Forex for a trader
Cot report forex indicator

Cot report forex indicatorCOT Forex - CFTC's Commitments of Traders. Net non-commercial positions for major currency. These graphs show the CFTC's Commitments of Traders (COT) weekly data: net positions for "non-commercial" (speculative) traders in the U. S. forex futures markets, along with open interest contracts held by all parties. This futures data influences and is influenced by the spot forex market, and is considered an indicator for analyzing market sentiment. About Commitments of Traders. The Commitments of Traders (COT) is a report issued by the Commodity Futures Trading Commission (CFTC). It aggregates the holdings of participants in the U. S. futures markets (primarily based in Chicago and New York), where commodities, metals, and currencies are bought and sold. The COT is released every Friday at 3:30 Eastern Time, and reflects the commitments of traders for the prior Tuesday. The COT provides a breakdown of aggregate positions held by three different types of traders: “commercial traders” (in forex, typically hedgers), “non-commercial traders” (typically, large speculators), and “nonreportable” (typically, small speculators). The Net Non-Commercial Positions shown in the chart above are from contracts held by large speculators, mainly hedge funds and banks trading currency futures for speculation purposes.

Speculators are not able to deliver on contracts and have no need for the underlying commodity or instrument, but buy or sell with the intention of closing their “sell” or “buy” position at a profit, before the contract becomes due. These contracts, sold in lot sizes that vary by currency, net out to have either a surplus of buy requests (positive values in the chart) or sell requests (negative values). The Open Interest represents the total number of contracts, including both buy and sell positions, outstanding between all market participants. That is, the total of all futures andor option contracts entered into and not yet offset by a transaction, by delivery, by exercise, and so on. These figures are not netted, but instead show overall volume (that is, interest). Note: In the futures market, the foreign currency is always quoted directly against the U. S. dollar. In the spot forex market, some currencies are quoted the opposite way. For consistency, these graphs provide futures market position data on a reverse axis (with negative values above the 0-axis) whenever the quote order is opposite the spot forex notation. This is the case for the Swiss Franc, for example, which in forex is quoted against the US dollar (USDCHF). This is for general information purposes only - Examples shown are for illustrative purposes and may not reflect current prices from OANDA. It is not investment advice or an inducement to trade. Past history is not an indication of future performance. © 1996 - 2018 OANDA Corporation.

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OANDA Japan Co., Ltd. First Type I Financial Instruments Business Director of the Kanto Local Financial Bureau (Kin-sho) No. 2137 Institute Financial Futures Association subscriber number 1571. Commitment of Traders Report. The Commodity Futures Trading Commission, or CFTC, publishes the Commitment of Traders report (COT) every Friday, around 2:30 pm EST. Because the COT measures the net long and short positions taken by speculative traders and commercial traders, it is a great resource to gauge how heavily these market players are positioned in the market. Later on, we’ll let you meet these market players. These are the hedgers, large speculators, and retail traders . Just like players in a team sport, each group has its unique characteristics and roles. By watching the behavior of these players, you’ll be able to foresee incoming changes in market sentiment. You’re probably asking yourself, “Why the heck do I need to use data from the FX futures market?” “Doesn’t the spot forex market have a report that measures how currency traders are positioned?” “I’m a spot forex trader! Activity in the futures market doesn’t involve me.” Remember, since spot forex is traded over-the-counter (OTC), transactions do not pass through a centralized exchange like the Chicago Mercantile Exchange. So what’s the closest thing we can get our hands on to see the state of the market and how the big players are moving their money?

The Commitment of Traders report from the futures market. Before we dive into how to use the Commitment of Traders report as a forex trader, you have to first know WHERE to go to get the COT report and HOW to read it. Using the COT Reports to Predict Forex Price Movements. Before examining the COT reports and a few ways of using them, let us note two important details: One of the major problems with the forex market is the lack of a volume indicator. Since there is no forex exchange such as the Nikkei or the NYSE, volume statistics on the entire market are not available. The COT report, tracking the currency and commodity futures allocations of the major speculators and commercial hedgers, is an excellent substitute for the volume indicator, and it should therefore be an inseparable item of any technical trading scheme. The other point which we would like to emphasize is the lagged nature of the report. As it updates us on positions of the past week, it is a lot more valuable as a long-term indicator, with periods of weeks, rather than days being the field of its measurements. The COT (commitment of traders) is a report issued by CFTC to update the public on the futures positioning of traders in commodities markets. In the US most futures trading takes place in Chicago and New York, and the institutions covered by the report are heavily concentrated in these locations. Let’s examine the body of a COT report. EURO FX – CHICAGO MERCANTILE EXCHANGE Code-099741 FUTURES ONLY POSITIONS AS OF 031709 | ————————————————————–| NONREPORTABLE NON-COMMERCIAL | COMMERCIAL | TOTAL | POSITIONS ————————–|—————–|—————–|—————– LONG | SHORT |SPREADS | LONG | SHORT | LONG | SHORT | LONG | SHORT ——————————————————————————– (CONTRACTS OF EUR 125,000) OPEN INTEREST: 111,077 COMMITMENTS 33,657 42,696 548 37,055 34,864 71,260 78,108 39,817 32,969 CHANGES FROM 031009 (CHANGE IN OPEN INTEREST: -69,201) -273 -1,466 -1,371 -67,685 -64,551 -69,329 -67,388 128 -1,813 PERCENT OF OPEN INTEREST FOR EACH CATEGORY OF TRADERS 30.3 38.4 0.5 33.4 31.4 64.2 70.3 35.8 29.7 NUMBER OF TRADERS IN EACH CATEGORY (TOTAL TRADERS: 99) 38 30 7 19 17 60 51. Open interest describes the amount of open futures contracts that are being held. In other words, it is the total volume of open contracts in the market, but not the transactions.

