Forex for a trader
Commitment of traders forex

Commitment of traders forexThe Commitment of Forex Traders - COT report. The Commitment of Traders report is a disclosure of the net long and short positions taken by both speculative and commercial traders. It's a terrific resource that lets you see how the market's big players are positioned in the market. Forex-Central already lets you see what individual traders are positioned on, but do you want to follow the herd, knowing that most of the herd is losing money?! Probably not! The COT (Commitment of Traders) report is actually a report on currency futures positions that are taken by institutional players: commercial traders (companies and banks that are hedging to protect themselves from adverse currency swings) and non-commercial traders (speculators who are only looking to make profits, such as fund managers, financial institutions and individual traders just like you!). Why is the COT report useful? First of all, if you're a scalper or a day trader, you had best look at other forex trading strategies, this one is for longer term forex traders (who hold onto positions for weeks or months)! The COT report is useful for long-term traders as it helps you identify extreme net long or net short positions. And when you see such extreme positions, it usually means that a market reversal is just around the corner because if everyone is long a currency, who is left to buy? Nobody! And the same reasoning applies to short positions. Where do I find the COT report? The COT report is published every Friday at 20:30 PM (GMT) and features a snapshot of the previous Tuesday's activity. You can find it here on the: U. S. Commodity Futures Trading Commision (CFTC) webpage. Just scroll down to the " CURRENT LEGACY REPORTS " section and click on " Short Format " or click on the below picture. Example of the Chicago Mercantile Exchange report. As you can see, you have your Non-Commercial positions in the left columns, followed by the Commercial positions.

Here you can see the number of long positions (in the above picture, each long or short position is for a contract worth 62,500 British pounds). The "open interest" number is the total number of open contracts (purchases and sales) made by all types of traders. On the second line you see the changes from last week (this is great for seeing whether fund managers and hedgers are adding to their positions or easing off). On the last line you see the number of traders holding these positions. These are traders whose positions are large enough that they have to report them to the CFTC. The last columns on the right represent the positions by traders who are not required to disclose their positions to the CFTC (because they're not large enough). How do I interpret this data? You have to keep in mind what characterises the two groups of traders that hold the futures positions listed in that report. Because they are hedging (to protect themselves from a currency devaluation for example), the commercial traders are the most bullish at market bottoms and the most bearish at market peaks. On the other hand, the non-commercial traders , or speculators, are dedicated to following the trend, selling when the market is heading downward and buying when the market is going up. They keep adding to their positions until the price trend reverses. Their strategy often involves following moving averages. Let's look at a visual example to understand all of this: Above us, we have a weekly chart of the EURUSD pair. The two most important lines at the bottom are the blue one ( commercial traders which are hedging to protect themselves) and the green one ( non-commercial traders that are trying to profit by following the trend). Notice how they seem to mirror each other! From this chart we can see that non-commercial short positions hit an extreme low in Sept 2008; 2 months later, the EURUSD pair reversed and went up, as there was seemingly no one left to sell. Conversely, non-commercial long positions hit an extreme high in October 2009; and again, 2 months later the EURUSD pair reversed and started falling, as there was apparently no one left who wanted to buy. There is an apparent 1 to 2 month lag between extremes on non-commercial traders' positions and the reversals of price.

If you had recognised that the non-commercial speculators' short positions were at an extreme low in September 2008, and you had bought at the 1.26 level and sold when their long positions were at an extreme high in October 2009, you would have made 2400 pips ! Just the same, if you had recognised that the non-commercial speculators' long positions were at an extreme high in October 2009, and you had gone short at the 1.48 level and sold when their short positions were at an extreme low in March 2010, you would have made another 1200 pips ! 2 transactions worth a profit of 3,600 pips . not bad, eh?! Of course, it's hard to tell exactly when you've hit the actual extreme, so it's sometimes best to not do anything until the actual market reversal has been confirmed. As you can see, this is a great strategy for the long-term trader who is not in a hurry but wants to capture the full big moves of the market. Unfortunately, even though the COT report is free, it is only provided on a weekly basis, you would have to record the data yourself in an Excel spreadsheet to track the movements of non-commercial traders' long and short positions. However, since you only need those 2 numbers each week, this would only take one minute of your time each week - a small price to pay for all of those pips you can capture. Once again here are the links that you need to get this Commitments of Traders data: " > A very interesting article on the COT Report in which you will find a free Expert Advisor to see the COT report directly in MetaTrader 4. 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. 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 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. ( 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, I like to look at both groups open interest. In most cases, they would be exactly opposite anyway. There are two main techniques you might use for your trading. Extreme levels swings. Extreme levels swings. There is a strong correlation between multiyear high or low positions and market swings. On the chart below we analyse EURUSD and EURO FX Commitments of Traders data. On the chart below you see that Commercial traders (in red) were at multiyear low or high levels right before the price topped and reversed.

