Trading COT Report

Hi,

I would like to start a discussion on using COT report as one way for making trading decision. There have been sporadic information over the internet on how to use COT but I have not found too many proponents for the efficacy of COT report for trading.

From what I understand, the one way COT can help is assess the extent to which the commercials are biased and therefore signal a possible begining of a trend. So if Commercials are extremely long or short (maximum in the last 3 years or so) that might be a signal of a rally or downtrend respectively.

Any thoughts on the above and also any thoughts on other ways of using the COT report??

Eklavya,

We love COT trading! And we follow the movements of institutional dollars very closely.

We've actually done significant backtesting using COT data as a tool in making trading decisions, and historically it is very, very affective.

We chart COT data for all the major pairs, and we run an education group that follows COT data weekly and analyzes and discusses it.

Here's a direct link to the COT data group:
http://www.pfxglobal.com/index.php?o...876&Itemid=190

Hi PFXGlobal,

Thanks for the feedback.

I have gone through the inidcators at the above site. It focusses on the speculators' position and provides signals based off that..right? In other way it completely disregards the behavior of commercials in the Futures market...

I also had a question on how the indicator works. Because for the report dated 25 Jan 2008, in the GBPUSD the speculators are net long . But the indicator on the site says that they are net short. Can you please explain that?

Eklavya,

You are correct. We do use the non-commercial numbers in our calculation. We have found a nice correlation between the non-commercial position and the movement of the currency pair itself.

We have a net short position listed on the indicator because the non-commercials are currently net short.

If you would like a copy of the spreadsheet we use to create the indicators, send me an email at [email protected] , and I'll be happy to send you a copy.

Wade

Hello Wade,

I am attaching the screenshot of this week's COT report for GBP. Per this, the non-commercials are net long(33791 contracts Long and 31125 contracts short). I may not be seeing something..Can you help?

There are several places on the net that has more info about the COT report.

My favorite is: www.timingcharts.com Timingcharts provides a nice simple web interface that lets you view historical COT data for most futures.

Kathy Lien has a nice article on how to use COT information for forex over at investopedia: http://www.investopedia.com/articles.../COTreport.asp

Larry Williams has a book on how to use COT data titled: Trade Stocks & Commodities with the Insiders: Secrets of the COT Report. It is available on amazon here: http://www.amazon.com/Trade-Stocks-C...1512764&sr=8-1

Last but not least, you can get free weekly interpretations of COT information off of the dailyfx website. Have a look in the currency rooms. Below each of the charts is a discussion of sentiment and positioning. For example see here: http://www.dailyfx.com/currency-room...an-dollar.html

There are lots and lots of ways people use the COT report. In my own trading I tend to only use it in a couple of ways and I never look at the COT report in isolation. For example, I like to combine it with technical analysis. A sudden change in commercials positioning on the COT near major support/resistance lines or trend lines is usually a fair indicator of a reversal being imminent in the market. Because COT signals are so infrequent, I tend to use a number of other trading methods to find other types of trades.

Also, I like looking at the COT report on the dollar index on timingcharts.com. It gives you a general sense of weather conditions across the whole market. For example, on the dollar index at the moment commercials are holding equal long and short positions. Which means they have no sense where the market is going to go next - i.e. expect a choppy sideways market.

This is good stuff.

I should add that COT also has a couple of weaknesses:

1. Most currency trading is in the spot market and the swaps market. Very little of it is taken on in the futures market. The futures market correlates with the spot market (otherwise the difference between spot and futures would be arbitraged away) - but the COT positioning might not be a true representation of positioning in the spot market
2. The COT report is prepared on Tuesday and released on Friday - so there is a lag in it and it may not represent current positioning.

Because of these weaknesses you need to use the COT report in context of a number of other different factors. Also - forget day trading with COT - it is really a position traders tool. However, given there is a real dearth of true volume information and no real access to level II / market depth / order book information in forex, COT does make for a nice complement to your analysis toolkit.