Reportable positions are the positions held by institutions that meet the reporting requirement of the CFTC. These are the major players in the CBOT, and their choices are usually backed by hordes of analysts and their studies. Non-reportable positions cover everyone who do not suit the above criteria, and they are also termed small speculators. Of reportable positions, non-commercial includes all actors who do not possess any interest in making use of the underlying currency or commodity, such as hedge funds, brokerage firms, investment banks and other related firms. Commercial open interest is created by firms that have the desire to receive or deliver the underlying. Thus the roles played by the two categories of traders is quite different. Spreading covers those trades who hold an equal number of long-short positions on the future contracts. The report provides data on the percentage of long or short contracts to the total, on the number of traders in all three categories with positions on a currency, and finally the changes in open interest in comparison with the previous reporting period. Over the years the COT report has become quite a popular tool for all kinds of traders. Here are a number of ways of exploiting the data provided by the COT report. 1. Creating a currency portfolio based on the COT report positioning. We can use the COT report data to create a diversified currency portfolio. By examining the COT report, we can have a good idea of the attitude of major traders toward the USD, but to make real use of the the data we must create a portfolio of currency pairs, such as AUDUSD, EURUSD, USDJPY.

Since the market can be, overall, long the USD, but can be short the USD against one or more currencies, we do not want to be caught holding a pair in which the USD will lose value, while the COT is still long. Let us now suppose that the non-commercial sector is overall long the USD in our example. What should be the criteria in deciding the currency pairs that will be included in our portfolio in such a situation? In general, it’s a good idea to make our portfolio interest-neutral, so as to express in our currency allocations our USD-positive idea, while declining to say much about the currencies we will short. For instance, we will short AUDUSD and EURUSD (and the carry is negative) and long USDJPY and then we will manage our currency pair ratios in such a way that the total interest received will not exceed the Fed rate. Why do we do this? Because all we want to do is to gain from the appreciation of the USD while limiting the volatility caused by the carry trade. By making our position interest-neutral, we will, we expect, be able to ride through such disruptions. This will reduce the volatility of our portfolio, and will also reduce the potential return from our investment, but it does create a longer-lasting, more resilient position. Another, but much riskier way to create our COT-report based portfolio would be to simply long what the commercial sector is long, and to short the commodity or currency in which the non-commercial traders are long. Thus, for instance, if the commercial sector is long the EUR, and the speculative sector is long the AUD, the trader would simply arrange his portfolio to reflect the market’s choice by assigning a large part to EURAUD. And one can go on with this method, to create an interest-neutral portfolio in the previously described way, thereby limiting the volatility of the position, and ensuring a more successful long-term strategy. 2. Exploiting reversals in positioning to create a portfolio. It’s also possible to arrange the above mentioned portfolios to profit from trend reversals as signaled by COT reports, but we caution against this method, unless the trader carefully hedges his position by trading uncorrelated(or negatively correlated) pairs. Correlations statistics of currency pairs are available from most major forex brokers.

It is nonetheless true that major changes in the strength of a trend, or its reversal on a permanent basis, are indeed noted by changes in open interest, and institutional positioning. Our only suggestion is that the trader be aware of the potential of false signals, and, as per the usual principle, avoid trying too hard to catch bottoms and tops. 3. Using the COT report as a long term volume indicator. An exceptionally useful and prudent use of the COT report is regarding it as a volume complement to the price studies generated by conventional technical analysis. The trader can simply refuse to act when a technical signal fails to be confirmed by a similar movement (signaled in increasing open interest) in the COT report. For an uptrend, he would expect a corresponding rise in open interest, and for a down trend, a corresponding fall. It is also possible to devise indicators for this purpose, and MACD, Williams Oscillator, or Stochastics can all be drawn on the COT report data. This approach is akin to using volume and price data simultaneously while exploring stock market charts, and those with experience in that field will easily grasp the importance of the COT report. Nonetheless, those with little knowledge of other markets can still greatly benefit from its utilization, especially when trading on a purely technical basis. 4. Using flips in positioning to predict market reversals. In the sample COT chart above, non-commercial net positioning for Euro is short, since 38 percent of traders are holding short positions, while thirty percent hold longs. One way of exploiting this segment of the COT report is by taking note when net positioning switches from long to short and vice versa, and predicting forex market reversals on that basis.

In the above example, when net positioning of the non-commercial sector switches to long, we would use the development as a signal for buying euros, coupled with some input from other sources of technical analysis. While this method can produce results that are much more reliable than those generated by pure technical analysis, the trader should still be aware of whipsaws and unpredictable spikes and collapses that can sometimes arise. Percentage values are easier to recognize, and are easier for recognizing position flips. 5. Using extreme positioning to gauge market exhaustion. Comparing long or short positioning with historical extremes can also be beneficial in identifying market extremums. Experience shows that there are absolute values which indicate a bought-out, or sold-out currency, and as the COT positioning hits these values, there’s a significant chance of a rapid reversal. Extremums can also be termed bubbles, as they characterize a market that is already in an unsustainable phase of rise or fall. The problem with this method lies in the fact that it’s always hard to pick up tops and bottoms: there’s no reason to expect that positioning cannot exceed a previously registered high, before collapsing. Still, if one has the determination and the resilience, extremums reported by the COT report have much greater value than that reported by price based technical analysis. It is possible to confirm the absolute extremes on the COT report with extremes on moving averages or oscillators on the price chart. The COT report is a very useful tool which can be substituted for the volume indicators of stocks analysis. Absolute long and short positioning and historical comparisons can be useful for identifying market extremes. Percentage changes in open interest can be valuable in noting position flips and predicting market reversals in the medium term. If there ever were an ultimate technical indicator, its seekers have their greatest luck in COT data. But the old advice on not putting all eggs in the same basket is still valid: it’s better to confirm signals from the COT report with data from other aspects of technical analysis, and of course fundamental analysis, before reaching decisions.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you. How to Use the COT Report for Trading. Since the COT report comes out weekly, its usefulness as a market sentiment indicator would be more suitable for longer-term trades. The question you may be asking now is this: How the heck do you turn all that “big giant gobbled-up block of text” into a sentiment-based indicator that will help you grab some pips?! Finding these positions may signal that a market reversal is just around the corner because if everyone is long a currency, who is left to buy? And if everyone is short a currency, who is left to sell? Yeah, that’s right. NO ONE. You can’t keep going since there’s no more road ahead. The only thing to do is to turn back.

