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. It confirms your long term bias in the market. This article is for those traders who can see beyond 15 minute charts, but I hope that you decide to read it anyway because.
Many traders know about it, but just a few use it. Fundamental and technical conditions create supply and demand. This is the only law of 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. There are many ways to measure supply and demand in the market.
The method of the market analysis using the Commitments of Traders Report can be considered as fundamental analysis. Many traders default to technical analysis as a core of their trading. One cannot sustain profits in the long run without understanding the real forces behind the price movement. This is an essential tool for gauging long term sentiment in futures markets. In that year, the U.
Beginning as of June 30, , COT data was published each month. It reports all open positions in futures markets of three main groups of traders:. 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.
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. These guys are heavy duty with plenty of capital behind them.
Open Interest is the total number of outstanding contracts that are held by market participants at the end of each day. 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.
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. 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. 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.
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. 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.
We have no impact on the market prices. It should be used as a contrarian indicator. Once clicked in, you will see a basic page with many instruments. This is where CFTC reports data on major markets including: For example, there will be new set of figures published this Friday 20 th May. This is important especially when important news is due to be released. Traders should seek a short setup near the resistance.
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. 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.
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. 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. 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.
Personally, I find the engulfing daily candle very reliable to signal the end of the current trend. 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. 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 same is true for bear markets. Again, this is not an entry tool. Market entry should be determined by using other technical indicators to decrease the risk. If you are using MT4, there are number of indicators to choose from.
I personally use http: The data for all major currencies is populated right away. The indicators come with a few options. You can track open interest, total positions or index of each individual group. 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.
T predicted market swings many times before with deadly accuracy. The COT report is not design as a market entry tool. The Market can be short term bullish in a long term downtrend. Trading is performed based on short term fluctuations. 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 E-Book improve your trading dramatically. This E-Book contains step-by-step instructions, examples to teach you how to trade profitably.
I truly believe the journey to profitability and freedom is a function of hard work, commitment, persistence and boring routines There is no magic to trading. I believe in making calm rational decisions what, when and how to trade based on a decade of intense learning. Enjoyed reading this article but couldnt get the link to the cot mt4 website to load — is it still the one you use? Great insights to how this is best played out.
More of a timing tool if I am grasping your intent, as confirmation of long term bias. I have read quite a bit on COT these last few months and your writings have brought a new level of understanding. Thank you for taking this as deep as you have in the article and actually showing how best to use COT data.
You must be logged in to post a comment.More...