How to Use the COT Report for Trading Forex - ninciclopedia.orgAttaining an edge by understanding the flow of capital is an important concept toward your trading success. Gauging investor sentiment and following the smart money will provide you with the confidence you need to generate robust returns. A tool that can guide you and help you determine where the smart money is risking their capital is the Commitment of Traders COT report. The COT is a report released each week that will provide you with a glimpse of what positions managed money, small speculators, and commercial producers are taking in nearly every futures category. The report is disseminated by the Futures Trading Commission and is issued every Friday during the week.
Best Forex Trading Strategy COT (2019)
The purpose of this report is to provide traders with transparency in regards to the open interest in various futures markets and the sizes of those positions for different groups of traders. Open interest is the total number of open futures or options positions that are not closed or delivered on in a particular day. Ultimately, the COT Report is an excellent resource to use in order to gain insight into the position sizes of different types of traders and how the position sizes change over time.
Follow the Smart Money using the Commitment of Traders (COT) Report
View Forex Commitment of Traders charts here. The aggregate of all long open interest is equal to the aggregate of all short open interest. Open interest held or controlled by a trader is referred to as that trader's position. For the COT Futures-and-Options-Combined report, option open interest and traders' option positions are computed on a futures-equivalent basis using delta factors supplied by the exchanges. Long-call and short-put open interest are converted to long futures-equivalent open interest. Likewise, short-call and long-put open interest are converted to short futures-equivalent open interest. For example, a trader holding a long put position of contracts with a delta factor of 0.
Before examining the COT reports and a few ways of using them, let us note two important details:. The COT commitment of traders is a report issued by CFTC to update the public on the futures positioning of traders in commodities markets. In the US most futures trading takes place in Chicago and New York, and the institutions covered by the report are heavily concentrated in these locations. Open interest describes the amount of open futures contracts that are being held. In other words, it is the total volume of open contracts in the market, but not the transactions. Reportable positions are the positions held by institutions that meet the reporting requirement of the CFTC.
Since the COT report comes out weekly, its usefulness as a market sentiment indicator would be more suitable for longer-term trades. One way to use the COT report in your trading is to find extreme net long or net short positions. Finding these positions may signal that a market reversal is just around the corner because if everyone is long a currency, who is left to buy?
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