Monitoring of positions of futures market participants

Hedgers (operators) [commercial].

As we explored in the last issue of the magazine, hedgers (ещё их называют операторами или производителями/промышленниками) — это крупные компании, которые работают с физическим товаром, а на фьючерсных и опционных рынках они hedge your risks.

It is worth noting that operators are the best informed about the state of affairs on the market, because this is their professional activity. Agree that a company that has been selling sugar for more than 20-100 years knows more about it than any hedge fund, because a speculator works with different financial instruments and markets, from bonds to corn, while a producer, such as Kellogg's, works on one or two grain markets. Let's look at a chart of the corn market (see Figure 1).

This formula is appropriate for all groups of market participants.

Вы можете заметить, что значительную часть времени в течение последних трех лет значение чистых позиций было меньше 0, это нормально — большую часть хеджеров представляют продавцы ресурсов, и они хеджируются против падения цены. Однако, каждый рынок индивидуален, надо допускать возможность того, что основное время будут преобладать покупатели товара, которым ресурсы требуются в дальнейшем производстве, и соответственно совокупные позиции будут со знаком плюс.

On the graph, I have marked with red and green lines the most "critical" values of aggregate items. By tracking these positions, we can determine the moments of trend reversal. Thus, if hedgers (operators) gradually accumulate a large number of short positionsand the aggregate positions will be in a big minus, it indicates that we can expect a downward price trend soon. And we should expect the price to rise if hedgers gradually accumulate a large number of long positions.

Large speculators (funds) [non-commercial]

Крупные спекулянты, также как и хеджеры являются крупными компаниями, как правило, это разного рода фонды — от пенсионных фондов высокого риска до хедж-фондов. Посмотрим на график рынка кукурузы с совокупными позициями крупных спекулянтов (см. рис. 2).

In the graph of Figure 2, I also marked the critical values of aggregate positions. As you can see, when large speculators bought, the market soon began to fall and vice versa, when they sold, the market soon began to rise.

Many people may wonder why large speculators (various funds) having a lot of financial, informational and intellectual resources are unable to correctly predict the market and lose money, but at the same time this industry is thriving, which shows that in most cases funds work with profit.

Response: large speculators are mostly funds that are managed in a passive way, i.e. they all follow long-term trends. Therefore, in case of sharp trend reversals, the positions of those funds, which were opened long before the reversal, are usually closed. That is why, despite the price correction, the last ones are closed with profit, and those funds, which entered a long or short position for the long term just before the reversal, remain still in the market, experiencing temporary drawdowns.

Small speculators (small traders) [non-reportable]

Посмотрим на третью и последнюю группу участников рынков – мелких спекулянтов, которых иногда называют мелкими трейдерами (/birzhevoj-slovar/spekulyant/). На рисунке 3 по-прежнему отражен рынок кукурузы, но внизу уже совокупные позиции самой малочисленной и самой неудачливой группы — мелких спекулянтов (см. рис. 3).

Observing a chart of aggregate positions, one might think that small speculators act almost as well as large speculators, but this is not quite true. Small traders в большинстве случаев не правы, а причин тому несколько: наименьшая осведомлённость о ситуации на рынке, наибольшая подверженность воздействию эмоций из-за неопытности, банальная нехватка знаний. Как результат этих недостатков — мелкие спекулянты входят в рынок как раз в конце тренда, незадолго до изменения тенденции на противоположную. Я думаю, вам не хотелось бы работать как они, поэтому надо действовать обратным образом.

It is also worth adding that the chart itself of aggregate positions of small traders is not as smooth as the charts of large speculators and operators. The reason is that in small companies (and sometimes they are individuals) a small number of people are responsible for making decisions about the fate of the transaction, this allows them to do so, and, as we can see, not always successfully.

Summarizing

You have been introduced to three groups of market participants in SOT trader reports (Commitments of traders). Each group has its own behavior, and tracking each group of futures market participants has its own pros and cons, so it is better to use data on 2-3 groups of traders in trading.
Let's look at the corn market one last time: the picture shows the aggregate positions of all three groups of market participants (see Figure 4).

I marked in red the moments when hedgers and large speculators were opposing. All of these moments were sell signaland they were all correct! Alas, we do not see any buy signals here, but it does not mean that there are none. There are also no changes in positions of small speculators.

In order to get rid of the problem of identifying signals and how small speculators' positions change, based on the fast stochastic SOT indices were created. With their help, you don't have to worry about subjective decision making and inability to discern some signals because the curve of aggregate positions of one group merges with another curve. However, the discussion SOT index requires a lot of time, so we will discuss this market indicator with you next time.