How to follow big players in Forex Trading- Commitment of Traders Report

Forex trading is a zero-sum game, for every winner, there has to be a loser. If you could take a guess who is more likely to be profitable? Retail traders or Big Banks and Hedge Funds?

Well if you guessed that Banks, you are right. Retail traders are in a disadvantage with the amount of information we have in the markets, luckily for us, there is a way to follow what the big players are doing.

In this article, we are going to take a look at the Commitment of Traders Report and how it can help with your trading.

Commitment of Traders Report

What is the Commitment of Traders Report?

Commitments of Trader Report (COT) is published every week by the Commodity Futures Trading Commission (CFTC).

The report shows opened positions by all the subjects that have to report their positions at CFTC. These are positions by big institutional subjects.
Every Tuesday evening, these big players report their positions and the report is published every Friday at 3:30 pm EST (9:30 pm CE(S)T).
The COT Report shows approximately 70 – 90% of open positions at futures markets. The goal of this report is to provide transparency to the futures market and prevent price manipulation.
Although this report is from the futures market, we can use this information in spot currencies and CFD trading since spot forex pairs go hand to hand with currency futures and futures Commodities, Metals and Indicies are same as their CFD counterparts.

What subjects you can find in the Commitment of Traders Report?

Commercials – These are the most important players in the markets as they often hedge their holdings and tend to have the most insight about the movement of future prices. In a healthy trend, you should watch commercial positionings going with the trend.
Large Speculators – Trading firms and hedge funds who speculate on the markets to gain profits. These tend to be right most of the time, but there are some exceptions to that.
Small Speculators – Private investors and retail traders, they don’t have to report their positions to CFTC.

Where is the Commitment of Traders Report published?

The original version of the COT Report can be found at the CFTC website.

 

There are also more interactive versions to display data such as barchart.com or freecotdata.com

 

 

As you can notice on the above chart of Canadian futures. Commercial participants (red line) were heavy long in both early 2016 and mid-2017, both of this informations signalled big trend moves in the market for the following months ahead.

As this showed us the strength of the Canadian dollar, we could use this as a trend move of USD/CAD short.

Example of using COT Report in Forex

Let’s take a closer look at what we can do with this report by looking at the short position change and open interest of the US30, the COT shows us that by Friday, June 5, 2020, despite the fact that there was a clear bullish trend, it was approaching a change of direction in the movement of this market, as seen in the week of June 8 to 12, 2020.

As seen in the first attachment, the positions for sale increased by 5,051, so a strong downward movement was expected due to the increase in positions for sale, in the following two annexes you will see how this change happened after the publication of the COT with this large increase in positions for sale with an open interest of 40.80%. It is important to mention that the first annex is an own file that is visually easier to analyze, but the published data remains the same and can be verified by verifying the report file “Visible history” in the page of the Commodity Futures Trading Commission.

Now, let’s take a look no longer at the indices but at forex with the COT, for Friday – June 5, 2020, there was a bullish break in CADCHF, however when checking the COT, a change of direction in the movement of this market was expected, as seen in the week of June 8 to 12, 2020.

When reviewing the report’s figures, we can see that the Canadian dollar with the information from June 2, 2020, showed us how positions were closed long and in the Swiss franc increased long positions and closed their positions short increasing net positions.

For greater effectiveness, you can compare changes in short and long positions, as well as net positions and open interest, with previous weeks, since it will allow you to have a view for the following weeks of how the market is expected.

It is important to mention that this serves as an additional confirmation tool, but as everything will not give 100% accuracy, this report must be complemented since it is not an absolute when opening positions in any market.

In this way, we can conclude that knowing how to analyze the information that is shared publicly and for free, allows us to have additional confirmation in our analysis and can be used in commodities, indices, currencies, among others, and thus take our trade to the next level.

In Conclusion

The Commitment of Traders is a great tool to help you understand the market sentiment, but this report itself should serve you only as a benefiting advantage to your analysis and there should be a discretion exercised while using it.

When you are watching a report, it is generally perceived not to look at low timeframes, but to rather stick with a daily/weekly timeframes and look for big extremes where you can find a big difference between commercial and small speculators positioning.