www.TradingSmarts.com

2

The Shocking Secret of Rich Traders

Yes, I say shocking because the information I am about to share with you is

readily available to the general public on a regular basis, but most people

just don’t know about it, or even where to find it and, if they do, they don’t

know what it means, or how to interpret it.

It is downright foolhardy to trade without scrutinizing this information. It is

what makes the world go round in financial circles. All professional and

serious traders have access to it, and refer to it often. We often grumble

about what the government does or doesn’t do for us but, in this case, they

offer up gold on a silver platter for all of us to see.

The problem is, the information comes out in data form and, in that sense,

it is difficult to read and even know what it means. Enter my business

associate Barrie, who takes this data and makes sense of it. I stumbled

upon his site many years ago, and darn near fell off my chair when I saw

what his graphs and charts were showing. I couldn’t believe what I was

seeing.

At that time, Barrie’s charts and graphs were calling for a severe downturn

in the stock market. Once I got my head around this information and what

it meant, I immediately told all my business associates, friends, neighbours

and relatives – anybody who would listen to me – to get out of the market.

Of course, nobody listened. No big surprise – but, what a shock – the

market correctly badly, and everybody was aghast. Who could have

guessed? Ever since that day, I have been a big fan of Barrie and his site

– and refer to it often and on a regular basis – especially when the new

numbers come out every Friday.

A side note: Barrie and I have since become good friends. I have fond

memories of having lunch with he and his family in New York after I gave a

presentation at the Marriott Marquis hotel. And, I stay in touch with him on

a regular basis.

Barrie’s site shows what the heavy duty, heavy-lifter traders, hedge funds

and day tradfers are up to with their positions. The Big Dogs, as I fondly

3

call them, report their positions to the CFTC (a government agency) on a

regular basis. Unlike the hedge funds and day traders, they take sizeable

positions with a view to where they see a particular asset class or market

going over the course of the next few months or so.

They don’t care about day trading. They aren’t the least bit interested in

what happens on a day-by-day basis with price. To the extent that they

trade thousands of lots worth millions of dollars at a time, they do in fact

control the asset classes and markets – and move them dramatically, after

they have set up the move over a matter of months. They have a lot of skin

in the game, and can’t afford to be wrong. A lot of serious investors/traders

depend on them. A lot of money is at stake.

On the other hand, the hedge funds are momentum traders. They hang in

there with their trades as long as their computer systems keep them with

the prevailing trend. The day traders usually follow the lead of the hedge

funds. When the trend changes, as set up by the Big Dogs, both camps

(hedge funds and day traders) shift gears, and head in the opposite

direction with their positions.

You will notice, in studying Barrie’s charts and graphs that, at times, the

two major groups of traders – the Big Dogs and the hedge funds/day

traders – move in opposite directions with their positions. The Big Dogs

are in fact setting up the next move, and patiently wait for it to happen.

Where you see extreme divergence between these two groups of traders,

you know we’re not far off from a reversal in price direction. They either

cover their shorts and go long, or sell off their long positions – depending

upon what positions they had taken. The shift in price direction, when it

comes, can be quite dramatic and sudden. It catches most traders off

guard – except for those in the know – those that have the information I am

sharing with you here.

And, so it goes. The challenge for you and I is to be patient and wait for

price to respond to the Big Dogs’ better wishes. This can sometimes take

several months, which frustrates day traders. But, then again, this is not

day trading information. That said, all traders – day, position and swing –

4

need to be cognizant of the Big Dog positions on any particular asset class

or market, because stuff happens that can affect any form of trading. Take

the Swiss franc, for example. I will get into that in a bit. All types of traders

got hammered, but good.

A dear friend of mine rents a condo in Vancouver from a business type in

the software industry, who just happens to trade currencies (forex) on the

side. He got wiped out when the Swiss franc took a sudden turn in the

opposite direction, catching him and everybody else off guard – except

those who were aware of what I am telling you now. This fine gentleman

ended up having to sell the condo because of his losses with the franc.

Poor guy. If only he had know about what I am sharing with you now.

Moral to that story: There is nothing wrong or dangerous about trading the

forex – or any other asset class or market for that fact. What separates the

winners from the loosers is pure knowledge. The winners trade with

certainty, because they have done their homework and use sound technical

skills, encountering very few surprises along the way. They do their

research before they pull the trigger. No ‘Hail Mary’ passes for them.

Ignore the Big Dogs at your peril. They, the commercial traders/institutional

traders, trade thousands of lots worth millions of dollars at a time, as I’ve

said before. As such, they should command your respect and mine and

our awareness of what they are up to. Given their large positions, they

can’t afford to be wrong.

