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The Commitments of Traders (COT) reports provide a breakdown of each Tuesday’s open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC.

 

Floyd Upperman's path from engineer to individual trader to master of the COT: An Overview


Floyd UppermanFloyd became active in the futures market during the early 1990’s after investing in high-tech stocks and stock options while employed in the high tech world of semiconductors.  Floyd traded stock and options in Applied Materials for example years before most people even knew who they were!  Floyd's position in semiconductors provided him with valuable insight into the high-tech world (where semiconductors are often the center focus).  During the late eighties Floyd wrote a private report for the directors of a private company highlighting what he believed the future would resemble.  In his report, written in 1988,  Floyd said "in the future, people will actually be able to shop from their homes using their PC's and a modem".  This was unheard of in 1988!  However, Floyd's understanding of technology enabled him to see ahead and accurately predict what was to come.  Floyd has been involved in the present day computer revolution from as far back as the Commodore 64.  During the mid to late eighties Floyd began investing and recommending family invest in high-tech companies because he felt very strongly that the future was going to be more dependent upon technology than ever before!   He was 100% right about that

During his career as a semiconductor engineer,  Floyd spent much of his spare time researching the investment world.  Floyd wanted to learn how everything worked in the world of trading and conventional investment vehicles (i.e. stocks, options & futures) just as he had wanted to know everything about computers a decade earlier.  Floyd didn't stop learning about computer hardware until he landed his dream job at Intel working on their next generation microprocessors (i386 and i486 processors).  The microprocessors are the brains of personal computers.  The microprocessors that Floyd was helping Intel design, develop and manufacture in the late eighties would soon rule the world of personal computing! 

Floyd's passion early in life was computers (hardware and software).  This passion along with his education (Capital University/DeVry Institute of Technology/Irvine Valley College) and his experience in semiconductors have provided him with a very useful background and capability enabling him to decipher and understand how markets function.  Floyd's programming abilities, his experience and education in various programming languages (he was a language programming instructor at Intel) have provided him with the "means" to write complex computer programs for generating his own style of price graphs.  Floyd's computer experience and programming abilities provided him with the means to do all kinds of back-testing of market data as well as perform various simulations.  All of this eventually led him to discover and isolate patterns in market data.  This enabled him to develop his own trading systems.  He focused on futures markets because that is where the data indicated the trading opportunities existed.  His programming experience and education has clearly served him well in trading and understanding market behavior!  In the early nineties he spent much of his spare time analyzing market data using data analysis techniques adopted from semiconductor manufacturing data analysis studies.  Some of Floyd's data analysis is derived from Six-Sigma statistical process control methodology.  Applying these types of studies to market data initially placed Floyd light-years ahead of many other traders, many of which (at the time) were still using old prices from newspapers or week old paper charts!  Floyd strongly believes in data integrity.  His experience as an engineer in semiconductors has taught him the importance of data integrity. You must know beyond all doubt that the data you base your analysis on is clean and uncorrupted Floyd will tell you!  High quality (100% clean) market data is not free however.  Professionals know this.  Floyd has developed his entire system and family of unique proprietary graphs, charts and individual studies from high quality (CLEAN) market data!  His graphs include indicators derived from complex statistical formulas.  These formula's are designed to identify and alert traders to changes in market behavior, including subtle market changes to extreme changes in price trends.  

One of Floyd's first programs involved nothing more than 1's and 0's (binary computer language). Floyd wanted to simplify the market's day to day action into the simplest terms. Thus one of Floyd's first programs broke the daily market action down into 1's (up days) and 0's (down days). Flat days were evaluated from open to close for rise and/or fall and given either a 1 or 0 for their open to close performance.  From here Floyd used binary equations (Boolean algebra, which is the language of microprocessors and the human brain as well - cells are either on or off).  Floyd used Boolean algebra to identify and track various patterns made up of strings of 1's and 0's.  What he found he said was truly revealing!  Many of the price patterns that Floyd relies on today were discovered via this unique form of market analysis (derived from strings of 1's and 0's). 

