The COT report or commitment of traders report is provided by the Commodity Futures Trading Commission (CFTC) and is an excellent tool for forex and commodity traders to analyse what other participants are doing in the market.The COT report is published using data from Chicago and New York futures exchanges every Friday at 14.30 EST and is split between three groups; Commercial traders (typically hedgers), non-commercial traders (such as hedge funds and speculators) and non-reportable traders (such as retail traders).
Why use the COT report?
The COT report provides a way to see what the big players are doing in each market. By doing so, we can find extremes in open position data and identify possible reversal points.
For example, let’s say that the COT report shows the majority of traders in a market are holding long positions. If the majority of traders are already long and the market has gone up, it’s unlikely that there are many bulls left. That means when short traders enter the market it’s likely to drop.
Commercial vs Non-commercial
Another way to spot reversals using the COT report is to watch when positions data between the commercial traders and non-commercial traders diverge.
Commercial traders are typically big market players that use the market to hedge. A big gold company for example will enter the market to hedge their business exposure against gold. While non-commercial players such as hedge funds will buy or sell outright positions looking to profit from directional moves.
Commercial traders tend to trade differently to non-commercial traders. They usually become more bearish at market tops and bullish near market bottoms. Non-commercial traders on the other hand like to buy into trends. They are therefore shown to be at their most bullish as the market peaks and most bearish when the market hits at bottom.
At times when commercial traders are predominantly long and non-commercial traders massively short, or vice versa, there is strong divergence, an indication that it is probably a good time to buy or sell the market.
Finding the COT report
You can find the COT report by going to the CFTC website and downloading it every Friday. Or, you could jump over to forex broker Oanda, which provides a couple of different tools to measure open position data, including data from the CFTC and their own customers positions.
Take a look at the below tool from Oanda and you can find where traders are predominantly short or long any of the main forex pairs or gold. Notice how when non commercial traders move to one side of the trade, the market often turns around and goes the other way.
Using the COT report is not a foolproof strategy but combined with other analysis can help you make some good money in the forex markets.
Edit: I don’t know why but sometimes the below tool fails to load. If that is the case head over to oanda.com and you can find it there.
Thank You For Reading
Joe Marwood is an independent trader and the founder of Decoding Markets. He worked as a professional futures trader and has a passion for investing and building mechanical trading strategies. If you are interested in more quantitative trading strategies, investing ideas and tutorials make sure to check out our program Marwood Research.
This post expresses the opinions of the writer and is for information, entertainment purposes only. Joe Marwood is not a registered financial advisor or certified analyst. The reader agrees to assume all risk resulting from the application of any of the information provided. Past performance is not a reliable indicator of future returns and financial trading is full of risk. Margin trading can lead to losses more than in your account. Mistakes in backtesting and presenting of analysis regularly occur. Please read the Full disclaimer.