Let’s take a look at this chart of the EURUSD from TimingCharts : On the top half, we’ve got the price action of EURUSD going on. At the same time, on the bottom half, we’ve got data on the long and short positions of EUR futures, divided into three categories: Commercial traders (blue) Large Non-commercial (green) Small non-commercial (red) Ignore the commercial positions for now, since those are mainly for hedging while small retail traders aren’t relevant. Let’s take a look at what happened mid-way through 2008. As you can see, EURUSD made a steady decline from July to September. As the value of the net short positions of non-commercial traders (the green line) dropped, so did EURUSD. In the middle of September, net short positions hit an extreme of 45,650 . Soon after, investors started to buy back EUR futures. Meanwhile, EURUSD rose sharply from about 1.2400 to a high near 1.4700! Over the next year, the net value of EUR futures position gradually turned positive. As expected, EURUSD eventually followed suit, even hitting a new high around 1.5100. In early October 2009, EUR futures net long positions hit an extreme of 51,000 before reversing. Shortly after, EURUSD began to decline as well. Holy Guacamole! Just by using the COT as an indicator, you could have caught two crazy moves from October 2008 to January 2009 and November 2009 to March 2010. If you had seen that speculative traders’ short positions were at extreme levels, you could have bought EURUSD at around 1.2300.

This would have resulted in almost a 2,000-pip gain in a matter of a few months! Now, if you had also seen that net long positions were at an extreme in November 2009, you would have had sold EURUSD and you could have grabbed about 1,500 pips! With those two moves, by using the COT report as a market sentiment reversal indicator , you could have grabbed a total of 3,500 pips. Pretty nifty, eh? Track The Largest Traders With The Commitment of Traders (CoT) Report. by Tyler Yell, CMT , Forex Trading Instructor. Position Trading based on technical set ups, Risk Management & Trader Psychology. Your Forecast Is Headed to Your Inbox. But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk. Your demo is preloaded with ?10,000 virtual funds , which you can use to trade over 10,000 live global markets. We'll email you login details shortly. You are subscribed to Tyler Yell.

You can manage you subscriptions by following the link in the footer of each email you will receive. An error occurred submitting your form. Please try again later. What Is The Commitment of Traders Report? Who Are the Players In The Report? How to Read CoT for Directional Bias. What Is the Commitment of Traders Report? How would you like to know what the smartest guys and girls in the room are doing? Thanks to a requirement by the Commodity Futures Trading Commission, the largest futures traders in the world are required to report their positions which can easily be tracked due to the margin they must pay to hold their large positions which the CFTC has been publishing since 1962 and since 2000, every Friday at 3:30ET pm. This information can be of extreme help due to the people who come into the Futures market like hedge funds to make a return above their respective index or some of the largest companies in the world with real-time data of the health of the economy that come to the futures market to hedge their exposure to price fluctuations of raw materials that they use to make their product or preform their service. Learn Forex: CoT Report for Euro FX (EURUSD) as of 01282014. It may be helpful to think of the CoT report as a sentiment indicator with a lot more depth than most indicators. The depth, of course, comes from the fact that the readings are based on the largest future traders and can help you see when large fortune-500 companies switch their outlook on something that you’re trading.

In short, this report provides incredible levels of insider intelligence that you’d be hard-pressed to find in another avenue. Who Are the Players In The Report? Commercials – Using the futures market primarily for hedging unfavorable price swings to their daily operations. They likely have the best insight as to what the demand and future is for the market as a hole and have some of the deepest pockets. These players are also known as commercial hedgers. Examples: Coca Cola in the Sugar Market or American Airlines in the Gasoline Market. Non-Commercials (Speculators Funds) – Traders, whether hedge-funds are large individuals, who have no interest in taking delivery but are rather in the market for profit and meet reportable requirements of the CFTC. Examples: Hedge Funds and large banks or large Commodity Trading Advisors (CTAs) Nonreportable Positions – Long & Short open interest on positions that don’t meet reportable requirements, i. e. small traders. Examples: This is the leveraged players without deep pockets and are shaken out on big moves, similar to the DailyFX SSI. How to Read the CoT for Directional Bias? Upon the first reading of the CoT, you may be confused how future positions in USD, JPY, GBP or EUR could be helpful for trading EURUD, USDJPY, or EURGBP.

There is a lot to learn about the Commitment of Traders report but what’s often helpful is to find when there is a very strong divergence between large speculators and large commercials. Learn Forex: Look to See What Hedge Funds Are Buying Selling. Learn Forex: Non-Commercials Hedge Funds Sold USDJPY Longs & Charts Confirm This. Chart Created by Tyler Yell, CMT. The first place to start with is a clean understanding of Net Positioning w hich is shown clearly on the repo rts and the week over week differential of major market bias (circled above) . It may be helpful to know that what you’re looking for isn’t as much the specific number but a clear sign in % of open interest or bias so that you see Non-Commercials Funds flipping against the primary trend. Furthermore, when you see a key flip in sentiment of non-commercials funds who are in it for the money and not to be hedged like commercials, and there is a confirmation on the charts that a trend is exhausting, you are likely trading in the direction of the big kids. As you can see from the last report in January, the number of funds off-loading the JPY shorts increased dramatically from the week prior. When you see this type of shift from major funds, you can look for other signs that show the prior trend is losing steam and that maybe you should exit the trade too. The chart above of USDJPY notes that there have been 4 bearish key days on USDJPY since the start of 2014 at the same time non-commercials have unloaded their USDJPY longs JPY shorts giving credence that this move down may have more to go. Another excellent tool, is the Commitment of Traders Analysis from DailyFX . This weekly report provides analysis of the CFTC report, showing the positioning of Forex futures trades with a synopsis of the key flips in positioning. This report also helps traders by providing 52-week percentiles of major moves so you can see if we’re currently at annual bullish bearish extremes so that you should be tightening stops or looking for price action to confirm the funds are selling out so that you can follow. Bottom Line: Look for Chart Validation of what the Non-Commercial Are Doing. When you have a large percentage (greater than 10%) of non-commercials flipping their bias, it’s time for you to take note.