Although we are talking about commodities futures here, don’t panic if your

interest lies elsewhere - in currencies or stocks. There are some ~80 asset

classes in the futures realm, which are a good proxy for the other markets.

No matter if you are trading commodities, currencies or stocks, the

information I am about to share with you will knock your socks off. You’ll

wonder how you survived without it before.

In looking at the partial list below, you will notice in the screen shot

reference to the Swiss franc, U.S. dollar, VIX (yes, the bellweather VIX)

and wheat - all mixed in together. In the fuller list, you can even see the

other commodities, currencies, and even the S&P 500 (the Wall Street

5

benchmark). This information is available on a weekly basis – every

Friday, just after close-of-business – but, more on that later. It is not

delayed data to the extent that it is up-to-the-minute, as at the latest Friday

closing.

The intriguing thing is that all traders’ positions are reported – the Big Dogs,

hedge funds and even small traders (day traders). And then, it’s just a

matter of how to interpret the data, and act accordingly. I’ll walk you

through it. Pretty cool stuff.

Yes, we are talking about commodities futures, but we are also in fact

talking about the broader picture - all of the asset classes and markets that

can be traded. This is vital information that you probably didn’t know

existed before that is strategic to your trading success.

The information I am about to share with you is both applicable and highly

useful for whichever asset class or market you are trading. It is downright

powerful, and not to be ignored – do so at your peril.

Let’s get started…

Case in point… take the Swiss franc, for example. Some of you may

remember (or choose not to, if you were hit hard on the day it caught the

unsuspecting off-guard) what happened January 16/15. That was the day

the cap was taken off the Swissy – the cap previously keeping a lid on it –

and all h___ broke loose. ‘To the Moon Alice!’ It shot up +.1829 in a

heartbeat in the futures market, catching all the short sellers gasping for

breath. To make a fat story thin, the consequences were staggering.

Alpari (a major forex broker) went under, and FXCM (another significant

6

forex entity) had to seek a bailout to stay afloat – not to mention the poor

undercapitalized day traders who were then chased by brokers to cover

losses. Moral to the story… ignore the Big Dogs at your peril.

If you are a forex trader, the hit there was equally startling. The USDCHF

pair lost ~1,500 pips in an heartbeat. That’s $15,000 per standard lot.

Times 10 lots, that’s $150,000 – not exactly chump change. Most accounts

can’t withstand such a sudden reversal of fortunes.

For the uninitiated, the reason the Swissy fell in the forex market and rose

in the futures market is quite simple. The swissy in the futures market

trades standalone (even though denominated in US dollars) and, as such,

moves according to the number of buyers and sellers with their long and

short positions. In the forex market, the Swissy is tied to the US dollar –

USDCHF – the Swissy being the second currency in the pair. As such, its

movement is inverse to its futures behaviour – in this case, up in the futures

market, down in the forex market (the USDCHF pair, that is).

Carrying on… leading up to that infamous day, the Big Dogs had gone

increasingly long the Swissy. You can see that in the commitments of

traders (COT) graphs below. That created divergence (a wide gap)

between their positions and those of the hedge funds and day traders – the

likes of whom usually move in lock-step with the hedge funds. The hedge

funds are momentum traders and, as such, they keep with the trend until

their computer systems tell them to change course. Come January 16/15,

these camps were both short the Swissy, all the while the Big Dogs were

long. So… when the cap on the Swissy was lifted, the Swissy shot up to

the moon, wiping out short positions en masse. Brokers could only give

exit fills as best they could, given the rapid movement of price.

7

8

So, what’s the big deal here? Well, the lesson to be learned is that you

should never ignore what the Big Dogs are doing on a week-by-week basis.

That information is readily available at www.cot-futures.com – the go-to site

created by Barrie. The visitors data is one month old, so it is imperative

that you to subscribe to the members’ data, which is current, as at the most

recent Friday. You want to know what positions the Big Dogs have taken

most recently.

Let me show you how to use that site. At www.cot-futures.com (follow

along with the screen shots below this verbiage), you want to hit the

Subscribe button and proceed accordingly. At last check, it was US$9.95

per month – not a big deal. When you become a member, click on the

Members tab. You will be presented with a dialogue box into which you

insert your username and password. Hit OK, and you’re in. You will then

see a list of ~80-odd asset classes, including the Swiss franc. It is mixed in

with the other currencies and commodities like silver, soybeans, etc. Given

9

that we are talking about the Swissy, go ahead and click on that

commodity. You are then presented with a screen that has four green bars

at the top. Select the second from the top, and you will see the graph

shown (second last screen shot on page 7) – ‘Big Dogs Go Longer

Heading Into Fri. Jan. 16/15.’ Then, go back to the previous screen with

the four green bars at the top, and now select the third green bar from the

top. That will pull up the graph also shown (second last screen shot on

page 7) with the words ‘Orange=Big Dogs, Green=Hedge Funds,

Blue=Street Money’ on it.

