The Open Interest Traders

The Traders who liquidate others.

I thought I would write this article to help make sense of what is happening in many markets using a fact not known by majority of people especially retail traders.

And a Secret Larry Williams left out in his book 📕 “Trading stocks & Commodities with the insiders” I hope this article answers many unanswered questions. Why the industry Teaches the cot report wrong.

Let’s clear up some miss- conceptions. One of the biggest lies in the industry is this statement: “The Trades are submitted on a Tuesday to the CFTC but the positions cot report is issued by Friday so some trading must have taken place by Friday therefore the report is not important to day traders”

This statement is a well known statement said by many So Called Experts and many many Educators 🧑‍🏫.

So let’s debunk this lie, Larry Williams clarified this issue when he explained the history of the report. The idea of a COT report originated from the Chicago Board of Trade in the agriculture markets mainly for Wheat 🌾 Soybeans etc.

Back in Larry Williams days the report was issued Once a Month and it was ONE Month Late on Purpose. This was Before Electronic Trading became prevalent. Yet Mr Williams and his colleagues were able to trade the Agriculture markets with great success.

How can this be if the reports back in the 1980’s was one month late? His explanation that was overlooked by many educators was this

Because Large money needs time to execute their orders since the CME Group or Chicago Board of Trade also need time to execute these orders.

Mr Williams was able to profit immensely when the report was published weekly and included all the American Exchanges from NYMEX, COMEX, CBOT and CME, and went on to win Robbins cup with this understanding.

Here is a key understanding that you must all understand even if the report is published on Friday to the public the Trades don’t take place until the following week. The concept of large money needs time to execute their trades.

Let’s take a look at GBP on the Report Published on May the 5th and how GBP traded.

This Report is a standard report what is known is that the Non Commercials are trend setters as in they set the Trend and the commercials are trend followers and just hedging most of the time, large Retail just follows the non commercials.

Here is a key piece of information the Commercials although they agree with the non commercials their job is to prevent the non commercials from being too bullish or too bearish. Think of them as the course Correction traders. When this happens usually it leads to A Massive liquidation event.

In the case of GBP the non commercials have been attempting to flip GBP bearish for a long time. In the week of April 28th at All time Highs there was a reduction of Open interest. The open interest traders are made of primary dealers and liquidity providers to the CME Group the exchange and they are very sneaky group of traders.

The open interest traders Cause liquidation events also and in fact they are the main reason many times either the commercials or no commercial loss trades in the COT Reports. Think of the Open interest traders as Political Donors they sometimes support one party over the other.

In the case of the market AT Key levels All Time Highs or All Time Lows either their support the party making the move or they don’t support them. By adding or decreasing their orders (support) for that party making the move.

Larry Williams gave this example in passing but think of it this way. Near key levels contract highs or lows or 50% of a contract keep an eye on the open interest traders since they tend to give their support to one group over the other.

In the cot report it just says Open interest added or decreased there is no context in what exactly these orders are doing. Rather the secret is that they support a move or don’t support a move at key market levels. And it is this support that causes break outs and one sided liquidation.

Take the Example of Latest S&P 500. We are at all time Highs the non commercials are attempting to short the highs the Commericals don’t agree with them and they have a counter move to their short by +51k 885 orders a slight edge of +400 orders more. Yet they are also Hedging short by 21k.

And we have an increase of open interest of 61k orders. Which side are they on also one thing to consider how the CME Group executes these orders and in what order.

One thing day traders don’t understand is that at the end of the day the exchange decides how these orders will be executed all retail traders can do is be on the right side of these executions. But consider this for every buyer there is a seller what is actually happening is an exchange of orders an auction between buyers and sellers.

There is enough liquidity from the exchange to facilitate these orders but who wins is decided at key market levels. Your focus should be on who is committed to one side and focus on key levels each week Keeping these orders in the back of your mind.

The report is intended as forward guidance into the week ahead. How it pans out is upto the exchange. Who losses and wins becomes evident at key levels.

For example say the market sells off Monday and Tuesday yet the buys are yet to materialise then expect them to show up later in the week. Say the week ends up taking Mondays highs where the selling begun then clearly the buyers won with the support from Open interest traders. The extra +61k orders was on the Buyside not the sell side.

But if we continue to drop then it was on the side of the Sell side. What is NOT made clear to everyone is that these extra orders on the Open interest side is wether they are buyers or sellers.

This one fact is kept hidden and what should be clarified is this statement: Open interest is about market participation on one side of the over the other.

What side is winning 🏆 becomes obvious by middle of the week. Usually on a Wednesday so keep an eye on ur chosen market by Wednesday markets are decided in the middle of the week.

And markets are also decided at economic events the major ones.

One thing I used to find funny 🤣 looking at the cot report is that the week before a major event there is already one side committed ahead of these major events. I mean what do they know that we don’t, usually they tend to be right.

And they call us Gamblers….

I hope you found this article helpful have a Good Weekend.