prices fall way in advance before any bad news are released? By the time you want to take action, it will already be too late.
Companies can lie about their performance with creative accounting. How many of us are proficient in analysing the financials? Even if the financials are rosy, how many of us actually know what is really going on inside those companies? The numbers are just the surface. Go beneath and you will find a totally different story altogether.
I do trade fundamentals ie The Commitments of Traders (COT) Proxy. Basically it simulates what the commercials (smart money, big boys), the specialists (hedge funds, investment companies) and the speculators (small traders like me) are trading. Just like the real COT report released by CFTC, it simulates the trade the commercials are taking. The commercials are the ones moving the market and we want to follow them. Hence the COT Proxy tells us what these big traders are doing.
However I do not analyse stocks based on their financials. As you know financials can be manipulated. We have seen even big companies cooking the books. Enron, WorldCom anyone?
Even if securities commissions or local monetary authorities try to keep tabs on listed companies, there are some that fall through the cracks.
Have you noticed that prices fall way in advance before any bad news are released? By the time you want to take action, it will already be too late.
Companies can lie about their performance with creative accounting. How many of us are proficient in analysing the financials? Even if the financials are rosy, how many of us actually know what is really going on inside those companies? The numbers are just the surface. Go beneath and you will find a totally different story altogether.
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