Lastly, if you want to really juice up your understanding of market sentiment, you can get a better feel for how a sample group of non-reportables or smaller traders are positioned in OTC FX via the DailyFX Speculative Sentiment Index which is updated twice a day . ---Written by Tyler Yell, CMT. Trading Instructor Currency Analyst. To contact Tyler, email [email protected] com. Follow me on Twitter @ForexYell. To receive Tyler’s analysis and educational emails directly to your inbox, please sign up here. Interested In Our Analyst's Best Views On Major Markets? Check Out Our Free Trading Guides Here. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Using the Commitment of Traders (COT) Report in Forex Trading. While the Commitment of Traders (COT) Report is not an exact timing indicator, it can aid in forex trading and provide a context for current and future market movements. There are potentially many ways to use the COT Report for analyzing a forex pair. Here is one COT Report forex strategy, along with basics of what the COT report is, and why it is worth paying attention to. COT Report Basics for Forex Trading. Simply put, large traders and institutions must disclose their futures positions each Tuesday, which is called the “As of “date (currencies, or forex pairs, trade via futures market as well via the forex and cash markets).

These positions are then revealed to the public each Friday, at 3:30 PM EST, in the COT report published by the Commodity Futures Trading Commission (CFTC). How these large traders and institutions are positioned gives insight into whether a trend is likely to continue or reverse. While the data only shows information on futures contracts, and not the transactions that occur in the forex market, the COT report is still a very good estimate of how other traders are positioned, and thus should be monitored by both currency futures traders and forex traders. Before going into COT Report forex strategies I want to briefly outline a few of the key elements. The COT Report has quite a bit of data, yet there is really only a few pieces of information I care about: the net position of Commercials, the net positions of Large Speculators, and how these positions have changed over time. Commercials are hedgers, businesses, producers, etc, who have large positions that are often offsetting another position or transaction. Commercials include importers or exporters who are hedging foreign currency exposure to control costs or normalize income. As a group, these are counter trend traders. They can afford to hold positions against large trends because their transactions are often a hedge, and thus do not expose them to a direct loss. Think of a gold producer. They know they will be producing gold, and will need to sell it. They therefore sell gold futures to lock in a price that they can sell their gold at. If the price of gold goes up, they missed out on making more on their gold, but they still get to sell their gold at the price they locked in. If the price of gold goes down, they still get to sell at the price they locked in. The commercials are largely engaged in this type of trading.

They do want to get a good price for whatever it is they are doing, but they are not typically speculating (although some may) on what the price will do, they are simply locking in prices (for commodities or currencies) to run their business. Large Speculators on the other hand are mostly hedge funds. Despite the name “hedge fund” these large speculators are rarely hedged, and therefore cannot sustain large losses or afford to trade against the trend. As a group Large Speculators are trend followers. Speculators are the people on the other side of the Commercial’s transactions. Since Large Speculators are trend followers and much more sensitive to price movements (they are speculating and are therefore more likely to experience a direct loss of funds if a trade goes opposite to what they expect) than the Commercials, Large Speculators are the group of prime interest and the group on which our COT Report forex strategies are based. Calculating the net position over time “by hand” is possible as the reports are released weekly by the CFTC, but that is ultimately unnecessary. Using a COT Report chart is one of the easiest ways to track the data for trading purposes. COT Report data is chartable on barcharts. com. Select the futures contract you wish to view a chart of. The COT data is shown along the bottom of chart (we only care about the one that includes Large Spec., Small Spec, Comm Spec) The following is an example of a Euro (FX) futures chart showing the COT Report data along the bottom. The frequency of the chart is “weekly continuation” and the period is 5 years. (click to enlarge) In the chart above we can see the net positions of the Commercials (red) and Large Speculators (green). The chart shows that the speculators usually move with the price, and commercials against the price.

When a line is below the “0” mark it means the net position is short, while above the “0” line means the net position is long. One other thing to note is that a currency future is relative to the US dollar. Therefore, the Euro future will move with the EURUSD. The Canadian dollar future will move with the CADUSD, which is inverse to the USDCAD forex pair most forex traders are used to. When the USD is the second currency in the pair, the future and the currency pair will move in unison. In currency pairs where the USD is first, the futures will move opposite the pair, such as the case with the CAD futures. Remember this when analyzing COT data and acting on it in the forex market. By visually seeing the COT data in this way we can extract useful information, which then provides the basis for our COT Report forex strategy. COT Report Forex Trading – Extreme Levels Can Indicate a Reversal. When speculators are accumulating a position it can be a confirmation that there is interest in the trend. If shorts are being accumulated as the price drops, or if long positions are being accumulated as the price rises, this can be a good sign the trend will continue. But speculators have a limit–they can’t purchase or sell indefinitely. They may run out of money, simply wish to take profit (or losses) or may no longer feel as much conviction to keep buying at higher prices or selling at lower prices. When speculators are tapped out, want out or don’t want to invest anymore, there is nowhere left for the price to go, but to reverse.

Therefore, the COT data can be used as a type of “overboughtoversold” indicator in terms of the health of the traders within the market. Each futures market will be a bit different, but critical COT levels will often repeat and indicate when speculators are overextended. The Euro futures chart above shows that when speculators were 200,000 contracts short, or close to it, this generally resulted in a price reversal to the upside over time these extreme levels may continue to push outwards. It is not a single level that is important (200,000 contracts, for example) but rather watching for new extremes, and then reversals in price and COT direction after those extremes start to show up. This method is not recommended for a top or bottom picking strategy; it can be used to provide a context for other analysis and be used to confirm reversals in price though. Extreme levels can look easy to isolate in hindsight, but are not ideal timing indicators. That said, it is very useful for alerting traders when a reversal could be nearby. The COT data should not be acted on alone though; wait for price to confirm a potential reversal signal in the COT data (more on this later). Let’s look at another example, and see how the COT data could have aided in making a trading decision. The chart below shows Canadian dollar futures (D6), along with COT data.

