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Commitments of Traders (COT)
by admin ·
Interpretation and use in the foreign exchange market
In my last article I described it as the volume can be used as a tool for trading and predictive analysis of the market. Related to this issue, I will speak today of the report published weekly by the CFTC ( Commodity Futures Trading Commision ). We are more used to seeing, reading and listening based on volume analysis in other financial markets, but even when not in Forex, Forex trading volume is much higher than in other markets. Many futures traders who have spent the currency market have been able to bring his technical analysis easily but not the analysis based on volume. Remember that the forex market is a decentralized market, and consequently there is no record that meets all market activity is still a bit difficult to measure adequately the total volume in each quote operated more or less accurate.
What is the Commitments of Traders?
The COT is a detailed report of the open positions in the futures market, including currency futures, we can use information that is valuable in helping us spot market Forex historical trends in currency futures market. This report was first published in 1962. Initially published on a monthly basis and currently is published weekly every Friday with data from previous Tuesday, so that the information it contains is delayed 3 working days.
How to read the COT report?
Open Interest: This column gives the data of all open contracts, which represents the total volume.
Non-Comerdcial / Commercial: These columns contain the positions opened by entities involved in the production, processing or trading of the asset traded (Commercial) and open positions by speculators assets (Non-Commercial). The operations performed by entities related to the asset are open positions and hedging to reduce risk, while speculators’ positions are open trading positions by individual traders, mutual funds, etc.
Logn / Short / Spreading: Indicates open long positions (buying) and short (sell). Spreading the word that appears only under the non-commercial reports indicate the total open interest positions by speculators whose buying and selling are equal in number.
Non-Reportable Positions: Under this term are grouped open positions in assets that do not meet the requirements for reporting to the CFTC.
How to use the COT report for the spot Forex trading?
The COT report data that interests us are contained in column Open Interest and Commercial column, ie, we will lay down the total open positions and open positions for speculative purposes. According to an article written by Kathy Lien (Strategic Director of Forex Capital Markets) in investment, most currency trading positions are made on the spot market, so this data in the COT report is not representative, why it we will rule for our analysis.
To predict the Forex spot market behavior we create our table weekly to take the historical data, much better, create the graphics position (non-commercial) in time. If you want to save this time you can find some indicator for your trading platform, if any. I know several for Meta trader, but trade all they must connect to some server to receive data from the COT reports. There may be some free but I’m not sure they will receive the data properly.
We can use the TOC to predict the spot market trends from three points:
Change of sign in the net positions: Position will net long positions minus short positions. This fact is quite useful for predicting a turnaround quite rightly. Before proceeding note that the COT report is expressed in USD. Therefore, a change from positive to negative sign indicates upward trend in Forex if the base currency is USD (eg EUR / USD) and vice versa, a change from negative to positive indicating upward trend when the base currency is USD ( eg USD / CHF) and vice-versa.
Extremes: they can be understood as parts of overbought / oversold giving us clues about the possible proximity of a turnaround.
Changes in open interest: inform us of the strength of the trend.
Related posts:
- Objects and advantages of technical analysis – Part 2
- 10 Skills Winning Forex Traders have and you should too!
- The currency futures
- Those who work in the foreign exchange market?, Part 2
- How to practice tricks for forex day traders
Tags: analysis, COT, foreign exchange, Forex, market, meta traders, traders