Market Price Movement does not apply any principles of Technical Indicators like Fibonacci Ratio, Elliot Waves, Relative Strength Index etc. It is fully based on what majority of traders think and price moves in that direction. According to theory book, it is called Supply and Demand, which most of traders know, however only few of them apply it. Interaction of Buyers and Sellers determine price movement, and also it tells future price move.

In this article, I am uncovering rules of Supply and Demand, and how to predict future price sentiments in long term.

Introduction : CoT (Commitment of Traders)

CoT report contains open interest, Long and Short positions data of market, in which trader hold position equal to or above to the reporting level established by CFTC, in three groups of positions, and these are classified into following groups:
  1. Commercial : Organizations, Companies etc. (Also called as Hedgers to protect their business capital)
  2. Non-Commercial : Large Speculators, Hedgers, Investors etc.
  3. Non-Reportable : Small Investors, Retail Traders like us etc.
This report is published by Commodity Futures Trading Commission (CFTC) every Friday around 3:30 PM Eastern Standard Time (EST), and data is of till last Tuesday of the week.

FIG 1 : Details of CoT Report

Note : You can download CoT data for Futures here or, you can go to cftc.gov, and look for "Current Legacy Report, and under Chicago Mercantile Exchange, you can get your desired format of data.

CoT Reports Analysis :

In Fig:1, We can see that there is too many data, and now you may think that which data should be used to get overall market sentiments.

In general, it contains two important data, which we should look for, i.e
  1. Commercial (Net Long & Short)
  2. Non-Commercial (Net Long & Short)
Now look at some data to find overall market sentiments:
FIG 2 : Summarize CoT Data
FIG 3: Weekly Close Price

From Fig. 2, and Fig. 3 data, we can easily notice that Non-Commercials have high presence in market movement. From above two charts, following conclusion we can make:
  1. Commercials Net Long/ Short positions can be used as reversal
  2. Non-Commercials Net Long/Short positions can be used as trend indicator

Technical Facts :

We can calculate CoT data into indicator by using following methods, however to find a good result, we must use larger period like 1 year, or 2 years data.
  • COT Index = 100 × (NLt - Lowest(NL, n))/(Highest(NL, n) - Lowest(NL, n))
where
NL = the net long positions of a given group of reporting traders
t = the current data
n = the lookback period, ranging from 1 to 4 years

After getting COT Index, one can apply in trading by following ways like Stochastic Oscillators, because after calculating Index, it will provide result in between 0 - 100.
  • Non-Commercial [Prev Week] < 20 then wait for reversal and buy when
    Non-Commercial [Prev Week] > 20.
  • Non-Commercial [Prev Week] > 80 then wait for reversal and sell when
    Non-Commercial [Prev Week] < 80
The results are bullish when the COT Index for commercials is high and the COT Index for Non-commercials traders is low. The results are bearish when the COT Index for commercials is low and the COT Index for Non-commercials traders is high.

Now Let us understand whole CoT Report from a chart by applying Commercials, Non-Commercials and Small Speculators positions on a chart of EURUSD :
FIG 4 : EURUSD Daily Chart with CoT Data

From FIG 4, we can notice that when Commercials are at maximum level then Non-Commercials are at minimum, and when they meet each others, price movement is sideways.

That's all about CoT report.

Thanks you.
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