What is COT Data and how is it used?

Question

As thourogh as possible and preferably related to the forex, please...

Answer 1

Hoa's answer is not quite right. The COT is the Commitment of Traders Report (also called the Net Traders Position) published by the CFTC (Commodities Futures Trading Commission) that is published every Friday. What it does is show the current open long & short position of Commercials, Large Speculators and Small Speculators. The Small Specs are individual small fry traders like you and me. The large specs are traders that can hold quite large positions. The Commercials are the big boys, the institutional traders and such.

What the COT does is shows you how many long positions and short positions each category of trader is holding on a specific contract. It shows the positions for physical commodities like gold, corn, cattle, financials, currencies, etc.

They way you use it is to see who is holding what position, that is a net difference between long and short positions. For example, if the Commericals are holding 250,000 long positions in wheat and 175,000 short positions in wheat, then the net position is long 75,000 wheat contracts (250,000 long minus 175,000 short).

Here's how you use it. The small specs are almost always wrong, the large specs are generally wrong also, but the Commercials are almost always right. What you want to do is pay attention to the commericals and see what they are doing. Some data services will deliver the COT in a graph form (I think Genesis Data has the COT).

If you see the small specs net short on a commodity and the commericals are net long, then within about 2 weeks, you'll see that commodity rise. Visa versa, if you see the small specs net long and the commericals net short, that commodity will begin to fall. It's kind of hard to say how much, but the general premise is it follows by about 2 weeks what the commercials are doing.

But you must remember a couple of things: 1) Commercials are hedgers so they are generally short. In order for a short position to trigger, the commericals should be heavy net short, meaning holding a lot more short positions then they do historically. 2) Commercials tend to build up a position, so that's why the markets will react about 2 weeks after the commericals build up a position. When the market is rallying, they'll build up short positions into the rally. If the market is falling, they'll build up long positions into the decline. 3) If the commercials are very heavy net long, look for a major upside move. Remember, commercials are generally shorters, so a net long position (especially a large one) is pretty good indicator of a rally price move.

Remember, this is all relative. You still should use other technical indicators in congunction with the COT. Remember, commericals are almost always right, but the key word there is ALMOST. They can be wrong, but that's more the exception as opposed to the rule.

Hope this helps you out.

Answer 2

COT== commitments of tradeers, it published every friday by government. it is futures contract on agriculture. and it used as a sentiment indicator for trader. usually speculators bet on long position, you should sell, and do otherwise

checkout 2 links and you will understanding better:
http://www.technicalindicators.com/stockmarket.htm
http://www.technicalindicators.com/cotstocks.htm