How to read COT Report for Gold and
Other Forex Pairs
The Commitments of Traders (COT) reports can sometimes give
traders a good idea of future significant movements in the market. The CFTC
requires large speculators and commercial traders or hedges to report their net
positions twice a month.
In general, the big speculator category represents fund traders and professional traders who hold large positions. Commercial traders also report their net positions to the CFTC. The number of “non-reportable” positions is calculated by subtracting the number of large speculative and trading positions from the total open interest. It is widely believed that this group of traders are small speculators and hedgers who do not hold positions large enough to report to the CFTC.
COT data for the chart can be found at
https://www.barchart.com/futures/commitment-of-traders .
COT data in the Gold chart |
The results of the COT report can be used as a tool to give
traders a better understanding of the psychology of the marketplace, the net
position of the commercials in the market and the net position of the major
traders. Large traders (funds) are usually trend followers and will add or
liquidate their positions depending on the technical action of the market since
the report release date.
There are many different ways to analyze the reports, but we
believe that for the most part, the major traders' net position and the
'position change' over a two-week period are the most important numbers to
watch. Remember that the small trader's net position is typically subject to
either long liquidation or short coverage when the market begins to move
against them.
As a result, a classic bullish setup for a given market
would be when large traders are net long and small traders are net short. The
market is in a weakened bullish setup “when” the two-week trend of the large
trader's position is bearish, or in other words, when the funds are about to
unwind their net long position. This is a warning flag. The larger the small
trader's net short position (compared to history) and the extent to which small
traders hold a position "against" the trend are factors that will
contribute to the bullishness of the report.
Assets for the COT report for Gold and
other Pairs |
There is a classic bearish market setup when large traders
are net short (bearish if they have increased position in the last two weeks)
and small traders are net long in the market (bearish if the net -Long position
is relatively large and the trend is decisively down). One exception we've
noticed lately is the ability of the small trader in T-Bonds to spot the right
direction in the market. It is also important that the futures and options COT
report (which will be released a day later) confirms the situation indicated by
the futures only report.
What does the COT report say? How to take
benefits from this report for Gold and other pairs
The report is published weekly on Friday evenings by the
Commodity Futures Trading Commission . The report breaks down the volume of
purchases and sales into three groups: commercial, non-commercial and
non-reporting deals.
The biggest power in the marketplace are the commercials.
These are the major users and producers of the commodity. They do not use the
commodity markets to speculate or make money directly from the markets. They
are the producers and users of the goods. So they sell forward or hedge their
production/demand. They use the markets to sell and supply, not speculate.
There are the non-reporters, probably people like you...
people who trade in smaller volumes; the average trader. Interestingly,
sometimes their record in certain markets is very good, but more often than not
they are wrong.
Every week we find out exactly what the big ones were up to
in the marketplace... but it's not quite that simple.
The non-commercials are the second most important figure in
the report. These are not quite what you think. It's not just big traders like
me.
How to use the COT data? or How to read COT report
If you study this much, you will come across something
called the COT Index or Commercials Index. Most followers of the Commitments of
Traders Reports now use this index...
Despite what you may have read from other traders (people who have only been looking at the index for a few years), it is not a black and white situation. Just because the commercials, the biggest players in the market, have emerged as buyers doesn't mean a market will recover. How can this be true?
COT index and description
Let's say you are a commercial in Sugar. You need sugar to
make candy. If the price of sugar goes down, you will buy sugar. The further it
falls, the more sugar you will buy now on the futures markets to deliver later
when you make candy.
Your main concern is how much the sugar in your candy costs.
As an advertiser, you don't really care what the price does... no... you want
to buy so you can take delivery and whip up a few pieces of toffee to sell for
a profit.
How to find the COT data?
Step 1:How to read COT Report for Gold
Go to https://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm .
Step 2:How to read COT Report for Gold
Once the page loads, scroll down a few pages to the Current Legacy Report and click on Short Format under Futures Only on the Chicago Mercantile Exchange row to bring up the latest COT report.
COT data
Step 3:
It might seem a little intimidating at first because it looks like a big, giant, convoluted block of text, but with a little effort, you can find exactly what you're looking for.
Just press CTRL+F (or whatever your browser's search function is) and type in the currency you want to find.
For example, to find the British pound sterling or GBP, just
search for "pound sterling" and it will take you straight to a
section that looks something like this:
COT data for the Gold and
What the hell is that?! Do not worry. I will explain each category below.
Commercial: These are the large companies that use forward exchange contracts for hedging and protection against excessive exchange rate fluctuations.
Non-Commercial: This is a mix of individual traders, hedge
funds and financial institutions. In most cases, these are traders who want to
trade for speculative profits. In other words, it's traders like you who are in
it for the sake of the Benjamins!
Long: This is the number of long contracts reported to the
CFTC.
Short: This is the number of short contracts reported to the
CFTC.
Open Interest: This column indicates the number of contracts
that have not yet been exercised or delivered.
Number of traders: This is the total number of traders who
are required to report positions to the CFTC.
Reportable positions: This column indicates the number of
positions that must be reported to the CFTC: The number of options and futures
positions that are reportable under CFTC regulations.
Non-reportable positions : The number of open interest rate
positions that, like retailers, do not comply with the CFTC's reportable
requirements.
If you would like to access all available historical data,
you can view it here.
You can see many things in the COT report, but you don't have to memorize everything.
As a budding trader, you will only focus on answering the basic question:
"How's the market this week?"
For live charts visit https://www.barchart.com/futures/commitment-of-traders
Summary & Conclusion on
Using the COT index is not about reading charts or other mystical things called technical analysis. It's plain and simple, as you can see on Gold's chart — when the red line is high and above 80% — the commercials have made relatively large purchases and prices are usually recovering.
Conversely, when the line is low — below 20% — you've made a
relatively large number of sales, and prices usually go down. Look at the $
potential in these moves! Of course, not all indicators will make money and
there is always a risk; You can lose as much or more than you can make on a
trade.
