Trade Stocks & Commodities with the
Insiders: Secrets of the COT Report
(Wiley Trading) by Larry Williams
Groundbreaking Work
The way that Big Money got to be Big Money was by also being the Smart
Money, and so it is worth paying attention to how the Big Money traders
behave. Thats the essence of what Larry Williams has to teach us in this
book. And its not just what the Smart Money says or thinks, but how they
behave in terms of their trading that we should pay attention to. Larry
shows us how to listen to that message.
—Tom McClellan Editor of The McClellan Market Report Finally, an
insiders take on what really goes on behind the scenes in commodity
trading. Larry writes his view of trading, as only he knows it, from his
twenty-five years of experience.

—James Altucher author of Trade Like a Hedge Fund Successful
trader Larry Williams reveals industry secrets that help investors and
traders successfully invest and trade side-by-side with the largest
commercial interests in the world. Youll be introduced to the COT
(Commitment of Traders) report, the best resource for achieving trading
success, learn exactly what the information it contains means, and plan for
maximizing profits by acting on reported actions.
Personal Review: Trade Stocks & Commodities with the
Insiders: Secrets of the COT Report (Wiley Trading) by Larry
Williams
i).Thesis / Book Purpose
"I heard Goldman's was selling bonds the other day.... ",
"General Mills has a massive long futures position..."
We have all heard stories like that, usually when the market has been
coming off some impressive rally or decline. However most of the times as
the market turned the opposite direction, such statements proved to be
equally short lived.
Nevertheless is there really a way of knowing what the "Big Boys" are
doing on a collective basis ?
Welcome to Larry William's "Trading Stocks & Futures with the Insiders",
the first (and only) book ever written on the subject of analysing
commercial trader positions using the Commitment of Traders (CoT) data
provided by the CFTC. The book's sole purpose it to get you in investment
alignment with the largest participants in each futures and option market. It
is an alternate way of viewing the fundamentals by tracking the footprints
of the largest market participants' view of each underlying market.
(i) Organizational Structure:
The organizational structure of the book is not that apparent at a first
glance, but the chapters can be roughly rearranged and "pigeonholed" in
four different thematic categories as follows:
1. The Market Participants from a CoT point of view
Chapters 1 & 3 are about the commercials, an intro to their motives,
mistakes and what to look for.
A thorough description of the CoT report contents as provided by the
CFTC is given in chapter 2.
This is probably a chapter for those with the intellectual curiosity to know
how the CoT data is gathered in its final format. Chapters 5 & 6 describe
the operations of the Small and Large Traders categories (from a CoT
point of view) respectively.
2. CoT Analysis
Chapter 4 is the first attempt to "quantify" commercial activity through the
CoT Index (first introduced by Curtis Arnold). Chapter 10 features how to
view the commercials vs all the market alongside other accumulation /
distribution activity. Larry then goes to construct some custom (price-
based, non CoT) indicators and then uses them in conjunction with

seasonality. During the last part of the chapter, the EMH is "attacked" with
some simple systems / tests. Chapter 11 presents a synthetic CoT index,
however the specifics are not disclosed. Chapter 13 features another
version of the CoT index, examples of how to use a simple CoT system
that combines CoT data with a trend-following filter. Additionally, another
intermarket system for Gold using the US Dollar is combined with
seasonality. Lastly chapter 15 shows an example of CoT analysis on the
bond market.
3. Volume & Open Interest
In Chapters 7 - 9, Larry deals with one of the most misunderstood aspects
of technical analysis. Properties of volume and open interest (OI). Larry
exposes myths and explains how these interact and how they can be used
in context of the strategy. In chapter 9 Larry expands in the topic of OI, by
taking a more thorough view that provides insight into OI quality.
4. Issues general about Trading
Chapter 12 is about stop importance and geared towards the novice.
Discussions on preframing, and mental preparation, a sample long term
exit strategy, entry & exit strategy adjustments according to the nature of
the trend, bad trading habits. Chapter 14 is aimed at highlighting the use
and abuse of technical analysis and the ineffectiveness of tools such as
Fibonacci, candlesticks, chart patterns and formations.
(ii) Audience & Style of writing:
The book is the first on the subject of commitment of traders data analysis.
Thus the largest part of the book's audience is by and large "beginners".
Either literally or professionals uninitiated to CoT analysis. Larry however
has managed to accommodate both audiences, by keeping on one hand
the strategies and style of writing geared towards the less quantitatively
inclined beginners, but providing enough ideas / hints for the seasoned
professionals to work upon and to expand research methodologies.
Since CoT data are weekly, and analysis is mainly geared towards big
picture views, consequently the book is not recommended towards day-
traders / short-term traders. Additionally among the medium/long term
community, the ones with a contrarian slant will find themselves in line with
the philosophy exposed. Although the material is primarily used by
futures/option traders, stock investors may also be utilise CoT data either
directly (through Larry's advisory service) or indirectly (focusing on sectors
that exhibit a high degree of correlation to underlying commodities). So
although CoT is not suited for individual stock picking, it could prove to be
very useful for identifying sectors (which according to academic studies
explain 60% of a stock's performance). Therefore criticisms that the Larry
has not included much stock-specific analysis may be true, but fail to see
past the obvious.

As far as style is concerned most of the work is aimed primarily towards
discretionary (or quant-guided traders at best), not completely systematic
ones. However there are examples of such attempts.
The book is easy to follow, non-technical and mostly narrative. Larry
manages to keep reader interest by using analogies from life to trading
(how fishing in Montana is similar to trading, p.80) the common aspects of
driving and trading (p.123) and the common mentality shared by trapeze
artists and trading (p.123). The "emotional" qualities of writing are apparent
in the use of humour and wit.
(iii) Main Points / Bottom Line:
Trying to distil the author's words of wisdom conveyed in the book in a few
points would be:
1. Markets carry an enormous amount of randomness, but are not totally
unpredictable.
2. Focus on the "big picture" and the fundamentals.
3. A way to follow the fundamentals is through CoT analysis, and by
focusing at the extreme readings of commercial activity in particular
(among other CoT tool readings).
4. Technical Analysis on its own is not productive, thus it is advisable to
follow the forces that "move" the charts. A lot of Technical Analysis tools
are of little use.
5. CoT analysis is not a market timing tool. It is a "big picture" technique.
6. No methodology is perfect, and the same applies to CoT research.
Thus best results are obtained if CoT analysis is used in conjunction with
other tools, such as cycles, seasonality, technical triggers, etc.
(iv) Degree of analytical exposure :
After reading the book, one of the most obvious conclusions is that Larry is
a stern master in CoT analysis and an authority in the field. A lot of the
ideas he exposes are just an exhibition of how much work needs to done
in this parti
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