We can see that the Canadian dollar was in a long term decline versus the US dollar (futures contracts are traded against the USD, unless otherwise stated). In 2015, Large Specs had accumulated a short position close to -65,000 contracts. This only resulted in a minor bump up in price. In early 2016, the same short position resulted in a much larger up move. Of note is that this is when oil started to bounce, and the Canadian economy is heavily dependent on the price of oil. The rise in oil combined with an extreme reading on the Large Specs pointed to a move higher in the Canadian dollar. (click to enlarge) Ultimately though, we want price action to help confirm our trades. While those COT levels in 2015 and 2016 were more extreme than what we had seen in the past, it would have been relatively hard to make a trade based on them…unless you were also looking at oil and making a determination that it was likely to turn higher, which would bolster the Canadian dollar in early 2016. With a few data points behind us for reference, the next major opportunity to use the COT came in 2017.

But first a bit of context. In 2016 the price shot up, and the up move has larger than the last swing to the downside (Sept ’15 to Jan ’16). That is a very positive price action signal. It indicates that the downtrend may be over. But we want more evidence, which is why I usually wait for a pullback before taking trade (with most of my strategies). Throughout out 2016 and into 2017 we have a very lengthy and slow-moving decline. It is a much weaker down move than the prior up move. That’s another positive sign (read Price Action Trading with Velocity and Magnitude). Based on the price action, the stage is set. We have two compelling price action reasons to consider a long trade. In May, COT Large Spec short positions increase to well below the -65,000 point of interest. The position ultimately reaches -99,000 in late May. By mid-June that short position has decreased to below 90,000 and the position moves up toward zero every week after, showing that the Large Specs are quickly shifting their bias. Price is also rising during this time.

If we zero in on a daily chart we can see some possible trade locations. The first would been at the bottom of this weak descending channel. Remember, based on the price action we were expecting another move higher, and at this point the COT is at an extreme reading, confirming a move to the upside is likely coming. (click to enlarge) The price consolidates at the bottom of the channel, and then breaks above that consolidation, providing the first possible entry into a long trade (note that at this point, the Large Specs were still increasing their short position). For those who have read my Forex Strategies Guide, this would be a Front-Running trade. The price then rallies to the top of the channel, and consolidates. At this point the Large Specs are starting to buy (short position is moving back toward zero). So price and COT are confirming a move up. The price breaks higher out of the consolidation and the descending channel, signaling another possible trade. Since that time, the Large Specs have become bullish, flipping from short to long. This has helped fuel the rally, which is why we want to anticipate what these guys will do, and we do that by knowing that a big reversal is often coming when these these Large Spec positions are near extremes. The above chart is a futures chart though, not a forex chart. If you are trading the USDCAD, the same analysis would apply, but it would be flipped upside down. Remember, we were expecting the CAD to increase in 2017, based on price action and COT data. If we expect the CAD to go up, what will the USDCAD do? It will fall, because if the CAD goes up, the USD goes down.

The same trades and setups are present on the USDCAD chart, except we would have been going short the USDCAD (which is equivalent to going long the CADUSD or CAD futures). (click to enlarge) Trading With COT Extremes – Warnings. Have other pieces of evidence that help confirm a trade. It isn’t wise to just assume the price will reverse because the Large Specs are near a historically extreme level. Over time, these extreme levels tend to expand. In the CAD futures chart above, -99,000 was extreme. That may hold in the future as well, but several years down the road new extremes may be hit at 125,000 or 150,000. Positions can also stay near extreme levels for extended periods of time, without causing a price reversal. That is why we need other pieces of evidence. The extreme COT alerts us to a possible trade (or to avoid a trade) but it doesn’t SIGNAL a trade. This article is focused on COT, and how it can be used as an additional piece of evidence for taking trades. The article did not discuss stop loss levels or profit targets (taking profits).

These are elements of a trading strategy, and should be considered on each trade before placing it. COT data is not a strategy in and out of itself, rather it is just a tool that can be combined with a trading strategy and trading plan. IF THE COT IS NOT NEAR AN EXTREME, I DO NOT CONSIDER IT IN MY TRADING DECISIONS. I wouldn’t over-use this indicator. If you get a valid trade signal based on your strategies, and the COT data isn’t near an extreme, that doesn’t mean you shouldn’t take your trade signal. COT data is just an extra piece of data. If I get a valid trade signal, I take it. It’s just that occasionally COT may help in analyzing or confirming (or rejecting) trades. But as we can see from the CAD example, the COT data was only relevant (to how I trade) a few times over the last several years. It is still worth paying attention to, because when price action and extreme COT levels collide, it lets you know the likely direction of a major move. When looking at COT data, start with at least a 10 year chart for picking out extreme levels . Prior extreme long and short Long Spec positions are areas of interest, but remember these tend to expand outward over time. Make a note of these extreme levels, and then watch for trade signals as the price nears or exceeds these levels. If you only look at extreme levels on a 1 or 2 year chart, you may be missing historically significant information. If we look at a CAD futures chart (with COT data) going back to 2007, we would see that 65,000 to 100,000 contract positions had been significant in the past as well. COT Report Forex Trading – Conclusion. One way I like to use COT data on my chart is to look for extremes in Large Spec.

positions. While it isn’t an exact timing indicator, if other conditions align and I get a valid trade setup, an extreme level on the COT can often mean a sharp and large price reversal. Since we know that extreme COT levels often cause the price to move in the opposite direction of the recent trend, we gain insight into what direction we want to be trading before the reversal actually occurs. As COT levels reach extremes, it can also warn us to avoid trading in that trend direction, as it may be ripe for a reversal. Just because a COT reading is at or near an extreme doesn’t mean the price will have a massive reversal. Sometimes we have positions stay at extreme levels for long periods of time, and the price continues to move in the trend direction without any major price reversals. This is why we don’t use the COT in isolation. We want to combine this approach with other technical or fundamental approaches, and ideally with specific price action strategies (that confirm when the price reversal may be starting). For other forex trading strategies, check out the Forex Trading Strategies Guide for Day and Swing Traders eBook, by Cory Mitchell.

