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Commitment of Traders
- A Guide to Using COT Data -
Commitment of Traders Data (or COT) shows us the positions of the various players in the futures markets. The
Commercials are the largest group. They own physical commodities and trade in a market to hedge - protect their
assets from a loss. The Speculators and small traders are in the markets to make money from price movements.

In the futures market, any participant can go long or short, which means they can profit from an upward move, as
well as profit from a fall in prices.

COT is a leading indicator, foretelling trend reversals. It is not advisable to use this tool for timing the market. There
are times when you can use technical patterns to pin point entry after the COT has foretold of an impending
reversal in the current trend. Below is a sample of how to read this data. This is a graphical representation of
futures COT data for the British pound taken from www.cot-futures.com. Results are demonstrated using GBPUSD
spot forex price charts. We will see how COT told us of impending moves in the past, and how to understand what
the COT data says about the next moves of importance in various markets.

Reading the COT Chart: The orange line represents the positions of commercial traders. When they are near 0%,
there is a high probability for the uptrend to top out and move lower. Once the orange line reaches near the 100%,
it shows us that the commercial traders are long in the futures market, and price is most likely to end its downtrend
and advance upward in the coming weeks/months.

Note: www.cot-futures.com calculates the positions of market participants relative to their past holdings, it is not
an absolute percentage or value.

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GBPUSD, Example 1:

As the orange line

approaches 2%, we can
see that commercials are
very short and we should
expect a price reversal to
the downside.

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Lets see what price action did :

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GBPUSD, Example 2:
Now, lets look at the second signal the COT data provides us with.

Commercial Traders
were increasing their
short positions, which
leads to a price
reversal.

Price moves
lower after the
commercial
traders are
short.

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GBPUSD, Example 3:
From the same COT data we can see a long signal to buy.

We can see the Commercial

Traders acquired long
positions in the British Pound
(as indicated by the orange
line moving to the top).

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Here is the price action chart. Observe how price moved up 700 pips between the end of March and early May
before returning to its downtrend.

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GBPUSD, Example 4:
This is the second Long signal from COT.

Once the Commercial

Traders were extremely
long, it was clear that
GBP was due for an
upward move.

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Price action follows the COT signal.

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My expectation:

Lastly, I would like to post an example of my expectation regarding a future event, by using COT's predictive
qualities. Shown below is a chart of the Japanese Stock Index Nikkei 225 Futures. COT predicts an impending
upward move. The commercial traders are extremely long as shown by the orange line.

This is the same COT data represented differently. In this chart below, the green line represents the commercial
traders.

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This is the same data in text format:

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We can see from the COT data that the commercial traders are long, and extremely so. Lets look have a look at the
technicals now.

Peak

2
This seems to be
forming the #3
point of a major 3
1-2-3 bottom.
1

Lets look at the big picture first. The Nikkei Stochastics is in the bottom and turning up on
peaked in December 1989 and has been in a this monthly chart. This is important because of
secular downtrend ever since. We seem to be at its confluence with the weekly Stochastics.
the #3 point of a major 1-2-3 bottom pattern.

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An inverted Head & Shoulder The inverted Head & Shoulder

pattern also makes the case for pattern is magnified on this Daily
an upward move. chart.

Shoulder Shoulder

Head

Weekly Stochastics has a double bottom

and divergence to price.

There is confluence across timeframes for an upward move in the Nikkei 225. This may mark the end of the great
bear market in Japanese stocks. This opportunity came to my attention by looking at the COT data. COT gives
actionable advice if you understand how to use it alongside other trading tools. Never risk more than you are
comfortable losing. We are dealing with the future here and there are no guarantees, only the ability to make
informed decisions and await the time till the odds are in favor before placing a trade. Take a calculated risk.
Speculation is a business, gambling an expensive hobby.

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Conclusion

The Commitment of Traders data shows us the positions of the various participants in the futures market. When we
see that the Commercial Traders have extremely long, or extremely short positions, we should await a change in the
current uptrend or downtrend using technical analysis, and then look to trade in the direction of the new trend.
Also note that the examples in GBPUSD have worked relatively fast. In my experience, there are many times when
you'll have to wait for a proper reversal of the trend.
Once the COT data indicates that commercial traders are short at or below 10%, or long at or above 90% , I add that
particular currency/commodity/index to my watch list and look for signs of technical reversal. Risk management,
and most importantly your own trading psychology, are key factors in your own success or failure. In other words,
COT is a great leading indicator but should not be used on its own. Await the price reversal after the signal. I will
discuss other COT issues, such as 'Backwardation' cancelling a short signal, and the time element, in future posts at
my blog: speculationandtrading.blogspot.com

Charts were taken from Prorealtime with permission,

www.prorealtime.com/common/partner.phtml?page=main&language=en&from=136556

COT graphs and data were kindly provided by Barrie Lees, www.cot-futures.com

Created by Yousaf, www.speculationandtrading.blogspot.com

Disclaimer
This article has been created to journal the authors observations of the markets and is not to be misinterpreted as investment
advice. All materials, including trading strategies, market analysis and tools, posted are for informational and educational
purposes only.
Understand that trading of securities, currencies and commodity futures always carries with it a substantial amount of risk. Do
not misinterpret this information as a recommendation to buy or sell any currency, commodity, or other financial product.
Always consult with your own financial adviser before engaging in any trading activity. Any monies invested in the markets are
subject to loss. In fact, you may lose money in excess of the funds you invested initially. While a stop loss order is designed to
protect you from excessive losses, it is by no means to be viewed as a failsafe insurance policy. Volatility and/or gaps in the
markets may not allow for the execution of your stop loss and/or limit order and could result in a financial loss. Any mention of
entry orders, exit orders, stop losses, limit orders, and their placement by the author of this blog shall not be misconstrued as
investment advice. The author of this article shall not be held accountable for any losses, financial or otherwise, that may be
incurred by you as a result of your engagement in the financial markets. The author strives to maintain the highest degree of
accuracy, however, no guarantees can be made as to the reliability, completeness, or correctness of the data or information
posted. You are ultimately responsible for any action you take as a result of information or analysis posted here and its
associated consequences. Trade responsibly!
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