Making Use Of The Commitment Of Traders (COT) Report In Forex Trading

The Commitment of Traders (COT) report is a weekly report compiled by the Commodity Futures Trading Commission (CFTC) that shows the aggregate number of futures positions held by large traders, such as banks and manufacturers.

Savvy traders have long used the COT report as a tool inside their trading strategies. Because biggest bank traders are the ones who drive market trends, it is beneficial to learn their position in the markets. Although the COT report only compiles futures positions, this data can be applied to the underlying markets as well.

The COT report is specifically useful for Forex traders. Capsicum is derived from Forex market is not centralized, there is no aggregate volume or positioning information available. The COT report can serve as a replacement for this information, as well as an overall indicator of direction for a currency.

The traders in the legacy COT report are divided into three categories: commercial, non-commercial and non-reportable. (The newer disaggregated report separates industry and non-commercial traders into further categories, but for our purposes, the legacy report will cater.)

Non-commercial traders will be most important. These banks, funds any other large speculative traders. The activity of the non-commercials drive most for this market activity. Commercial traders are manufacturers and businesses in which hedging their interests. Their positions are almost always diametrically opposite the non-commercial traders.

Non-reportable traders are whose individual positions are too small to be counted in the other two groups. Non-reportable traders do tend to follow market trends, however as strongly mainly because the large traders, and they do not drive the market a lot large traders engage in.

To determine the existing positioning of traders in the COT report, we have to have calculate the distinction between the long and also the short positions. When the difference is net long, then we can conclude that family of traders are bullish on that instrument (vice-versa for net short).

With this information, the trader assists an informed decision. If non-commercials are net long, and their position has been increasing in recent weeks, then it will be foolish to develop a short trade. If non-commercial positions tend to be declining and are moving toward an internet short situation, this would be a good time to hunt for a short vocation.

The COT report does have several drawbacks. First may be the delay in which your data is given. The data is compiled every Tuesday and released the following Monday. This means that the information is not usable up until start of trading next week.

Because the information in the COT report is compiled weekly, it is useless for short-term and day trading. Finally, the underlying market doesn't always perform according to the COT data transfer useage. The long-term trends do hold overall, and will be an useful tool for swing currency traders.

Aside from calculating the information via the COT report yourself, there are numerous COT graphs freely available online. Some trading platforms regarding example TradeStation, Strategy Trader or MetaTrader usually have COT indicators available.

The COT report can complement any long-term trend trading strategy, and it has to be an indispensable tool in the toolbox of every savvy trader.

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