At over 300 pages, and including more than 20 strategies, it is more than an eBook…it’s a complete course on forex trading. By Cory Mitchell, CMT. Some other articles you may enjoy: High Probability Forex Engulfing Candle Trading Strategy – A trading strategy using engulfing candles as an entry point into a defined trend. Useful for noting the transition from pullback to trend. Provides an alternate entry method compared to the “traditional” approach. ABC Forex Trading Strategy – (Video) – A simple but powerful price pattern seen in all markets; it gets you in in the direction of strong momentum. How to Identify a Trend Change in Real-Time (video) – A look at how to monitor real-time changes in direction. How to Use the COT Report for Trading. By Alex Bernal With much of the commodities space taking a hard tumble in recent weeks. I wanted to showcase a very useful tool that I use in my commodities analysis and trading: The Commitment of Trader Report (The COT Report). Every Friday the Commodity Futures Trading Commission (CFTC) releases the COT Report which aggregates all the futures positions of every major player in the futures markets. The aggregate data is broken down into different commodity groups and by 3 Basic types of traders. 1. Commercial Hedgers.

3. Small Speculators. The Largest positions are typically held by commercial institutions or “hedgers” that have the indent actually taking delivery of the underlying commodity. Commercials are considered the most knowledgeable & are the most important group to keep tabs on. The next largest player is typically the “Large Speculators, which include Hedge Funds or CTA Trading Pools. These guys are much smaller than the overall commercial positions and on average do not have the intent on taking delivery of any of the under lying commodities they are trading. They are trading purely for profit and their actions are often less valuable to watch because they typically trade Future Spreads (Calendars) or Married positions (futures + options). The last group is call the Small Speculators or what some people call “dumb” money. This group is considered the small guy or 1 lot crowd. It is also typically seen that this group is the most ill-informed and thus should be “faded” or traded contrarian too. I have not really found this to be the case but there are times when this group does reach pretty extreme readings. Managed Money, Merchants & Swap Dealers are three new disaggregation’s that have only been available in recent times that can further splice up the Commercial and Large Speculator positions in to even more specific categories. This is because of the growth in Commodity Index Funds or ETFs that perpetually hold long positions in the commodity (i. e. GLD or VXX). See Chart Below. Large Trader – Purple. Managed Money Crimson. Small Trader Black. Swap dealers blue.

GOLD Futures Chart with COT Report. So we get the data for free now what? This was the first thought I had when I started trying to analyze this data. At first glance it did not seem particularly useful in anyway because it was just a snap shot of what traders DID not what they will necessarily DO next. But the old saying “you cant turn a tanker on a dime” does lay way to how the commercial paper effects future prices in the commodity. COMMERCIALS, COMMERCIALS, COMMERCIALS. It was only after studying the works of a few experts like Larry Williams, Steve Breise, Floyd Upperman, and Jake Bernstein that I fully realized one portion of the participants are FAR more important to watch than the others : The Commercials. The Big Whales, The Deep Pockets The Deciders. These are the guys that when they make moves you will see the large scale ripple effects throughout the price of the commodity in question. As you can see in the chart below the Commercial activity is often in the OPPOSITE direction of the markets trends. This is because they are actively buying when the market is going down and actively selling when the market is going up. They are the experts in their businesses they are often seen to be acting many months in advance of where they believe the price will be. Now this is not always the case and Commercials are not always a “sure thing” but they are the closest thing to a “predictor” that we can get. Also in the graph below I have isolated only the commercial movement and the Movement of Crude Oil over the last few years. It is very easy to see that the commercial movement dominates the overall price trend of oil. Crude Oil Chart with COT Report data.

So in order to further make use of this data in a way that can help us speculate on futures prices one common indicator that I want to show you how to construct is called the COT index. The calculation is below. COT index = 100 x (current Net – Minimum Net) (maximum Net – Minimum Net) This indicator converts net futures positions to a 0% -100% scale (normalizes). Its now reflects where the current net positions rank as a percentage of its range over the recent past data (typically three years). I use this to watch for extremes reading in the commodities markets. A 90 % indicator suggests there has been a commercial buying climax. A 5% percent reading suggests a commercial selling climax. In short the the COT indicator tells me when the biggest most influential players are ALL IN either buying or selling futures. This is not necessary a call to action but rather an illuminating clue for possible trading setups. I never take trades merely on the COT Report data or COT Index but rather use my usual execution tools to confirm a new trend before I make a trade. Cocoa Chart with COT Report data.

The graph above is a great example of how the COT index shows when the cocoa market was overbought or oversold during the past couple years. Other COT Indicators. There are many other indicators that I have come across being applied to the COT Report data, some include: 1) Spread and Rate of Change of the difference between Commercials and Large speculators. 2) Spread and Rate of Change between Swap Markets and Futures Markets. 3) Cycle Analysis on the COT report raw data or COT index. 4) COT Index adjusted for seasonality. Drawbacks of this Data. 1) IT IS LATE! After the fact! Be aware by the time you get this data it is at least a week old and large speculators and commercials can and do change positions quickly!

