COT Report Analysis - a thread on market sentiment

Hi Forexunlimited,

I think it is very true what rookie39 wrote in comment number 86. The report does not give you the exact level of entry but gives you an overall view of the market and I also think that large speculators do not change their view in every three days which means that being 3 days behind the actual market is still okay to see the market as a whole.

It would make more sense if you have years worth of data, in which you were comparing the most recent release to. It seems like you’re trying to use the strategy to trade in the longer term, but, if someone new is just getting into the report, how far back would they need to go to have statistical relevance as to the current positioning or professionals?

i.e. They may be net long this week, but, in terms of the last 4 months what does that mean?
I respect your right to trade however you see fit- I just wanted to comment because there really is no need for this data as it is all reflected in price.

How long have you been trading with the COT as your primary signal source?
What type of returns have you been able to pull down each month on average?

Thanks for continued conversation!
Jake :slight_smile:

Hi Jake,

you have to wait it bit more until I can give you exact answers how well the trades turn out. I started to work with COT only a couple of weeks before as I started this thread. And actually the point of the thread is exactly to learn together. Rookie39 is commited to it for example, me too. We work together with some others and try to improve our skills. Like I said hopefully at the end of the year I can tell you if it makes sense to trade like this or not!

Have a great trading week!

Hi rookie39,

I had this book anyway on my must read list, I will then order it today or tomorrow to move faster on the way of interpreting und understanding the report!

Good job with your trades!

Sounds good- I’m not going anywhere and would love to continue to monitor your progress.
Good luck guys! I wish you the best.
Don’t give up!

Jake

Williams is very much focussed on the commercials’ activities rather than the large speculators.

He also uses the small trader numbers at times as a contrarian indicator.

The ‘cot index’ is the indicator, he and Briese emphasize that it is not a timing tool.

Williams cites many examples of cot giving an early warning of a market turn up ahead, the one that hit home with me most was the S&P example - mainly because I was long on stocks 2000.

Quote: (he is speaking of the commercials, the cot index and the S&P 1998 -2000)

The lesson you just learned was that extremely high readings are bullish, and extremely low readings are bearish. With that in mind check out the chart and you will see what a brilliant record these guys had in showing us the buy points in the fall of 1998 and 1999 when their buying reached historically high levels, higher than seen in the prior 5 years.

Boy these guys were big buyers.

Their selling was equally fortuitous. Check out the massive amount of selling at the start of 2000 when the largest bear market in 70 years began.
At that time the commercials had taken on the largest short position in the S&P 500 index in the history of the data. In 18 years they had never been this bearish.
Stocks plummeted in response, and these insiders must have made hundreds of millions of dollars from correctly calling this critical market turning point.
End Quote.

Hi peterma,

great to see you here again! Thanks for your response. Do you actually trade based on the COT report or you just know how it works because you invested time in it? Do you use any other market sentiment tool for analysing the market or are you more of a technical analyst?

Best wishes

I only trade Eur/Usd and Gbp/Usd - in my line of work I ‘trade’ Eur/Gbp in that I have to exchange the actual currencies, so I generally am aware of what is happening USD/EUR/GBP.

I always check the cot, it gets to the point where you can guess what changes will have been reported on the Tuesday by the behaviour of price on the remaining 3 days, if my ‘guess’ is wrong, ie the commercials didn’t do what I thought they may have done, then I delve deeper.

An example of current analysis on GBP - the comms are at extreme short levels - they have been selling their GBP’s as it’s value has increased - normal business decision.

They have slowed their selling, if GBP were to decrease in value then the opposite, as GBP becomes cheaper then it makes sense for commercials to buy.

So I’m guessing that the commercials are slightly hesitant in their Bullishness on GBP - that makes me also slightly hesitant.

LOL, I should have invested time in reading the COT back 14 years ago, would have save me a lot of grief - ah well, that’s hindsight I suppose :slight_smile:

Also FE, to be specific to your question, I don’t use TA like most do here, I understand how many use fibs, ma’s, and various patterns, I also understand that those work for people and that is good.

‘Sentiment’ is a good word, others call it ‘momentum’, yet others use the term ‘trend’. Imo this is where TA and Fundamentals meet. UK economic news been ‘trending’ upwards for some time, price is reflecting this, so I look to news to add further momentum, or indeed to counter the prevailing sentiment.

The market sentiment tool I find best for me is how price has behaved most recently.

