IMPA Information
IMPA (in-depth commitment
of traders analysis) is our core longer-term position trading system. The IMPA
stands for "Individual Market Participant Analysis".
The IMPA Position Trading
System is composed of two key components.
- Fundamental analysis
- Technical analysis.
Fundamental analysis is
used to select the markets that have a unique underlying fundamental condition
that is either bullish or bearish. Not all of the markets will have the right
fundamental conditions. Most of the time, the markets are trading in a range
and are in-balance. In other words, there are no imbalances in supply and demand
or any fundamental conditions that may cause a shift in either supply or demand.
Our system tracks the supply and demand balance by breaking down the open interest
(open positions) by individual participant and then tracking each participant's
behavior (IMPA). There are three participants in futures.
- Public
- Funds
- Commercial hedgers
The fundamental portion
of the system tracks the relationship between the three participants, by tracking
and performing various statistical studies on the number of long and short positions
held by each of the participants. Our proprietary fundamental indicators are
derived solely from this information, and not from old prices. This is what
makes the system very unique compared to 95% of all other systems. Statistical
studies and surveys among traders (both small and large) show that 95% of the
individual traders use technical based systems. These systems are all relatively
the same, and are based on indicators that are derived from old prices (such
as moving averages and oscillators). These indicators have an inherit flaw.
They cannot predict the future and they produce a significant lag, which makes
them extremely poor at forecasting the future. This is unfortunately how the
traders use the systems and that is what they are expecting (a accurate and
consistent forecast of the future). What they get is random results. Usually
just enough success to keep then interested and in the business for about 6
months, or less.
We use the weekly COT data
for our fundamental input, and we measure this data in a variety of ways using
statistical studies and weekly proprietary measurements. All of our studies
are done the same way each day and each week.
The COT data allows us to
track the activity of the individual market participants. We record and measure
the sum of their trading (longs, shorts and delta) on a week-to-week basis.
Using a proprietary statistical formula we developed, we are able to determine
when the dominant market participants (commercial institutions) are building
statistically significant positions. They (commercial institutions) represent
the largest single component in the futures market. They (commercial institutions)
generally accumulate (scale into) large positions over a period of time (weeks
to months). We track their behavior and study the many relationships between
their actions and the behavior of the market as a whole.
The IMPA system identifies
the markets that are most likely (high probability) of breaking out to the upside
or downside and trending significantly. We do not care if the commercials are
long or short, or by how much. They can actually be net-short and bullish as
they have been in silver several times in the past. We also are not that concerned
with how much their positions change from week to week. We do care about the
size of their net-position however and how that relates to their normal size
position. The normal size position is essentially a 'mean measurement' over
a period of several years, weighted towards the most recent years. A 'normal'
range is calculated based on a proprietary statistical formula. This formula
is applied to the net-commercial position, and to the individual commercial
producer and commercial consumer positions. Our proprietary IMPA analysis comes
from this study. The heart of that analysis is the UCL/LCL graphs. These mark
the upper commercial limit (UCL) and lower commercial limit (LCL). The UCL and
LCL are proprietary indicators derived from this data (commercial positions)
and they represent our core indicators.
They are true leading indicators
derived from data other than price. This makes them very unique as most indicators
are derived from the open, high, low, close, open interest and volume figures
only. The IMPA analysis will only work when combined with the appropriate price
derived 'technical' indicators. When either the LCL or UCL are triggered, it
is considered statistically significant because the position is outside the
normal range for that particular market. Once
this component is in place, we know that the conditions are right for a significant
turn in the market. It is then that we begin examining the technical conditions
of the market for a potential buy or sell (based on our other criteria). We
would never buy or sell based on the net-commercial position only. This is crucial
to understand.
We do not have a crystal
ball. No one does. Never believe anyone who claims that have a magic system,
or a system that produces 99 winners out of 100 trades. Those systems are all
curve fitted, which means they were created around old-data for those sole purpose
of producing unbelievable results. Keep in mind that the average trader, using
a technical system with a core indicator derived from old price data has an
extremely low probability of achieving any kind of consistent success in the
market beyond just plain old luck. What typically happens is the indicators
work just about enough of the time to keep the average trader interested. Clearly,
this is the path the majority takes, and it is also clearly the wrong path.
A simply analysis of the data reveals this to be true.
Here is how we explain it to
new traders:
Using technical analysis
only to forecast future prices is very much like driving your automobile using
the rear view mirror for direction! All you see is what just occurred last,
and you have no idea what is directly in front of you. You might drive off a
cliff or run right into a telephone pole using only your review mirror for direction.
Furthermore (additional facts)
It is also a well-known
fact that approximately 90% of all individual futures traders lose money. 95%
of them are using these very popular technical systems that come stand with
your average software package, and can also be found on the Internet, some of
them are even free. (Remember the old saying, nothing is free, at least not
anything of any real value).
Our system uses a proprietary
form of fundamental analysis to forecast the future. Now forecasting
the future is tricky. Again, no one has a crystal ball. However,
we have found that for prices to advance sharply, or decline sharply,
certain fundamental conditions must be present in the market ahead
of the advance or decline. These conditions are outlined in our
manuals and tracked with our proprietary system. This is the heart
of our system, and it is a unique proprietary concept, unlike any
other system available to the smaller individual traders. Certainly
the larger traders and institutional traders have access to, and
use similar types of studies and systems to track and trade the
futures markets successfully. This system can give you the same
edge that these larger players pay millions for.
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