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. A trader may be classified as a commercial trader in some commodities and as a non-commercial trader in other commodities. Commercials include importers or exporters who are hedging foreign currency exposure to control costs or normalize income. Large Speculators on the other hand are mostly hedge funds.
The COT Report
Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk. You can manage you subscriptions by following the link in the footer of each email you will receive. 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 and since , every Friday at 3: 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.
It may be helpful to think of the CoT report as a sentiment indicator with a lot more depth than most indicators. 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. 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.
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. 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.
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.
Follow me on Twitter ForexYell. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Take a free trading course with IG Academy. As a result, exhaustion ensues and prices begin reversing. Open interest is a secondary trading tool that can be used to understand the price behavior of a particular market.
The data is most useful for position traders and investors as they try to capitalize on a longer-term trend. Open interest can basically be used to gauge the overall health of a specific futures market; that is, rising and falling open interest levels help to measure the strength or weakness of a particular price trend. For example, if a market has been in a long-lasting uptrend or downtrend with increasing levels of open interest, a leveling off or decrease in open interest can be a red flag, signaling that the trend may be nearing its end.
Rising open interest generally indicates that the strength of the trend is increasing because new money or aggressive buyers are entering into the market. Declining open interest indicates that money is leaving the market and that the recent trend is running out of momentum. Trends accompanied by declining open interest and volume become suspect.
Rising prices and falling open interest signals the recent trend may be nearing its end as fewer traders are participating in the rally. Notice that market trends tend to be confirmed when total open interest is on the rise. In early May , we see that price action starts moving higher, and overall open interest is also on the rise.
One of the drawbacks of the FX spot market is the lack of volume data. To compensate for this, many traders have turned to the futures market to gauge positioning. Based on empirical analysis, there are three different ways that futures positioning can be used to forecast price trends in the foreign-exchange spot market: It is important to keep in mind, however, that techniques using these premises work better for some currencies than for others.
Here is a quick list of some of the items appearing in the report and what they mean: There are three primary premises on which to base trading with the COT data: Changes in open interest can be used to determine strength of trend.
Flips in Market Positioning Before looking at the chart shown in Figure 2, we should mention that in the futures market all foreign currency exchange futures use the U. Examining open interest on currency futures can help you confirm the strength of a trend in forex market sentiment.
Volume should inform your use of this indicator in confirming trends and reversals.