I have long since ditched the notion of bias, sometimes I feel red faced because I happen to have a longer term bullish bias on GBP and yet I am short for the day, will prob be so tomorrow, if the cpi numbers disappoint, otherwise I’ll be stopped out for a small loss.

Quick anyl on recent price behaviour: Today USDX back where it started, Eur/Gbp sustained buying, so either buying Eur or selling Gbp / Fibre (Eur/Usd) some early buying but back to where it started (like USDX)

Cable (Gbp/Usd) - sustained selling, the opposite of Eur/Gbp, so it’s not USD buying that caused the price behaviour on cable today, therefore has to be GBP selling.

So my sentiment tool is negative GBP short term (tomorrow) - my entry and stop will use the Asian :slight_smile:

Hi guys. I’ll explain.

I have rated here everyone from strongest to weakest. And yet strong/weak is relative. So, I break it down to who is the strongest down to the weakest, in order, for the long term, short term, and intraday. For the long term determination I pull up the weekly charts. Everybody is either trending high, trending low, or ranging against each other. So, I plot that. My rating for everyone is based on that. Whoever is trending high and has the most accumulated against each other will be on top. See, for the long term NZD is trending high against 6 others. So, I have them as the strongest. Then comes CAD who is trending high against 5 others. And so on. And since strong weak is relative, I also have them rated in the short term (I call it). So, I pull up the daily charts, determine who is trending and ranging again. See everyone is doing something, either trending high, trending low, or ranging. And look at the short term daily charts…you see the CHF I have rated as 3rd. It’s because I see them as trending high against AUD, USD, EUR. But, in the long term rating, their next to last. Because they are not trending high against anyone. And that’s all according to my perception looking at the charts and looking at the fractals. Higher highs and lower lows.
So…that’s my way of getting to know who is the strongest, then the next stronger one, then the next, and so on down to the weakest. Rated. And in perspective. Long term (pretty far out), short term (daily charts), and recently added is the 8 hr charts. I will look at the 8 hr charts and do the same thing as I do with the other 2. Find (as per the fractals on the charts) who’s trending high, low, and ranging against each other. I’m putting it all into perspective. Far out, relatively short, and really short term strong/weak.
Basically their rated in that time frame.
Look at my list. On the left is the ratings. And on the right is my proof of who they are trending high against, in order to get them where they are.
See, I used to just have one list. But, it is just so relative. And it only makes sense to break it up some and put it into perspective. Long term, short term, and intraday.
When you talk about strong/weak, your singing my song. You might say someone is strong, sure, but at what time period. And whoever is trending high, in my opinion, is stronger.

We’re all trying to put things into perspective.
This is my way.
And as I said before…I love all this stuff (IN THIS THREAD). I love talking about the big picture. That’s seems to be what this thread is about.
Don’t take me wrong…I’m all in this thread. Can’t pry me away from all this stuff.

I appreciate all your work!

Mike

Hi Mike,

thanks for your explanation, it makes a lot more sense now. I can see that basically your analysis really comes to the same conclusion as what I have written :slight_smile: And yes, of course here is also the point to see the bigger picture and see the markets more clear.

All of you should pay attention on the GBP!!! Like [I]peterma[/I] said that he is skeptical about it, yesterday the price action confirmed that. There were no news but GBP was quite weak! I am waiting for a long-term turning point for GBP and short term bullishness but these signs show us that the recent strength might be away. I am very interested though for what CPI comes out for the GBP in 45 minutes and how the GBP pairs are going to react on it!

Good luck everyone!

Well, I’m paying attention.
What do you guys think? Was good news. I made 22 pips on that scalp. And now, before I go to work in a half hour or so, am trying to decide if they are gonna keep going up today. (I can’t trade throughout the day…monitor it yes, but not able to buy or sell). I usually place limit trades.
I think the pound has much upward movement to play with. (why?) Cause they were in last last week (weakest). Week before that they were first. Then the week before that they were second to last. It seems like this week they will be on top. This could be the catalyst to propel them upward.
These are just some of my thoughts.
How about you guys?

Mike


This is the 8hr chart, aggregate of the pound to each of them.
Seems like have room to rise.

Hi Mike!

Great picture with all the charts! Funny to see 8 hours charts. Have never seen something like that. Can you maybe upload it a bit larger or with a link to some other website? I cannot see the details.

