Hi and a very warm welcome to the new version of my site dedicated to the COT (Commitment of Traders) Report. I will now be updating the site weekly with the COT report data as it is released by the US Commodity Futures Trading commission. I hope you find the new site useful and over the next few months I will be adding various commodities and currencies so that eventually the entire report is covered for you each week, with a COT index indicator.
For those of you new to the COT report, it can be a confusing report, both to read, but also to interpret, and in order to try to help you with some of the terms, you will find an explanation of the basic terms and ways to use the data in the navigation bar at the top of the page. As with any set of data, the figures can be ‘sliced and diced’ in many different ways, and there is always a lively debate in the trading forums and among professional traders, of the benefits or otherwise of the COT data. Some traders will point to it as a meaningful long term indicator, others will suggest that since the data is delayed, it has very little value. Whoever you believe, or whatever system you develop of your own, there is one fact that cannot be denied. The numbers supplied are accurate, and do provide an insight into the real futures market.
As a commodities and currency trader, I use the COT report in several different ways, and the first point I have to stress is simply this – that in my opinion the COT data does provide a meaningful view of the commodities market, so long as you follow the commercial trading group, but that for other markets such as currency, then the commercial data has less weight. This is simply my own personal view and you may agree or disagree, but my reasons for having this view are quite straightforward: Ask yourself this simple question – ‘in trading in a commodity, who is likely to know more about the market, the balance of supply and demand, the future demand, and any issues which may affect prices in the future ? – the commercial producers, or the non-commercial speculators. In my view I believe that if you are trading in commodities, then the commercial group, will provide a better guide than the speculators, for the simple reason that logically they will have a much better idea of the market and all the pressures affecting prices, from a suppliers perspective, than could a speculator. The speculator is there simply to follow the trend, the commercial producer or grower has a physical product to sell, and as an expert in their market, will (in my view ) always be better informed, and therefore have a better view of how prices are likely to move in the future. So in summary, in my commodities trading, I follow the commercial group, and on a weekly basis I will be providing an update on the various commodities, starting with gold, silver and oil.
The weekly numbers I use are converted into a COT Index chart which then provides a ratio between 0 and 100, based on the net positions against the net difference of the maximum and minimum for the period. I use a 52 week period, and when the ratio reaches 90 or above, then the commercial group are heavily short compared to the last twelve months, and therefore this indicates that as a group that is essentially selling a product, then they are selling at what they believe are the best prices, and therefore we can intepret this as a likley signal that prices will fall. Conversley, when the ratio falls to below 10, then the commercial group are not heavily short, and therefore are waiting for higher prices to follow, and will start selling into the rise – in this case we can therefore expect a rise in prices. So in summary when the indicator is at a high of 90+, then we can expect a price fall in the cash market, and when the indicator is at a low of 5 and below, then we can expect a turn and prices to move higher. The most important point to note is that as a group, the commercials are the only ones physically selling a product, and therefore when they sell, they are looking for the best prices possible. So when they are selling heavily, it is not unreasonable to assume that this is the point at which they feel that prices will not rise further.