COT Reports (Commitments of Traders) are weekly reports published by the United States
Commodity Futures Trading Commission (CFTC) that provide information on the positions held by market participants in the futures and options markets.
The COT reports indicate positions held by three groups of traders: "
non-commercial traders" (speculators), "
commercial traders" (commercial market participants), and "
non-reportable traders" (small traders). Positions are divided into long positions (purchases) and short positions (sales) in each market.
The report also provides information on net positions, which is the difference between long positions and short positions. In addition, COT reports provide information on trading volume and open interest, which is the total number of active futures and options contracts in a given market at a given time.
COT reports are used by market operators as a technical analysis tool to assess market direction, trader sentiment, and market participant activity. These reports provide
valuable information on how professional traders and institutions are positioning their trades and can help traders make informed trading decisions.
Technically, the CFTC collects data from brokers participating in the futures and options markets and publishes it in the form of weekly COT reports. The data is collected every Tuesday and published the following Friday, and is divided into different market categories and trader groups.
Understanding the COT Report
The COT Report includes data on the long and short positions of
commercial traders,
non-commercial traders, and
retail traders. Commercial traders are those who operate in the market to hedge the price risk of their underlying assets, such as commodities. Non-commercial traders, on the other hand, are those who operate in the market for speculative purposes. Finally, retail traders are those who trade with small amounts of money.
In analyzing COT reports for Forex, many traders tend to follow the positions of "non-commercial traders" or "speculators," as they represent traders who have a direct financial interest in the currency market and often act based on their predictions of future market directions.
The positions of "commercial traders," on the other hand, represent market participants who use futures and options as a hedge for their existing positions in the currency market. These market participants tend to act more conservatively and cover their risks rather than speculate on currency price movements.
Using the COT Report
The information contained in the COT Report can be used to identify market trends and assess trader sentiment. For example, if commercial traders have long positions greater than short positions, it indicates that they expect prices to rise. Conversely, if commercial traders have short positions greater than long positions, it indicates that they expect prices to fall.
The COT Report can provide valuable information to Forex traders, as futures market participants often use the same tools in the spot Forex market as well. Here are some of the key pieces of information you can extract from the COT report:
-
Market Sentiment
The COT report can provide an idea of market sentiment, showing whether commercial and non-commercial traders are more inclined to be long or short on a particular currency pair.
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Trend Reversal Indications
A large difference between the net positions of commercial and non-commercial traders can be a signal of an imminent trend reversal. For example, if commercial traders are heavily short on a currency pair and non-commercial traders are heavily long, this could indicate a potential bullish reversal.
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Trading Volume
The COT report can also provide information on trading volume, showing whether there are increases or decreases in net positions. This can help traders identify periods of higher market activity and thus improve their trading strategies.
Identifying Overbought and Oversold Situations Through the COT Report
Another use of the COT Report is to identify
overbought and
oversold situations. If non-commercial traders have extremely high long positions, it could be a signal of overbought conditions, meaning that the price may be too high and a correction may be imminent. Conversely, if non-commercial traders have extremely high short positions, it could be a signal of oversold conditions, meaning that the price may be too low and a correction may be imminent.
The Meaning of Overbought
Specifically, the term "overbought" refers to a situation where a particular asset, such as a currency pair, has been bought excessively by a large number of traders. This indicates that the asset's price may have risen too quickly and that there may be a high probability of a downward correction.
Moreover, when talking about overbought in the context of the COT Report, it mainly refers to the net positions of non-commercial traders. These are often hedge funds and other institutional investors who use futures for investment or speculation purposes. If their net positions are increasing significantly, it indicates that the asset may be overbought.
The Meaning of Oversold
On the other hand, the term "oversold" refers to a situation where a particular asset has been sold excessively by a large number of traders. This indicates that the asset's price may have fallen too quickly and that there may be a high probability of an upward rebound.
Again, when talking about oversold in the context of the COT Report, it mainly refers to the net positions of non-commercial traders. If their net positions are decreasing significantly, it indicates that the asset may be oversold.
A Concrete Example with the EUR/USD Currency Pair
To give a concrete example, let's consider the COT Report for the EUR/USD currency pair. In the report released on May 29, 2020, commercial traders had long positions for 159,764 contracts and short positions for 201,752 contracts. This indicates that commercial traders expected a decline in EUR/USD prices.
On the other hand, non-commercial traders had long positions for 234,089 contracts and short positions for 72,918 contracts. This indicates that non-commercial traders expected an increase in EUR/USD prices.
Finally, retail traders had long positions for 37,702 contracts and short positions for 33,267 contracts. This indicates that retail traders were slightly bullish on EUR/USD.
In summary, the COT Report is a valuable tool for assessing trader sentiment and identifying market trends. Investors can use this information to make informed investment decisions. However, it is important to remember that net positions do not provide a complete picture of the market and should be used in combination with other technical and fundamental analysis to make trading decisions.
Where to Find COT Reports
Barchart.com is an excellent source for analyzing COT (Commitments of Traders) report data. The website provides free COT data for various markets, including agriculture, energy, metals, financial markets, and currencies.
The
COT section of Barchart.com provides interactive charts showing COT report data for each market category, such as long positions, short positions, and net positions. Additionally, the website also offers expert analysis and commentary on market trends based on COT data.
By using Barchart.com for COT data analysis, you can gain valuable insights into trader sentiment and market positioning. This can be helpful in making trading decisions and developing effective trading strategies.
