HOW TO READ THE (COT) REPORTS
Learn How to use the Commitments of Traders (COT) Reports
– first part –
Introduction: In this article, you will learn how to read the COT reports and use it as an extra tool in your trading.
COT Data & COT Reports
The Commodity Futures Trading Commission (Commission or CFTC) publishes the (COT) Commitments of Traders reports to
help the public understand market dynamics.
Generally, the data in the COT reports is from Tuesday and released Friday. The CFTC receives the data from the reporting firms on Wednesday morning and then corrects and verifies the data for release by Friday afternoon. *according to CFTC
First, the COT Reports are divided into many categories and what I am doing is to take the data from the CFTC (including historical data) and create the simplified excel version of the COT reports.
Second, the purpose of this version of the commitment of traders reports is to help retail traders better understand the market dynamics. The excel version of COT reports contains historical data displayed on the same page, so any trader can understand it and interpret it very easily.
Let’s go further…
What do the reports show us?
The Commitments of Traders (COT) Report shows the opened positions of “commercial traders” and “non-commercial traders”.
Commercials & Non-Commercials. Who are they?
Commercial traders are all of those who are not interested in making money in the market. They are not here to speculate the market and make a profit. So, we are not interested in commercials COT reports.
Non-commercial traders are in the market to make money by speculating the price movements. So, we are interested in non-commercial COT reports because they are the big players who move the market price.
In conclusion, the market price is moving in the direction in which their positions are opened.
The simplified excel version of Commitments of Traders COT Reports
The excel version of the (COT) reports include historical data, so you can see where the market is coming from. Just to clarify, all the reports show data from the past 12 months to the present.
Let’s see a report as an example, and then I will explain every column in it.
As you can see, the report has eight columns:
- Change Longs
- Change Shorts
- % Longs
- % Shorts
- Net Positions
Represent the last day on which the COT data was collected.
*cot data is collected from Tuesday to Tuesday and is released on Friday
It shows how many longs are opened by the non-commercials.
It shows how many shorts are opened by the non-commercials.
It shows how many longs have been opened or closed in the last week (since the last report was published).
It shows how many shorts have been opened or closed in the last week (since the last report was published).
It shows the percentages of the total longs opened by non-commercials.
It shows the percentages of the total shorts opened by non-commercials.
Simply this column shows the differences between longs and shorts. It shows us the sentiment in the market. If we see more longs opened, we have a bullish view in the market. Or if we see more shorts opened, then we have a bearish view in that market.
How to read the (COT) report when trading
Pay attention when reading the COT Reports. Why? Because all the currencies presented in the reports are against the US Dollar. When you look at the Canadian Dollar report, you look at the CAD/USD, not USD/CAD. So, as another example, when you are checking the Swiss Franc report, you are looking at CHF/USD, not USD/CHF, and so on.
Let’s take another example with the same situation but differently explained.
If you are trading the USD/JPY pair, everything turns 180 degrees when you’re looking at the Japanese Yen report. Why? Simply because the COT report you are looking at is showing you data for JPY/USD, not USD/JPY.
So if you want to go short on USD/JPY, you want to see more longs added in the Japanese Yen report. Does it make sense?
When not trading USD
Let’s say that you want to go long on GBP/CAD. What are you looking for? Of course, you want to see a strong GBP (more opened longs than shorts in the COT report), but at the same time, you want to see a weak CAD (more opened shorts than longs in the COT report).
US Dollar Index
“The index is currently calculated by factoring in the exchange rates of six major world currencies, which include the Euro (EUR), Japanese yen (JPY), Canadian dollar (CAD), British Pound (GBP), Swedish krona (SEK), and Swiss franc (CHF). The EUR is, by far, the largest component of the index, making up almost 58 percent (officially 57.6%) of the basket. The weights of the rest of the currencies in the index are JPY (13.6%), GBP (11.9%), CAD (9.1%), SEK (4.2%), and CHF (3.6%).” *according to Investopedia
Using the COT reports and COT data
Please keep in mind that this is a general view of the COT reports so any beginner can understand the basics. Use the COT report at your own risk! I am not responsible for any loss. You can use the reports in many other ways. It’s up to you.
Happy trading! 🙂
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