Now, the collective is a big thing. Just like forex values, it takes TIME for everyone to be convinced of fair value, where the trend should go and so forth. First there’s that tiny prod: GDP comes in less than expected. A few traders sell, and the tsunami begins gradually. Often, there are other underlying factors that might disrupt that. It’s rare for a single indicator to change the collective thinking immediately. And even then, the market overshoots, corrects itself and gradually arrives at a consensus.

Four conclusions are in place: First, market opinion will cause an overreaction. Second, the crowd will change its opinion based on what the market is doing. Third – go with the trend and the crowd will follow; and 4 – using common sense is like trying to talk sense to a madman.

What we’re usually left with is a hope that the pros know what they’re doing. And to gauge that we thankfully have a weekly report called the Commitments of Traders – the COT report. It’s published every Friday by the US Federal Commodity Futures Trading Commission, and it includes currency futures, as well. Also bonds and indices, but mainly commodities. Not shares, unfortunately.

Now, you can go into the actual report itself, or you can see it on several sites, like Barchart or finviz in graphical form. There’s even an MT4 indicator, but it requires downloading, installation and lots of manual labour.

Once we get to the chart, we’ll see 3 lines – red, blue and green. The red tells us what the large institutional traders are doing – mutual funds, big banks and so forth. The green tells us about the commercial hedgers. That’s us. You’ll find that the biggies and the hedgers are usually inverse, but it’s the institutionals who move the markets. The hedgers are mainly swap dealers and money managers who want to profit from short-term speculation.