The rule is to wait for the highest or lowest level in 3 years to “start to think” (didn’t say “to enter”) of long term reversal. Remember, Commitments of Traders is not a market entry tool. Commitments of Traders will indicate the current trend is about to end but it is still likely to carry on for a little while. We don’t know if this is 100 or 500 pips. As the market’s participation grows over time it might be difficult to predict the top or bottom. There could always be more traders in the market this year than they were last year. The entry must be determined by using other technical price action signals. These could be candlestick reversal pattern on daily or weekly charts, double topbottoms, divergences and more. These will vary from the market to market and should be chosen individually based on the trader’s preference. Personally, I find the engulfing daily candle very reliable to signal the end of the current trend. Net positioning. This is my favourite technique. It is more accurate and reliable compared to the extreme levels strategy. It is based on a more tangible principle.

The basic premise of this concept is to “start thinking” about trend change if the Speculative positions turn NET long or NET short. Speculators will be NET LONG if their long positions exceed short positions. THEY WILL HOLD MORE LONGS ON BALANCE. On the example below, speculators hold more short positions (123,149) than longs (101,277), hence they are NET SHORT. On the chart below you notice how the Speculators turned bullish or bearish on a few occasions. These are marked with the horizontal red line. Every time, the price reversed and followed. the supply or demand law. If the speculators turned NET LONG, the price climbed substantially. The same is true for bear markets.

Once Speculators turned NET SHORT, the price quickly flowed. to the downside. Again, this is not an entry tool. Market entry should be determined by using other technical indicators to decrease the risk. How to bring it to the chart. If you are using MT4, there are number of indicators to choose from. The simplest way is to google “commitments of traders mt4”. I personally use cot4metatrader. com . This is a very reliable and cheap ($10 per month) solution. I get an email every Friday after NY close with the file to be uploaded to my MT4 folder. The data for all major currencies is populated right away.

Plus, Lynn is a very nice guy who is always willing to help. The indicators come with a few options. You can track open interest, total positions or index of each individual group. How accurate is the Commitments of Traders really ? This indicator doesn’t generate many signals. There might be less than five signals per year across major FX crosses once they unfold, they are highly reliable and allow the trader to stay in the position for the mid to long term. Commitment of Traders has proven to be a very powerful tool on many occasions. See the below articles and watch the signals unfolding many weeks before the price swing. In most cases, the retail sentiment is on the opposite side of the market – This is you – the guy who is of the opinion that C. O.T is an old data and can’t be used in trading. See what you think. Conclusion. I don’t remember times when I traded without looking to see what is smart money doing in the markets.

I can’t imagine trading without C. O.T. C. O.T predicted market swings many times before with deadly accuracy. Some insights to take away. The COT report is not design as a market entry tool. The Market can be short term bullish in a long term downtrend. The COT 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. It’s not suitable for day traders who enter the market many times a day and take a few pips every time. Day traders don’t have to have long term bias for their given currency. Trading is performed based on short term fluctuations. C. O.T. report is designed for traders with longer horizons.

Those who plan their trading a few months ahead. Swing traders enter markets a few times a quarter. The mid to long term bias is very important in this case. Trader must be certain of the long term market direction. He positions his orders accordingly and uses short term fluctuations as an opportunity to add to the portfolio. This is the only way to survive in this game in the long shot. COT 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. All rights reserved. "OANDA", "fxTrade" and OANDA's "fx" family of trademarks are owned by OANDA Corporation. All other trademarks appearing on this Website are the property of their respective owners. Leveraged trading in foreign currency contracts or other off-exchange products on margin carries a high level of risk and may not be suitable for everyone.

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