✍ The Commitments of Traders (CoT) Report
※ Speculative ─ mid to long-term positioning
※ Managed Money (Slow & Fast money) ─ near to mid-term positioning
☛ The CoT data is issued by the CFTC every Friday (Saturday, GMT+8) to provide market participants a breakdown of each Tuesday's (Wednesday, GMT+8) open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. In plain English, this is a report that shows what positions major traders are taking in a number of financial and commodity markets. It provides a powerful view on what exactly the big guys have been doing in the marketplace and what their plans might be.
☛ The CoT data is an essential tool for gauging current and future sentiment in Futures or Forex market. It is highly advisable not to use CoT data alone when it comes to your trading decision. This report is not designed as a market entry tool, as the market can be near-term bullish in a long-term downtrend. Although, it can be used to confirm the mid/long term fundamental bias in a given market.
☛ Though there is never one report or tool that can give you certainty about where prices are headed in the future, the CoT data does allow the small investors a way to see what larger traders are doing and to possibly position their positions accordingly. For example, if there is a large managed money short interest in gold, that is often an indicator that a rally may be coming because the market is overly pessimistic and saturated with shorts - so you may want to take a long position (on normal market conditions).
☛ I use the data to compare or combined speculative & managed money (instruments - currencies, equities, commodities, etc.) if I can identify a clear skewed bias in terms of the overall strength or weakness of a particular currency or instrument. Like for example... for USD, I check the positioning of these instruments ─ DXY, Gold, Yen, Nikkei 225 and 10-Year U.S. Bond.
☛ On this CoT data table, I added a corresponding correlation besides the symbol or instrument name (caution: it may be outdated). In correlation, there is also positive & negative between pairs or crosses. This can turn to “normal” at any time, making through a pair to fall and the other to fall slower or to go sideways. There is also the possibility for a pair to rally in order to “reach” the other pair.
☛ For technical analysis or you as a technician, watch for vital inflection points, and/or as an analyst that monitor headline risk as they relate to geopolitical situations and macroeconomic commentary.
☝ Always keep in mind that inter-market relationships govern currency price action. Therefore, you may need additional work in order to understand the CoT data.
✌ The CoT report - Futures data offer a proxy for volume but represent only a small fraction of the currency market.
☢ Since the report is issued every Friday (Saturday, GMT+8) that includes only the data from Tuesday to Tuesday only. The three days prior to the release date are not included. It means there is a three-day lag between the report and the actual positioning of traders. This is an eternity by short-term investing standards, and by the time the new report is issued, it has already missed a large amount of trading activity. Think of it as illegal insider information received early by Michael Corleone (CFTC) but then he gave it only to you after three days. ; )─
This thread is for information purposes only, wherein it acts as references to my own trading journal (small part). No information contained herein should be regarded as suggestive to engage in or refrain from any investment-related course of action. It makes no guarantees as to the accuracy or completeness of the views expressed, including timeliness, suitability of any information - e.g. videos, images, and documents posted or shared herein. All contents on this thread are subject to change and may have become unreliable for various reasons, including changes in the market conditions or economic circumstances.
In addition, please be reminded that there is always the potential for loss. Your trading results may vary. Unique experiences and past performances do not guarantee future results. Hence, it is highly recommended to seek a duly licensed professional for investment advice whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal.
Other things to observe...
If speculators and/or Managed or Fast Money bought or sold most of the market (don't approach this as overbought or oversold - a bad idea even with indicators),
- There is nobody left to buy or sell
- They will have to unload to cash in
- The prices need to reverse
The above metric is never wrong... unless proven otherwise ; )─, but it may take some time for the price to finally follow through (just like correlation standard behaviors - mentioned above). It can’t be wrong as the speculators are the market makers and once, they run out of suckers to fill their positions, they will offload and cash in. Its pure SUPPLY & DEMAND in play and the signal plays out the same way across all futures markets.
Below are the mainstream guides being used by traders to interpret CoT data.