That’s all there is to it. You are now an instant expert in the world of the

Big Dogs, and you know enough to be dangerous. You in fact know more

than most other traders, who are ignorant of this information, and probably

got blown out of the water when the Swissy spread its wings.

10

11

You will notice in the screen shot at the bottom of the previous page a

whole bunch of numbers that are just that – numbers reported by the CFTC

every Friday. You and I can’t make much of them, and this is where Barrie

comes in. He takes these numbers and quite deftly creates the charts and

graphs I have shown you in this e-book.

Another story worth telling…

Given that it is difficult to read the screen shot, here is the same verbiage

that should make it easier on your eyes – ‘Moral to the Story: The Big

Dogs were going longer with their positions at the point the BoC (Bank of

Canada) lowered its overnight trendsetting interest rate. Even though the

Canadian dollar had been tanking, being short or going short Jan. 21/15

could have backfired, if the BoC had instead raised its rate. That would

have lifted the Canadian dollar in the futures market, catching traders off-

guard and in a short-squeeze situation. That’s when the blood rushes out

12

of your eye-balls at a hundred and ten miles an hour.’ Instead, the

Canadian dollar fell in unison with the BoC call of lowering its rate.

If you are a forex trader, the exact opposite would have held true. Given

that the Canadian dollar is the second currency in the USDCAD pair,

upside-down logic comes into play. Let’s just change the wording a little

bit: ‘Even though the Canadian dollar had been tanking, being long or

going long could have backfired, if the BoC had instead raised its rate.

That would have caused the USDCAD pair to swoon in the forex market,

catching traders off-guard and in a long-squeeze situation. That’s when the

blood rushes out of your eye-balls at a hundred and ten miles an hour.’

Instead, the USDCAD pair rose in unison with the BoC call of lowering its

rate.

BTW, the BoC lowered rates because of plunging oil prices. Canada is a

net exporter of oil.

I saved the best for the last… the screen shot below is pretty much self-

explanatory. It doesn’t get much better than this – the Big Dogs in action –

proof positive that they rule the markets! All you have to do is follow their

lead, but be patient. Wait for them to set up the market in question, and

then use astute technical analysis to time your entry.

If it’s too hard on your eyes, here’s the verbiage on the screen shot: ‘This

is crystal clear proof that the Big Dogs move the markets. As at the end of

March/15 (12 weeks from Jan. 1/15), they were extremely long the Aussie

and the other traders (spec hedge funds and day traders) extremely

short.This is the divergence we look for (0/100). As you can see in the

futures chart below, the Aussie responded in kind – advancing some 400

pips in the space of one month and a bit.’

13

The forex and futures markets move in tandem. You just have to pay

attention to how currencies are paired with the USD. Easy example: the

Aussie and AUDUSD pair move in the same direction, because of how the

Aussie is paired with the USD. Alternatively, as just stated, the Canadian

dollar and USDCAD pairs move in opposite directions – again, because of

how the Canadian dollar is paired with the USD.

I much prefer the forex market from a trading perspective. There are a

whole bunch of reasons why, but that is a subject for another report and

another time. Here are just a few of the salient points (forex versus futures

and stocks):

50X larger than NYSE

30X volume of U.S. equity mkts.

Largest/most liquid financial mkt.

The forex market is always liquid - seamless 24 X 6!

14

Currency futures market is shrinking - 1% of the cash market.

Trading volume and transaction sizes that beat others - always liquid!

95% of currency trading is conducted in the forex market - 85% in major

currencies.

~25-50 pairs vs. ~7,800 stocks/~72 commodities

US$5.3-trillion per day versus US$30-billion-per-day futures market

(translation: little-to-no slippage in the forex market)

About the forex market:

Direct access to the cash markets

No physical location – i.e., exchange

An OTC mkt. between two counterparts

Free execution service

Ideal day trading market

Split-second response time

Real-time profit & P&L analysis

More aggressive pricing than futures

Better price transparency than futures

No price shading, as with phone trading

No clearing/transaction fees, commissions

Instantaneous deal execution and price certainty

Reduced slippage (95% of major currency traders here)

Trend well: tight ranges rare

No forward exposure like futures

Lower dealing spreads than futures

Best market

Best performance

Best trending market

Best edge for making $

Best in terms of size/volume

15

Low costs

No clearing costs

No Transaction costs

No commission fees!

NB: Depending upon when you read this e-book, the information and

screen shots I am showing you here are as at June 6/15 – so, please keep

that in mind.

Q&A Session:

I thought at this point, I would address questions from one of my members

– Harmit – who is patiently waiting for the answers. This should be

educational and informative for you as well as him. His questions are in

relation to the forex market but, if you trade other markets, you should get

something out of this as well.

Here we go…

1. I do not see the USD. Am I supposed to use ‘USD Index’ for that?

A: Yes.

2. If I am reading the chart correctly for CAD, then would it fair to say that

21 on x-axis represents the middle of July, 2014 (close to July 15, 2014)?

A: Please refer to the screen shot on the next page, and then I will

answer your question:

16

You will notice where I have marked ~-21 on both graphs above – denoting

the approximate 21 spot you are referring to. What that means is minus 21

days (~5.2 months) from the end of 2014, which would translate into ~ the

middle of July, 2014. So, you are correct. Way to go Harmit!

3. If the Commercial index and Spec index are mirror images of each

other, I am not sure why the Spec index is a little above 80 or 18 points

away from 100. However, the commercial index is a little above 20 - or

almost 22 points away from zero. Is it not necessary for these two indexes

to be away equally which, in this case, should be 18 or 22?

A: Harmit, this time I have put both your question and my answer on

the screen shot – together with the two representations of the Big

dogs data as at June 5/15. In addition, I would like to add that, if you

look at the graph at the top of the screen shot on the next page, you

17

can pretty much see that the commercial traders (Big Dogs) are fairly

neutral on the Canadian dollar.

4. What point of time will you enter the trade - when the Commercial index

touches the 0 or 100 mark (extreme mark), and sit on your hands until then

patiently? For example, as of May 30, 2015, the commercial index for CAD

is a little above 20 – so, am I supposed to wait until it touches zero?

A: Harmit, I am impressed with how much you have learned about

this data so quickly. You are absolutely correct. We cannot – should

not – expect a price correction (change in price direction) until the

commercials have gone extremely short (in this case) at the 0 mark

and the hedge funds (spec) have gone extremely long at the 100 mark.

Then, and only then, would we use technical analysis to identify when

the comm. sentiment gets reflected in price behaviour. What we are

18

seeing right now is comm. and price in perfect harmony. Please refer

to the weekly futures chart below for the Canadian dollar below:

What this shows is that the trend is down, and the commercials are

not in disagreement – at least, not at this point. So the trend prevails

from a trading perspective. No big surprise when you look at the

futures chart for light sweet crude oil on the next page. Oil is trending

down. Canada is a net exporter of oil.

Bottom line, you can use the Big Dogs information, courtesy Barrie,

to look for and wait for price to move in the opposite direction and/or

you can also use the information to give you confidence in knowing

where price is headed in the short term.

Of course, I have been showing you futures charts here. In the case

of the Canadian dollar, where you see it headed down in the futures

19

chart on the previous page, you will find the USDCAD pair (forex

version of the Canadian dollar) headed up in the forex market.

5. Since it is delayed data, I was wondering if we can enter the trade

based on it and expect favourable results?

A: Harmit, the data is not delayed, in that it is current as of the latest

Friday reporting by Barrie. I think I have already answered the

question about using it to enter a trade. From a position/swing

trading point-of-view, you have to wait to see the major (0/100)

divergence between the comm. and spec., and then use technical

analysis to pick your entry point – and date and time thereof.

6. I am not clear as to how I can make a profit if I sell USDCAD now, as

the trend is up on the daily chart. If I sell at this point, I will have losses. I

20

am not able to figure out how to leverage this COT graph and actually pull

the trigger.

A: At this point, in the forex market, I would be looking for an entry

point off the 1 hour chart to the long side, when MACD turns the

corner below its water line and punches up through its trigger line.

The trend, as denoted by the 200 EMA, is up. Price is sitting on it,

having found support. Now, it’s time to let MACD do its thing.

7. Which time frame to use to trade – daily or hourly?

A: For day trading, use the 1 hour chart. For position/swing trading,

use the daily chart. The trend is up on both charts, as at this writing –

again, as delineated by the 200 EMA (the trend indicator),

Thanks. I appreciate your help.

You’re most welcome Harmit. If you have any further questions,

please don’t hesitate to contact me again. I hope this has been

helpful.

Harmit

Postscript: Incidentally, if you have any questions, please be sure to let

me know by simply using the Contact feature on each page at

www.TradingSmarts.com.

(Attribution: COT charts courtesy Barrie at www.cot-futures.com and

futures charts courtesy SuperCharts by Omega Research – CIERRO has

its own legally purchased copy.)

Copyright © CIERRO Enterprises, Inc., All Rights Reserved