Does anyone know what time the new COT report comes out each week.

Thank you

Billser

If you are going to use the COT data for trading you need to be holding trades for weeks not days. Most people here hold trades no longer than a few days. When the futures contracts are at there largest or most extreme you follow the direction of the commercials (GBP contracts: 100k commercial short, 80k large spec long, 20k small spec long ie. go short dude). When the futures contracts are small follow the direction of the large specs.

Let's not get our hopes up....

PFX says they found COT to be accurate... so

 

1. What is the PFX COT recipe for determining entries/exits
2. What does "very accurate" mean? I'd love to see the COT method w/ some backtest results to support the claim.

I am not saying that COT trading doesn't work, its just that their is no evidence to support the claim yet. My understanding is that Larry Williams made some great runs (and is considered a great trader) BUT ALAS he lost nearly everything he made.... just showing you that "professional" traders are lucky, for all intensive purposes.

So what time does the Cot come out.....

3.30pm Friday, Washington D.C. time... (EST). Regards!

WOW...some kind of statements you have made. Obviously you are uninformed. Both in regards to Cot trading and moreso Larry.

Bluesteele

i have had good succes trying to use the cot report..in my back test it seems like even its prepaird on tuesday and relased friday...it works pretty ok.
i look at the report..and those pairs with a big different in % long/short
i keep an eye on those pair ,if one says 63% long ill watch the indis and just try to find a long signal on the daily tf...sometimes you have to wait for days until it happens...
just take a look at the historical cot reports,,,go back on charts and look..

Dear Wade

Thanks for PFX Global which I frequent visit. I benefited a lot from the information, chart and video. If possible, please also extend a copy of the spreadsheet to me (email will be furnished to you via private message) so that I can understand the indicators better. Thanks Again.

I trade using COT data and heat maps. This is complimented with some Japanese Candlestick Tech analysis. I hold positions over a few months and as a result i have large draw downs. However, i use a mini account to maintain a small principle risk.

The COT data is one of the best tools i have found. I hold most of the spot/futures forex companies in contempt because they could provide this information in real time. This would act as a really good volume/momentum indicator.

If anyone who uses or is interested in using COT data please feel free to message me and we can have a chat.

does anyone here would explain to me clearly how to use the COT report?

i really interest about this report, but still cannt find the suitable resources..

Check out Post #6 on this thread,

Several links.

I would imagine that COT could be used to ID significant trend sentiment changes & set the stage for your directional bias as to daily trade focus.

I sort of doubt that it can be used for scalping a few pips here & there. I could be wrong though. I've been wrong before, so I'm often told.
Maybe could serve as additional information upon which to base your decision as to market direction.

Worth looking into & learning about it. The more you can learn the better you'll trade.

Good luck to you.

The COT is interpreted differently depending on what strategy for trader uses. The most common use of the COT report is the euro futures. This data strongly correlates to EUR/USD, GBP/USD and inversely to USD/CHF. However, some traders use the futures market for other currency pairs.

To simplify and not get into much detail the COT report consists of hedgers (commercial), speculators (non-commercial) and small speculators and hedgers combined (non-reportable). These are a guide to what type of individuals report the contracts and there is some evidence to suggest a small amount of cross contamination. However, this cross contamination is only minor and often due to tax implications. As trader it’s important to be aware that the data is compiled on Tuesday however the report will come out on a Friday.

One trading tool is to simply following the large non-commercial positions. This is done by subtracting the long positions from the short positions if it is strongly positive the large commercial speculators believe the market will go up. Vic-a-versa.

Some rules of thumb suggest:
- If non-commercial is net long and both non-reportable and commercial are neutral look to enter into a long position.
- If both non-commercial and commercials are net long and non-reportable is net short look to enter a long position.
- If the non-reportable is net long and the non-commercial and commercial is short look for long entries.

This is just a brief and extremely short explanation of the COT report if you wish to find anything more about this report please feel free to ask me.