What is The Commitment of Traders (COT)?

The Commitment of Traders (COT) report is a weekly publication of net positions in the future market that is released on Fridays by CFTC commission. It is an outline for the commitment of the classified traders as commercial traders, speculators (non-commercial traders), and non-reportable traders. We use this report to understand the dynamics of the market. The commitment of commercial traders is not important for us because they take a position to hedge the value of their assets against market risks due to unfavorable price movements.

The COT report is categorized into 4 main types of traders including Dealers, Leveraged Funds, Asset Managers, and Other reportable positions.

The Dealers include banks and dealers in securities and swaps. They are not speculators in the markets so we don’t follow them in forex trading.

The Asset Manager: These are institutional investors, pension funds, mutual funds, and those portfolio managers whose clients are predominantly institutional.

The Leveraged Funds (Hedge Funds) That they are typically hedge funds and various types of money managers, including registered commodity trading advisors. The traders may be engaged in managing and conducting proprietary futures trading and trading on behalf of speculative clients. This is who we’re interested in as forex traders.

And Other Reportable, The traders in this category mostly are using markets to hedge business risk, like small and big companies, they just trade on the forex market to hedge their business risk so we don’t follow them.

The result of these 4 types of traders is divided into two types:

The commercial traders, trades to reduce the risk or trade on securities to not to make a profit. Unlike commercial traders, non-commercial traders trade to make a profit. They are large speculators who make money by investing in the future market. Non-commercial traders include hedge funds, trading advisors, and financial institutions that buy-in up-trend and sell in down-trend. Any significant change in net short or long positions of non-commercial traders will result in a trend reversal or strong momentum.

Commercial traders and No-Commercial traders (Speculators)

We have summarized this report to only show the non-commercial net positions and percentage of the changes from last week. A positive value means net long, and a negative value means net short positions.

E.g: The Ziwox terminal shows you cot data like the below image. You can see and analyze the NZD/USD pair COT data and history of change

 

For traders as well as Forex traders, this statistic is valuable because you can have a better view of the market. Knowing where the big and main players in the market are. It helps you to find out where the funds and hedge funds money managers in the market stand.

Now you can trade with the big market makers in the same direction with Ziwox terminal

Analysis the COT

Check the below image. chart of EURUSD, and history of the non-commercial net positions.

Non-commercial traders are big capitalists and traders are very patient and they are also called trend lovers. They usually use the average price for their buy and sell transactions. As long as the uptrend is taking place, they will keep their buy trades and sell when the average breaks down.

Non-commercial traders (speculators) of the market are the largest buyers at the lowest price levels and the major sellers of the market at high prices. You can use the trend of speculators trading as an indicator.

Our COT module:

We summarized the COT report to only show the non-commercial or Large speculator’s net positions and percentage of the changes from last week. this data helps you to understand what forces have caused price changes and helps you to know about price change potential.

you can guess when the market big kids decide to accumulation their assets or when they decide to close their positions.

Yes, you have a prediction module.

  • Positive number for Net-Positions called Long Net-Position
  • A negative number for NET-Position means the asset is Short Net-Position

Tips for use:
  • Use it only for Medium-term decisions/trades
  • Give you the Best outlook to understanding where is most of the liquidity in the market.
  • Shows the hidden supply and demand of the market
  • This tool is not your trade signal. use it as a confirmation for your trades
  • Net position change with a range of lower +-4000 contract is the normal supply and demand. looking for a higher net change.

BUY confirmation:
  • In a Long NET-POS, it’s better to looking for a buying opportunity. because most speculators are applicants for these assets and they think this asset is Worth to buy
  • Big Positive changes in a short NET-POS, Is a sign of trend changes or a short-term Sell trend correction
  • Buy opportunity when you have positive changes in Log NET-POS value. (more than 4K contracts). this means speculators are buying this asset more than last week
  • Suddenly positive change indicates the intensity of buyers due to short-term sentiment or fundamental reasons.

BUY positioning:
  • Long-term, short NET-POS, or a big amount in a short NET-POS, is a sign of the OVERSOLD price area and speculator’s position unwinding. means it’s possible that the speculators close their short positions to take their profit. it makes a reversal correction on the price or pushes up the price for short-term
  • Oversold on COT net-pos can make a good demand price area.
  • Overbought on COT-Net positions for quote currency. (ex: NZD overbought on AUDNZD) and possibility for close NZD buy positions and push the pairs to higher price sake of position unwinding

Buy Signal with COT flip:
  • By monitoring COT report data against the asset pair, you can find the flip or reversal of the COT net position that goes from negative to positive numbers. This is a very high probability confirmation for your buy trades. It’s a trend-change signal for you.

 

SELL confirmation:
  • In a short NET-POS looking for a Sell opportunity. because most speculators are in short positions and they think, the asset is worthless to buy
  • Big Positive changes in short NET-POS, Is a sign of trend changes or a short-term Sell trend correction
  • Buy opportunity when you have positive changes in long NET-POS value. (more than 4K contracts). this means speculators are buying this asset more than last week
  • Suddenly positive change indicates the intensity of buyers due to short-term sentiment or fundamental reasons.

SELL positioning:
  • Long-term Long NET-POS or huge numbers for Long Net positions is a sign of the speculator’s position unwinding and OVERBOUGHT price area. means it’s possible that the speculators close their Long positions to take their profit. it makes a price reversal/correction or pulls down the price to the downside for short-term
  • Overbought on COT net-pos can make a good supply area.
  • Oversold on COT-Net positions for quote currency. (ex: JPY oversold on USDJPY) and possibility for close JPY sales positions and force the pairs to lower prices sake of position unwinding

SELL Signal with COT flip:
  • Flip or reversal of the COT net position that goes from positive to negative numbers is a very high probability confirmation for your Sell trades.