Non-reportable positions. This category in the COTs Reports lists the holdings of small commercial and non-commercial traders whose positions were too small to be included in the commercial or non-commercial categories. Most analysts ignore the small traders as providing few useful clues to possible future market direction, but my studies show that in some markets they are the best traders to watch (for example, in the Dow Jones Industrial Average and S&P 500).

Net percentage-of-open-interest positions. This is the net position of a group of traders as a percentage of the total open interest in that market. The net position is calculated by subtracting the short positions that a group of traders holds from its long positions.

Portfolio allocation. The maximum percentage of my total assets I will devote to a trade. This calculation is based on my two-percent risk threshold for a single trade - which means I don't want to risk losing more than two percent of my total assets in any one trade.

How I calculate the maximum portfolio allocation for a setup: (1) Look up the stop level for my setup (see the "Stop" column on my latest signals table. (2) Divide that by two (my risk threshold). (3) Divide the resulting figure into one. For example, if the stop is five percent, my allocation would be 1/(5/2), or 40 percent.

One other important risk-management rule I follow: I have a maximum allocation of 25 percent of my total assets in one direction (i.e., long or short) in any one group of highly correlated markets (for example, gold, silver, copper, platinum, crude oil and heating oil). For more on my risk-control rules, see my "How It Works" page.

Risk management. See "Portfolio Allocation" and "Stop." Also, see my risk-control rules on my "How It Works" page.

Setup. A set of rules that produce a trading signal. The variables in my system are: (1) the number of weeks for measuring the moving average and standard deviation of the net percentage-of-open-interest position or the total open interest; (2) the number of standard deviations that the net percentage-of-open-interest position or total open interest must equal or exceed above or below the moving average in order to get a buy or sell signal; and (3) the trade delay or number of weeks I wait to execute a trade after the signal was given. (Trades are always executed on the weekly open.)

Short position. The sale of a borrowed security with the expectation that the asset will fall in value.

Stop. A stop sets the sell price at which a security will be sold if it falls in value. (It can also be the buy price at which a security will be bought if it rises in value.) I set my stop by taking the setup's average profit per trade in backtesting, then subtracting two standard deviations of all the trade profits. I never ignore my stops.

Small traders. See "Non-reportable positions" above.