What do we mean by COT report, after all? And why is it so prominent an indicator used in the forex trade market? COT stands for Commitments of Traders and the report is drawn down by the Commodity Futures Trading Commission which is a detailed information report in the futures market on positions and volumes of contracts. The COT report assumed a position of high importance for its elaborate enumeration of the contracts which basically helped the shot term speculators, which generally is the case, in the forex market fairly accurately.
The COT report is not meant for exclusive use of foreign exchange market nor is that dedicated to it. The report lists out the prevailing condition in the futures market, about the contracts, whether the net contracts were long or short. The considerations are for commercial, non commercial and open interest while giving detailed figures of number of traders in each category, the spread and percentage of open interest etc. The report also includes the same positional data for different foreign exchange currencies.
How to Use This Cot Report?
The fundamental thing to understand while reading the COT report is that the commercial positions are not as much relevant as non commercial positions are for the simple reason that they are predominantly traded in the spot currency market. So, it is wise for a trader to concentrate more on the non commercial market positional data more for reliability in capturing the trade positions.
Forex traders must be concentrating on 3 major areas in the COT report to base their trading decisions.
1. Positional Flips in the market are assumed to be accurately trending.
2. Identification of market reversals through the help of extreme positions has been historically accurate.
3. Strength of a market trend is better judged by the changes in the open interests.
What Do We Infer By This Discussion
Before we go on to summarize the article we need to look at the down side of the COT report too. It does not throw much light on the volumes which is the back bone of the spot trading market. But traders have more or less turned towards the futures market which compensates for this lack of volume data.
Analyzing the three key areas in the COT report, which is released on each Friday, is essential although it contains data till the previous Tuesday only.
If you are a fresher, it would be prudent of you to have slower and smaller exposure till such times when you are comfortable with market predictions even for intraday calls. Another point is not to go for shorts unless you are truly confident of your decision. How long it takes to become a seasoned forex trader? It depends on the background and exposure of the individual and as such there is no standard
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