Jake Bernstein Advanced Trader Sessions (ATS)

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1 Jake Bernstein Advanced Trader Sessions (ATS) ATS 1 Session 4 16 February 2012 January Effect Weekly Trigger: Status Big Moves and COT: A Much Closer Look The Path of Least Seasonal Resistance Trading the 3x3 Channel: Review 2012 by Jake Bernstein *

2 Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise Peter Lynch

3 ATS Goals Advanced concepts New research Improvements and fine tuning New directions Focus Patterns and procedures Taking trades to the next level

4 2 nd yr Decade Pattern January Effect: UPDATE What is the pattern? Status / Targets Setup: Jan high / low Trigger: weekly close above / below Follow through: range of Jan History Limitations: specific to Dow Jones Benefits and use DIA, Dow Futures*, IYJ, IYY

5 2 weeks ago: $DJI

6 $DJI Last week

7 $DJI Now

8 S&P setup

9 S&P trigger

10 S&P Now

11 3x3 channel Review 3 high 3 low simple MA channel CHART next slide What else do we need? Confirmation Entry/exit Danger zone exit Stop and TS Examples

12 Confirmation MOM/MA 28/28

15 Today

16 3 x 3 Suggestions Pick one to three non-correlated markets Examples: ES1, ZS, SB Begin after 2 consecutive losses USE DAILY time frame Be consistent (what does that mean) Try to trade at least 2 units Use a profit maximizing approach

17 The coming energy moves: reiterated Look at the confluence Seasonals + news backdrop + stock seasonals + index seasonals + COT + timing A near perfect storm A closer look

18 Looking ahead MARCH seasonals: WHY?

23 XOM

25 Oil Index

27 OXY

31 COT Energies: crude

32 HO COT

34 COT: Legal Inside information COT: brief overview What COT really tells us What it means and WHY it means Why use it? Limitations and applications Let s look at some historical examples

36 My research tells me that COT is one of the if not THE most useful and powerful tools we have available today for forecasting major trends in many markets including stocks I believe that COT is the most powerful legal inside information you can get..but you have to know HOW and WHEN to use it COT correctly predicted virtually all of the big moves happening now What s next?

37 COT Highlights: Euro FX

38 COCOA

39 (Ivory Coast) leads the world in production and export of the cocoa beans used in the manufacture of chocolate, as of 2009, supplying 30% of cocoa produced in the world. West Africa collectively supplies two thirds of the world's cocoa crop, with Côte d'ivoire leading production at 1.22 million tonnes, and nearby Ghana, Nigeria, Cameroon and Togo producing additional 1.41 million tonnes. Côte d'ivoire overtook Ghana as the world's leading producer of cocoa beans in 1978.

41 Why am I telling you this? Correlation of COT and politics Size of Ivory Coast production Look at the chart again What happened since I started talking about this potential bull market COT used as a setup + TRIGGER + follow through USE STOCK PROXY weekly

42 8oc buy daily CC May

43 CC weekly

44 NIB cocoa ETF

45 NO MD

46 What is the Commitments of Traders Report? COT shows positions and changes of market participant groups Issued weekly: Commodity Futures Trading Commission (CFTC) Available: or data vendors such as genesis Major categories: Large traders, small speculators, commercials Is the COT Report Important and if so Why? 1) Importance for most types of trading is over rated and over stated 2) COT Report is LATE should not be used for short term trading 3) Provides guidance for intermediate and long term moves 4) Should be used as a SET UP in the STF trading model 5) What s needed in addition to COT? Trigger and Follow-through 6) BE CAREFUL with the COT it is NOT a cure all and not always right 7) COT does not give us valid information for all markets be selective! 8) Should you monitor the positions of all major groups? 2012 by Jake Bernstein *

47 Critical Aspects of the COT COT is a big picture tool it helps us find the BIG moves that are intermediate to long term COT does not eliminate risk it is only a set up in my trading model Don t use the COT if you don t have patience and an intermediate to long term time frame Give the COT at least 3 months to work preferably 6 months I do not believe that COT will help you make short term decisions and/or trades Always remember - TRIGGER TRIGGER TRIGGER! No trigger = no trade UNLESS you have a PROFIT MAXIMIZING method success will be difficult with COT (or any timing / trading tool) 2012 by Jake Bernstein *

48 What is the COT and Why is it? 3 Major groups of market participants More groups recently added not enough data to determine efficacy yet Small traders, large specs, commercials (more) Shows % of contracts held by each group as long or short and changes from last report Delayed by at least one week To understand COT you need to know the goals and intentions of each group to be discussed

49 A few detailed examples Producer End User Locking in costs Producer Speculator End User Producer and End Users are Commercials Cash commodity brokers are Commercials What Commercials do and why

50 The Small Trader Assumed to always be wrong: NOT TRUE Can actually be right for extended periods of time not a reliable indicator of short term price swings Tend to have largest long position at or near major tops and vice versa I do not use the COT small speculator data as a tool in market timing but you can Look at the next few charts showing small trader COT vs. price

51 COT Small trader and Gold

52 Gold now small spec

53 Aussie $ and Small Trader Now

54 Soybeans Small Trader COT

55 Large Speculators Are trend followers Their COT positions follow the markets Due to late data you can do better tracking prices with traditional moving averages which ARE NOT good indicators I find no value in using COT large spec data as an objective tool but it can give some degree of useful analytical information Look at these charts

56 Wheat + Large spec COT

57 COT large spec + cattle

58 Sugar COT large spec

59 Large spec + Yen COT

60 Yen small spec

61 Yen Commercials

62 Large speculators Trend followers MA works just as well and is not delayed Can be on wrong side at major turns Not a reliable indicator CAN work better when used with small trader COT

63 Commercials Are producers, end users or dealer/brokers between producers and end users Examples: farmers, mining companies, petroleum companies, airlines, trucking companies, bakeries, meat processors, cattle ranchers, grain elevators, banks and more recently GOVERNMENTS etc Their job is to buy at wholesale and sell at retail or vice versa Leading indicator of trends They HEDGE RISK on buy and sell side this is a KEY point! 2012 by Jake Bernstein *

64 Normal & Abnormal Market Behavior Knowing how to differentiate and identify normal and abnormal behavior in the markets is a major key to profitable trading Examples of normal and abnormal Divergence, Negative reaction to positive report and vice versa, COT commercials behavior, high level of bullish sentiment at tops and vice versa, unusual insider activity, volatility index extreme levels Leading indicators are often associated with abnormal market activity The losing trader is lulled into a false sense of security by looking for normal market activity COT is best used when it is NOT NORMAL

65 Commercials normal behavior Is to show as short on the COT but are they really short or are they hedged? A hedge is not a short position if they own the product Commercial LONG positions tend to precede major rallies but the time lag can be large Commercials LONG is a set up for a bull market but a TIMING TRIGGER is needed

66 Let s look at an example April (2007) Wheat then rallies to all time highs > $13

67 Another example

68 Hogs after COTC accumulation

69 It is truly amazing and so very simple if you have patience and an understanding of what it means

71 A few to look at now

74 Can COT be used for timing?

79 Cocoa revisited

81 VERY Important Points about the COT The large speculator is not always right The small speculator is not always wrong Commercials are most often right BUT they have huge capital and average into positions as well as out of positions Commercial data is often opposite from the existing trend A short position by commercials is NOT really a short position but rather a HEDGE Commercials have the only near sure thing results possible due to the nature of their business! Commercials usually act many months ahead of trends and trend changes they are a leading indicator WHY? You can use COT in 2 ways: Objective methodology or analytical interpretation which can be somewhat subjective there are pro s and con s to each major method. Of these two I prefer the OBJECTIVE approach since it is the most consistent and not subject to being misinterpreted. First, we examine the analytical methodology in some considerable detail MAJOR ISSUE: can we trust the data? It isn t timely but is it accurate?

82 COT as an Analytical Tool Compare all 3 groups (this is what most traders do) Look for commercials long Use monthly continuation chart Look for commercial shorts decreasing Better yet look for commercials moving to long side Watch for large long or short positions by small speculators while commercials are opposite Look for extended long accumulation by commercials Find record high or low numbers for commercials and/or small speculators See chart analyses that follow on the next few slides The main issue with this method is still as follows: we need a trigger to enter and trade; a follow through to exit a trade, and the method is interpretive as opposed to purely objective

83 Remember Using the COT isn t rocket science or brain surgery it s simple common sense combined with patience, timing, perspective and the ability to SHUT OUT the noise and nonsense (i.e. current apparent fundamentals) What is often APPARENT isn t REAL! 2011 by Jake Bernstein *

84 Mentoring appointment interview ATS sessions are recorded I can be reached at or me if you have questions: jake@trade-futures.com Best of trading Jake Bernstein 2012 by Jake Bernstein *

Advanced Methods for Trading Seasonals In stocks, futures and Forex by Jake Bernstein 9 September 2016

Advanced Methods for Trading Seasonals In stocks, futures and Forex by Jake Bernstein www.jakebernstein.com 9 September 2016 1 Today review method of seasonal trading in stocks futures and Forex I will