Eventually this all lead to the development of an entirely unique trading strategy that harnesses the benefits of 21st century statistics (6-sigma statistics and distribution analysis for example) combined with other proprietary data intensive analysis and traditional forms of price derived technical analysis.  When Floyd first began looking at the futures markets and studying the data in the early 90's he quickly came to the conclusion that these markets (futures) do NOT behave the same way stocks behave. To illustrate this lets look at the 30 year history of soybean prices (see the chart below).  After looking at this price chart of soybean futures going back to 1969,  ask yourself,  If this were a stock and you purchased it for your portfolio in 1969 and held it to today would you be happy with the performance over that time?  Most would say NO!   And we agree. Stocks do not perform the way commodities do.  They are two entirely different markets.  

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Floyd found that simply studying the price history of a market (via technical analysis of price) and developing indicators derived from price was not enough to base an entire trading system or trading approach on!  In fact Floyd came to the logical conclusion that price history alone could not possibly provide enough insight and information to thoroughly understand what actually makes markets "tick"!   There's more to it than looking at one output (price) he has often been quoted as saying.  In addition, Floyd found price history (or the analysis of price) could not provide enough insight to make reliable projections and/or predictions on where markets were most likely to turn (a key factor for professional position trading).  Floyd felt that looking at old and/or recent price history for direction was like looking in the rear-view mirror of your car as you drive (for direction).  All you see is what just happened!  And that's a dangerous (if not impossible) way to drive!  But it might even be more accurate to say that you only see the "results" of what just happened.  The results could be the smoke and debris from a sudden slamming on your car breaks after running over something in the road.  Obviously one needs to be able to "see" the road ahead in order to be able to react to something in the road in front of you (before you run over it)!  When it shows up in the rear view mirror its basically to late to react!  This is an excellent analogy that illustrates the disadvantages of price charts (in relation to the markets).  A price chart (price history of a market) only shows what has happened in the past. It does not show what is about to happen or what may be "laying in the road ahead".   You must have a "forward looking measure" to anticipate the road ahead.  If driving, there are signs for example that may provide information about the road conditions ahead.  The same is true with trading, you just need to know where the signs are and how to interpret them.  

Just as a person cannot drive their car looking through the rear-view mirror for direction,  Floyd concluded that one could not successfully trade the markets that way either.  However, many experts continue to believe that some 80% attempt to trade using price charts and Technical Analysis as their only means of direction (essentially using a rear-view mirror)!  These statistics match statistics that show a high percentage lose money trading futures (particularly among new traders, "new" defined as those that have been trading for less than 5 years). 

All a price chart can provide is a look at what has recently and historically occurred, and that's all.  While useful in many ways (Floyd uses them too) they only provide so much.  They do not provide reliable insight about the road directly ahead!  You must have a forward looking method to view the road ahead in the markets. If driving a car you look through the front windshield to drive forward for example.  For trading the futures markets Floyd has devised a forward looking indicator (IMPA) that provides a view of the road ahead just like the front windshield of a car!  The IMPA methodology contains indicators and charts (proprietary graphs) that contain FORWARD LOOKING indicators derived from data unrelated to price!  That means these indicators are NOT derived from old prices!  Almost all traditional technical analysis (of price) is done using indicators derived from price. The fact however is that there is only so much that can be gained from the study and analysis of old prices.  You can only look at it from so many different angles in other words.  The IMPA indicators include specific measurements and indicators derived from the government provided commitment of traders data (COT).  Floyd's IMPA is essentially a system that combines lagging price derived indicators with forward looking proprietary indicators derived from the weekly commitment of traders (COT) data.  The IMPA system that Floyd as devised is one of the most powerful trading systems around! 

How's the IMPA work?  Floyd has devised powerful measures that monitor the activity of market participants (actions of ALL traders) combined with price structure.  This careful mix can provide a "virtual" window into the future!  Monitoring the behavior of some traders and understanding what normal behavior is compared to abnormal behavior (among participants) is key to the IMPA strategy.  Furthermore one needs to understand normal reactions to market fluctuations versus extraordinary reactions.  Floyd found this can be accomplished using the government provided Commitment of traders data (COT).  This data enabled Floyd to view the market in a way that not only showed where the market has been, but also shows where it is likely to go based on the current positions held in the market (number of shorts and longs) and knowing who's holding the majority of positions (weak hands, strong hands, hedgers versus speculators) and monitoring their week to week behavior and how it relates to price fluctuations.  The behavior and reactions of the various types of participants as they "prepare" or position themselves for certain situations can be very revealing.   Ultimately its the participants that drive price in the futures market.  Therefore understanding participant behavior is essential.   