2) Markets can stay over bought and oversold for very long periods of time. Just because a COT Index extreme is reached doesn’t necessarily mean that the market will up and reverse right after if the commercials do not commit to a new direction of accumulation or distribution there will likely be no new trend change. 3) COT Report data does not account for possible “spreading” of positions. This can skew the data slightly in particular markets where calendar spreads are a large portion of the overall open interest. Lastly I want to leave you with some graphs of current commodities markets on their current COT and Index Positions that I believe are at important inflection points. British Pound with COT Report data. Canadian Dollar with COT Report data. US Dollar Chart with COT Report data. Gold Chart with COT Report data. Copper Chart with COT Report data. Coffee Chart with COT Report data. Natural Gas Chart with COT Report data. Disclaimer : This in no way constitutes investing advice. All of these opinions are my own and I am simply sharing them. I am not trying to convince anybody to do anything with their money.

I am simply offering up ideas for the sake of discussion. As always, everybody is expected to do their own due diligence and to ultimately be comfortable with their own investing decisions. Any actions taken based on the views expressed in this blog are solely the responsibility of the user. In no event will Aether Analytics or its owner be liable for any decision made or action taken by you based upon the information andor opinion provided in this blog. Author is short Gold Putspreads, short NG Callspreads, short SPX Call & Put Spreads, short DX Call spreads at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity. NOT INVESTMENT ADVICE – PLEASE READ INVESTMENT DISCLAIMER. ( COT ) Commitments of Traders report – An Ultimate Guide for a Forex Trader. ( COT ) Commitments of Traders report is the most powerful leading indicator. After talking to many day traders I notice that most of them discount the Commitments of Traders report as a functional leading indicator . They are of the opinion that the data reported lags five days hence is invalid. But this is the big one. Commitments of Traders report is first of 4 essential Steps to profit in Forex . It confirms your long term bias in the market. There is no better tangible way of doing so. If you are that guy who always says – Commitments of Traders is invalid, late, old or irrelevant, perhaps this article is not for you. This article is for those traders who can see beyond 15 minute charts, but I hope that you decide to read it anyway because. I truly believe there is enough evidence for you to change your mind and once you get to the bottom of this page, you will be a much better trader.

Here it is – Everything you will ever need to know about C. O.T. Why prices really move What is the Commitments of Traders report Who qualifies for CFTC reporting. Definitions around Commitments of Traders How to find the report How to use it in trading How to bring it to the chart How accurate is the Commitments of Traders really. Why prices really move? Price is a result of buyers’ and sellers’ interaction. Many traders know about it, but just a few use it. The practical application of this comprehensive market law can be extremely useful for anyone who has ever dared to predict future prices. Fundamental and technical conditions create supply and demand. This is the only law of the price. No matter how trivial it may seem, demand and supply determine the price. It might be partly driven by emotions or rationale but after all – the volume of orders will decide which way the price will go. Supply and demand is a basic principle in economics illustrated in the chart below.

The higher the price (Y axis) the less the commodity is demanded (X axis). There are many ways to measure supply and demand in the market. But Commitments of Traders is by far the most accurate tool I know. The method of the market analysis using the Commitments of Traders Report can be considered as fundamental analysis. Fundamental analysis itself hasn’t found a wide application for traders. It’s no secret that most traders use technical analysis for the real trading. Why is that? This is due to the fact that fundamental analysis is often connected with the economic news release, and it’s impossible to predict the market reaction to the news because traders have limited knowledge of finance and macroeconomics. Many traders default to technical analysis as a core of their trading.

DON’T BE ONE OF THOSE GUYS! One cannot sustain profits in the long run without understanding the real forces behind the price movement. What is the Commitments of Traders report. The Commitments of Traders Report is issued by CFTC. The Commitments of Traders (COT) report provides 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. This is an essential tool for gauging long term sentiment in futures markets. Antecedents of the Commitments of Traders (COT) reports can be traced all the way back to 1924. In that year, the U. S. Department of Agriculture’s Grain Futures Administration (predecessor to the USDA Commodity Exchange Authority, in turn the predecessor to the CFTC), published its first comprehensive annual report of hedging and speculation in regulated futures markets. Beginning as of June 30, 1962, COT data was published each month. At the time, this report for 13 agricultural commodities was proclaimed as “another step forward in the policy of providing the public with current and basic data on futures market operations.” Those original reports then were compiled on an end-of-month basis and published on the 11th or 12th calendar day of the following month. It reports all open positions in futures markets of three main groups of traders: Commercial Traders – Hedgers. Fat cats with deep pockets Non-Commercial Traders – Money Managers or Speculators Non-Reportable – Retail market.

You and me Mate! The report breaks down each Tuesday’s Open Interest and gives us a powerful view on what exactly the big guys have been doing in the marketplace and what their plans might be. It is issued every Friday and includes data from Tuesday to Tuesday. The three days prior to the release date are not included. Simply put, COT reports give us a view into the trading books of the most influential traders in the market. Once we know what these guys are doing, it is easier to eliminate the noise, opinions and hype. Remember, the volume of money placed on one side of the market will tip the price towards that direction. This is supply and demand in play. This is as simple as it gets. Reports are available in both a short and long format. The short report shows an open interest separately for reportable and nonreportable positions. For reportable positions, additional data is provided for commercial and non-commercial holdings, spreading, changes from the previous report, percents of an open interest by category, and numbers of traders. Most of it is irrelevant to us. We want to focus on Commercial, Non-Commercial orders and open interest. The CFTC makes available more than three years of history of disaggregated data included in the weekly Commitments of Traders (COT) reports. You can access the Historical Viewable table and in the excel format by going into left hand side panel on the website as per screenshot below. This could be handy if you want to see more correlations between the price and C. O.T data.