You may need to check another type of transformation of the CoT data (FREE) >>> here
..with this example below, and a lot more from the shared link ─ like Seasonality thingy ; )─
...Us retail traders are just too small to affect the market:
Central Bank Survey ─ Foreign exchange turnover in April 2016 Report (PDF)
※ One of the Challenges in FX Trading ※
FX is one of the hardest markets from which to profit. Currencies are incredibly volatile and masquerade as normally distributed only to pop violently in the wake of major market events. “Impossible” 5-sigma moves are not uncommon, even in major currency pairs – as highlighted by the Brexit announcement.
Other than the infamous carry trade, which tempts traders with consistent, low volatility returns while leaving them short event risk, there are no risk premiums on offer from FX. No inherent beta means investors work hard for profits while contending with the impact of intermittent interest rate moves from central banks. More than perhaps any other market in the world, currency markets are driven by positioning and liquidity and speculation.
Furthermore, currency traders labor under a marked information disadvantage compared to their counterparts in the equity and fixed income worlds. The entirely over-the-counter global forex market is vast, fragmented and opaque. There are no centralized exchanges where FX trades. As a result, while quoted currency prices are easily observable, executed currency volumes are not.
☛ “Volume Confirms Price”
This makes trading FX more difficult. Stock traders take volume data for granted and leverage it to the maximum. Price can reveal where the market is moving, but the only volume can tell how significant the move is. At the simplest level, “volume confirms price”: rising volume at the start of a trend suggests the trend will continue, while flat or falling volume suggests the trend will reverse. Trading with the price but no volume data is like driving with a compass but no speedometer: you know the direction you’re going, but you have no idea how much ground you’ve covered.
Apart from trading, the volume is also essential to judging market liquidity, transaction costs, and portfolio risk. It’s impossible to estimate the capacity of a strategy, or the friction for a transaction, or the speed and cost to liquidate a position, without knowing the volume profile of the underlying market. Many strategies, portfolios, and algorithms that price well on paper fail when the volume is entered into the equation.
Currency traders have devised a number of mechanisms to cope with the scarcity of reliable FX volume data. It’s possible to estimate FX transaction volumes using various proxies: currency futures, currency ETFs, short-term rate hedges like LIBOR futures and so on. It’s also possible to gauge the “real” final demand for various currencies, based on trade patterns and balance of payments data. Central banks and public companies are obliged to publish their holdings and activities, albeit with a lag. Putting all these sources of information together, many currency traders have built their own currency volume datasets.
Source: Quandl ─ Free & premium data provider - Hence, a little bit of bias article, but a good & simple reality check to read...
※ Volume in the Forex markets - useful or not? ※
As traders, we’re always looking for useful data that might give us an extra edge. That’s even truer for technical/price-focused traders where all we have is the open, high, low and close of a market (or tick data, but that usually ends up in some similar transformation as OHLC data). Sure there are thousands of indicators but these are all just transformations of that price data.
Now in many markets volume can be a useful addition to that. Knowing if there was heavy trading within a certain time period or not can be valuable information. It can be used as a filter for trade signals, looking for strong volume on a breakout for example. But there’s also a couple of volume based indicators that incorporate volume in a useful way.
In the futures markets, when you look at the volume you actually see how many contracts have been traded at the exchange during that time period. And you see all of it, of all market participants in that market as there’s just one exchange.
But Forex trading is decentralized, OTC trading. There is no single place to look at to see the actual volume of a currency pair. That’s why it’s often said that the volume provided by your broker is pretty useless. All you would see is the trading volume that happened at your broker, either between clients and liquidity providers in an ECN or if you’re trading at a market maker between your broker and it’s clients. But retail traders are not moving the markets, their volume is totally meaningless in a such a big marketplace.
And of course, the institutional traders that are responsible for the volume that matters don’t trade at a retail broker. They’re on Reuters, EBS or just trading directly with other banks/institutions. So if you just see the volume that happened at your retail broker, it’s useless information right? That’s what I thought too and so I never paid much attention to volume in FX.
Maybe it was time to have another look at volume data in the Forex markets and investigate the FX volume data provided by your broker/ECN might indeed be valuable information! <<< source: fxstreet