Risk vs Reward - The Bread And Butter Of Professional Traders

Is the market always fairly priced?   Wikipedia says it is the value based on what a knowledgeable, willing, and unpressured buyer would probably pay to a knowledgeable, willing, and unpressured seller in the market.

Then what is meant by "overbought" or "oversold"?  How can a market be oversold or overbought in a fairly priced market?  Most traders will use the term to describe it as when an oscillator such as the CCI reaches a level of being overbought or oversold.  In strongly trending markets, these indicators have limited use because they can remain overbought or oversold for long periods of time. 

Supply and Demand will always be the backdrop of any market.   We are willing to pay more for what we need in times of scarcity, but may not want to pay much for the same things in times of abundance.  Lets face it........ there is a lot of corn out there, and buyers know they don't have to try very hard to get it when they want it.  That my friends is a buyers market. 

The various reports you read that reflect supply and demand are what really dictate a market over time, but in the absence of news, traders focus on other things that can impact the market they are trading such as the dollar or even oil.  Smart money follows when traders are moving money from one asset class to something different.  Moving money from overpriced assets to underpriced assets is the bread and butter of the professional trader.  This is what can move prices higher even though the news is bearish. 

The first chart below shows corn over the last 5 years.  At the bottom of the chart is the commitment of traders report which shows the number of long and short positions held by commercial elevators (end users), large traders (Goldman Sachs), and small traders (you).  I find it interesting that in the last 5 years, the large traders have never been so short.  What do you think would happen if they decided to exit their short positions?  They exit short positions by buying.

I find this next chart particularly interesting in that it shows that over the last 2 years, the December 2014 corn chart has only been this wide from its 200 day moving average 5 times of 63.5 cents.  Only one of those 5 times did it exceed that difference for a few days by only 12.5 cents.  That was only for a week, and it was followed by a powerful rally as the shorts exited their long positions.

If you are a large trader, what offers you the most reward for the risk?  I realize this kind of thinking can stress your nerves, but isn't that just what a professional wants?  Who always seems to be left holding the bag?  Not the pros.