Who qualifies for CFTC reporting. When an individual reportable trader is identified to the Commission, the trader is classified either as “commercial” or “non-commercial.” All of a trader’s reported futures positions in a commodity are classified as commercial if the trader uses futures contracts in that particular commodity for hedging as defined in CFTC Regulation 1.3, 17 CFR 1.3(z). Regulations define who is who based on the trading activity they commence. Some of the traders or institutions would be exempt from taxation ( hedging only ) other would have to disclose books etc. The most important fact is, these two groups HAVE TO CARRY OUT A LOT OF TRADING for CFTC to consider them in the report. These guys are heavy duty with plenty of capital behind them. The smallest contract they allow to trade is €125,000. On principle, they know what they doing more often than the retail trader like me or you. Definitions around Commitments of Traders. There are a few important definitions to grasp in order to fully understand this concept. Open interest. This is very important concept for futures traders. Open Interest is the total number of outstanding contracts that are held by market participants at the end of each day. For example, if both parties to the trade are initiating a new position (one new buyer and one new seller), open interest will increase by one contract. If both traders are closing an existing or old position (one old buyer and one old seller) open interest will decline by one contract. The third and final possibility is one old trader passing off his position to a new trader (one old buyer sells to one new buyer). In this case the open interest will not change. Increasing open interest means that new money is flowing into the marketplace.

Traders open new positions and create a new transactions. The result will be that the present trend ( up, down or sideways) will continue. Declining open interest means that the market is liquidating and implies that the prevailing price trend is coming to an end. If open interest is rising with the price, the bull market is well supported and should continue. The same applies to bear markets. If the open interest increases with falling price, the bear market is strong. If the open interest is starting to drop on still rising prices, it means that the current uptrend is near to its end. Bulls are now liquidatingselling their long positions by replacing longs with shorts. The price drop should quickly follow. If open interest is at a multi year maximum, the current trend might be near to its end as there might not be many traders left to transact. They are all in the position already. See more smart resources if you want to learn more about Open Interest. investopedia. comtermsoopeninterest.

asp. sharemarketschool. comfutures-understanding-%E2%80%98open-interest%E2%80%99 crbtrader. comtraderv10n02v10n02a04.asp. futures. tradingcharts. comlearningvolume_open_interest. html. See this simple table to analyse open interest. 2. Commercial Traders.

A trading entity generally gets classified as a “commercial” trader by filing a statement with the Commission, on CFTC Form 40 : Statement of Reporting Trader, that it is commercially “…engaged in business activities hedged by the use of the futures or option markets.” This group of traders are called hedgers or producers. Depending on the market, this group would include mainly large producers of a given commodity or financial institutions that hedge against future price changes. For example: Gold Mine, Sugar factory, wheat producers, Nestle (sugar is their main raw material) etc. On principle these guys want to sell their produce in the market at a high price and buy it back at the lowest price possible. This is why Commercial traders are most bullish at the bottom of the market and most bearish at the top. See how Commercial traders (in red) were positioned at the multi year extreme levels of their orders. The price reversed right after to begin a new, long term trend. 3. Non-Commercial Traders – Speculators. The buyers of goods and the risks attendant to them are called speculators. The main objective of a speculator is to generate profit from the difference between the current and future prices. They provide high market liquidity.

Large banks, investment and hedge funds would be included in this section. These guys manage money for their clients and are highly profit driven. They are trend followers and would be most bullish at the end of the bull market and most bearish at the end of a bear market. See how Speculative positions (in green) are positioned at the extreme levels right before the market turns. 4. Non-reportable. The long and short open interest shown as “Non-reportable Positions” is derived by subtracting total long and short “Reportable Positions” from the total open interest. Accordingly, for “Non-reportable Positions,” the number of traders involved and the commercialnon-commercial classification of each trader are unknown. CFTC. Essentially, whoever is left after classification goes into this group. This section includes small, retail traders like me and you. We are not eligible to report our trading positions to CFTC. They don’t give a tiny rat’s ass about our trading. Retail open positions do not move the markets. We have no impact on the market prices.

This group is a “heard” and it is on the wrong side of the market in most cases. It should be used as a contrarian indicator. How to find the report. Finding the report is a fairly easy task. Follow the step below to access the Commitments of Traders report. Go to cftc. govindex. ht m and choose Commitments of Traders from the Market Report tab in the main menu. Scroll down to CURRENT LEGACY REPORTS section and choose “ Short format” report next to Chicago Mercantile Exchange. Once clicked in, you will see a basic page with many instruments. This is where CFTC reports data on major markets including: commodities, currencies, indices.

Here you will find butter, cattle, British Pound, Eurodollars or S&P 500 futures. We are after the major currencies. These are our favorite! Each market is being given a table. All relevant information is included in that table. The data is published every Friday but compiled up to the previous Tuesday. For example, there will be new set of figures published this Friday 20 th May. The data will be compiled for a week 10 th -17 th May and so on. This is important especially when important news is due to be released. Sometimes the COT report will not include them until the week after. What those numbers mean? Non-CommercialSpeculators’ section includes three rows; Long, Short and Spreads. We are concerned about the long and short positions Commercialproducers’ section includes two rows with short and long positions. In this example commercial traders held 181,863 long positions and 152,379 short positions. Non-ReportableRetail Traders’ section includes two rows with long and short positions. In this example retail traders were 52,837 long and 60,449 short.

Total Open Interest in this market as per close of Tuesday that week. There were 344,978 transactions in total. Change in Open Interest from the previous week. In this case, there were 15,483 closedcovered transactions that week. This is % of Open Interest for each group of traders. See Commercial traders holding 52% of the whole market in longs. Weekly changes in long, short and spread across all groups. This will tell you how many additional contracts have been purchased or covered since the last report. IN this case, non-Commercial traders reduced their short positions by 11,757 and shorts by 13,504. Total transactions held by each trading group. In this example, Speculators held 101,227 long positions and 123,149 short positions. They are still NET SHORT in this market. How to use it in trading. COT report is not designed as a market entry tool.

The market can be short term bullish in a long term downtrend. The report is designed to gauge supply and demand of important market participants. It can be used to confirm midlong term fundamental bias in a given market. Decreaseflat non-commercial long positions on rising prices might suggest the top is imminent. Traders should seek a short setup near the resistance. Increase in short non-commercial positions on falling prices might support the downtrend. Depending on the trader, one of the groups might be analysed. Some traders will look into Hedgers behaviour and analyse their positioning in the market. Some are of the opinion that these guys. are the biggest in the market hence know the market best.

Other traders would analyse Speculative positioning. Personally,



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