How to read COT Report for Gold and Other Forex Pairs
Commitments of Traders (COT) reports describe dated positioning, not a guaranteed forecast. Reporting firms submit daily large-trader position reports to the CFTC. The public COT release is normally weekly on Friday at 3:30 p.m. Eastern, with positions from the preceding Tuesday; check the official schedule for exceptions.
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 futures-only and futures-and-options-combined reports are kept distinct. The combined series includes options on a futures-equivalent basis; it is not a separate next-day confirmation signal.
What does the COT report say? How to take benefits from this report for Gold and other pairs
The Legacy COT report separates outstanding positions into commercial, non-commercial and nonreportable categories. It does not measure the week’s total buying and selling volume. Other report families, including Disaggregated COT, use different participant groups.
Commercial classification relates to hedging activity in the commodity. It does not prove the motive of every position or establish that the group predicts prices better than other participants.
Nonreportable positions are the residual after reportable positions are subtracted from open interest. The report does not identify every trader in that residual or establish a reliable success rate for the group.
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: outstanding contracts that have not been closed or otherwise extinguished. It is a position measure, not trading volume.
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
A COT index places a selected positioning series within a chosen historical range. Its meaning depends on the series, formula and lookback period. An index above 80 is not an 80% probability of a rally.
An index below 20 is not a guaranteed sell signal. Positioning can remain extreme while price continues trending. Evaluate the dated data alongside price structure and an independent risk plan.