Floyd created an entirely new approach to tracking the markets by combining price structure (technical analysis) with the behavior of the market participants. Since some participants are clearly experts in the fundamentals that affect their business and ultimately the markets they deal in as well, Floyd found it essential to identify and track these participants separately. He found that by applying certain statistical measures to their actions in the markets he could gain insight on their views and market expectations (something the experts are paid millions for).  Floyd's unique proprietary indicators applied to both fundamental and technical data have the ability to identify "normal" from "abnormal" in terms of the overall market behavior (not just price, but participant positioning as well). The price history can also be measured and analyzed using distribution analysis (something that is not done that often with traditional technical analysis). 


In the mid nineties Floyd made another great prediction.  He predicted that soon, "trading systems and financial data would be available to people all over the world across the information super highway or Internet".  So Floyd began work on developing a user-friendly trading system (with color charts and graphs) that resided on one computer and could be accessed from remote computers.  He had already developed an internal program for Motorola that tied critical DEC VAX computers together and made them available ALL over the world.  Floyd learned this technology through Intel in the late eighties, when he was first introduced to the internet (in 1987).  Back then the internet was primarily used by universities, scientists and high-tech companies (AT&T Bell Labs and others based out of Silicon Valley).  In 1990 through 1992 Floyd created his program that enabled Motorola's Digital VAX computers to communicate with other Motorola facilities all over the world.  Soon however, this technology would be available to everyone via the information super highway, or "internet".

Prior to Floyd's trading career,  he held a number of engineering positions in the semiconductor industry for over ten years.  Floyd spent three years with Intel Corporation in Arizona and New Mexico in the late eighties, seven years with Motorola in Irvine California in the 1990's.  He also assisted Western Digital in the startup of what would become the country's most advanced silicon wafer fabrication plant in 1992.  Floyd's specialty was data analysis, statistics, and designing thermal processes in silicon wafer diffusion and ion implantation.

Floyd has been studying mathematics, statistics and computer programming for nearly 25 years. He has a great deal of experience in solving problems by analyzing data and presenting different solutions or outcomes based on statistical probabilities. Floyd has put these skills to good use. He found out early in his trading career that the commercially available charting software and price tracking systems were not versatile nor complex enough to get at the data at the level he felt necessary to gain an edge in the market place. Floyd used his statistical knowledge and programming abilities to develop and create his own charting software and proprietary indicators. His unique approach of combining technical price data with fundamental data yielded his IMPA.

Using his knowledge in statistics and engineering background combined with his programming skills, he designed his own trading system based on repeating patterns and conditions characteristic to individual commodities. What Floyd found from computer back testing was amazing. Floyd believes data shows an underlying order in the commodity markets not found in the historic price movements of individual stocks!  In his research he discovered specific patterns in commodity prices unique to each market. He found that these patterns are highly correlated to the positions held by the participants in the commodity markets. Using fundamental information supplied by the U.S. government (Commitment of Traders Data), he has been able to separate the open interest for each commodity into three distinct groups. While everyone else has been looking at prices or price structures for core indicators, Floyd developed his proprietary trading & tracking system using the data from the three unique groups of traders tracked by the U.S. government (Commercials, Funds, and Small Speculators).

Today Floyd's online service provides traders with 1000's of unique graphs and studies all of which go far beyond what the average individual trader/investor might use (in terms of complexity and quality).  Traders who want the best in unique statistical price analysis and deep COT analysis as well as those who really want to pursue trading in a professional manner tend to come to Floyd and those who are serious and willing to put in the work tend to stay with Floyd as well.  

Floyd provides a very unique service where quality and integrity are #1.  

Floyd Upperman has developed some of the most powerful 21st century position trading systems on the net today.  He has developed his own unique charting tools, and entire charting software package.  Floyd's charting program and trading strategies are available online through this website.

Disclosure

Pessimism never won any battle.   - Dwight D. Eisenhower
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