I made also good pips on the CPI report, +45 GBP/USD and +34 EUR/GBP. I will watch out though. I do see some sentiment change. I will look a bit for confirmation and when I get my signals then I jump in. However I am thinking to make a short-term GBP/NZD and GBP/CHF short trades for a bit of retracment after the news. I will see if it makes sense to jump in.

And because we look at market sentiment, both EU and German ZEW Sentiment numbers came out negative for the Eurozone. That might show further EUR weakening.

Have a nice day

Hi Peterma,

Though I’m new to COT I can see how useful this can be to increase probability of our trades. Nothing quite compares to COT report /non commercials/. Thanks for pointing out the differences commercial and non commercial. I almost got lost in vast amount of information. It was overwhelming. All I know is as a spot fx trader we should be focusing on non commercials as they are in it just to speculate as for commercials /in futures/ they might stay in even if their positions are in negative zone.

On GBPJPY dailies I zoomed out and between Jan 2014 - Feb 2014 there was a huge bearish move of about 1000 pips in a span of just about a month. Apparently COT JPY net position was at record high short -143,822 /4th Dec 2013/. Prior this downfall GBPJPY was in an uptrend / GBPJPY usually seems to be in an uptrend with JPY COT net position with - readings most of the time/. GBP COT net non commercials during this period had positive readings + . Now I don’t have long and short figures. Not sure what to make of this. What do you think ? :eek:

If you step back and look at a bigger picture it gives you more clarity. All these dots that we weren’t able to connect up front just seems to make sense from afar. That’s what trading COT is about. The more you realize what actually moves the market /large speculators/ all those fancy indicators all of a sudden feels like nothing more than a combination of false signal providers. I"m not bashing every other indicator out there but by now we all know most of them are nothing but a fallacy.

Yes rookie, the cot is useful only as a guide in FX imo.

The commercials are the ‘instigators’ so to speak in that they need to hedge, with the specs taking up the risk. The picture is even blurred with the fact that dealers who facilitate the hedgers in their transactions can be in the commercial category, so you have, for example, Deutsche Bank making transactions on the commercial side.

Like Williams says it’s not a timing tool, if it was then everyone would be short GBP from months ago.

BTW, didn’t short GBP yesterday, I was lucky - the only thing that stopped me was the high imports last month reported, just caused that little nagging doubt, when in doubt always stay out :slight_smile:

Hi peterma,

Hmmm I took 2 wins on the upside with GBP, then I short vs. JPY and NZD. For some reason JPY is ok and holds steady, the NZD was crashed yesterday and I got stopped out. What a sentiment change in a day!

Today comes out way too many news again so I guess it is better to be careful.

Have a great trading day everyone!

I thought banks were supposed to be on the non commercials side if their sole purpose was to speculate. But being a dealer might enable them to impose charges to hedgers regardless of price fluctuation safe guarding themselves from possible losses due to price fluctuations. So at the end of the day whatever the market condition is they make money as a facilitator.

Not exactly sure how all these work in reality. But banks can play different roles I guess as long as they stay out of taking too much risk or loss opportunity is an opportunity. They have an upper hand when it comes to these kind of deals anyways. Or should we look at both ? The more you delve into something the more complicated it gets especially with fx. Oh wells :30:

Good to hear your trades have been right Forexchange!

If you look at JPY crosses for instance USDJPY and GBPJPY and zoom out to weeklies. These JPY crosses have been in somewhat steady uptrend since the beginning of time no I mean the chart :22: JPY non commercial positions with - readings most of the time while GBP and USD with + readings. So COT net commercial positions definately tells something , the general atmosphere or like Mike says the big picture.

But like peterma mentioned net non commercial positions doesn’t tell you exactly when to get in and ride on those big moves the big guys have started. But if COT net position just serves you as a guide we might just as well trade with fundamentals /general economic conditions and key news releases/ don’t you think ?

Well we can always look at COT report and look out for short and long positions the previous week and decide then. And look for signals with technicals. But is there a way to know a big move prior with COT ? I thought perhaps by looking at historic net non commercials and comparing them might give a clue to if big move was coming but like I said in my earlier post that isn’t seem to be the case. JPY net non commercials were at record high short -143,000 while GBP had + readings but few days later GBP had lost almost 1000 pips in a span of just about a month. againts JPY on dailies.

Hopefully we’ll get around this sometime :wink: