{"id":9803,"date":"2022-10-13T05:10:05","date_gmt":"2022-10-13T05:10:05","guid":{"rendered":"https:\/\/mdr.foobrdigital.com\/?p=9803"},"modified":"2022-10-13T05:10:05","modified_gmt":"2022-10-13T05:10:05","slug":"how-to-use-the-cot-report-for-trading","status":"publish","type":"post","link":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/2022\/10\/13\/how-to-use-the-cot-report-for-trading\/","title":{"rendered":"How to Use the COT Report for Trading"},"content":{"rendered":"\n

Since the COT report comes out weekly, its usefulness as a market sentiment indicator would be more suitable for longer-term trades.<\/p>\n\n\n\n

The question you may be asking now is this:<\/p>\n\n\n\n

How the heck do you turn all that \u201cbig giant gobbled-up block of text\u201d into a sentiment-based indicator that will help you grab some pips?!<\/p>\n\n\n\n

One way to use the COT report in your trading is to find extreme net long or net short positions<\/strong>.<\/p>\n\n\n\n

Finding these positions may signal that a market reversal is just around the corner because if everyone is long a currency, who is left to buy?<\/p>\n\n\n\n

No one.<\/p>\n\n\n\n

And if everyone is short a currency, who is left to sell?<\/p>\n\n\n\n

What\u2019s that?<\/p>\n\n\n\n

Pretty quiet\u2026<\/p>\n\n\n\n

Yeah, that\u2019s right. NO ONE.<\/p>\n\n\n\n

One analogy to keep in mind is to imagine driving down a road and hitting a dead end. What happens if you hit that dead end?<\/p>\n\n\n\n

You can\u2019t keep going since there\u2019s no more road ahead. The only thing to do is to turn back.<\/p>\n\n\n\n

Let\u2019s take a look at this chart of the EUR\/USD:<\/p>\n\n\n\n

\"COT<\/a><\/figure>\n\n\n\n

On the top half, we\u2019ve got the price action of EUR\/USD going on. At the same time, on the bottom half, we\u2019ve got data on the long and short positions of EUR futures, divided into three categories:<\/p>\n\n\n\n

  • Commercial traders (blue)<\/li>
  • Large Non-commercial (green)<\/li>
  • Small non-commercial (red)<\/li><\/ul>\n\n\n\n

    Ignore the commercial positions for now, since those are mainly for hedging while small retail traders aren\u2019t relevant.<\/p>\n\n\n\n

    Let\u2019s take a look at what happened mid-way through 2008. As you can see,\u00a0EUR\/USD\u00a0made a steady decline from July to September.<\/p>\n\n\n\n

    As the value of the net short positions of non-commercial traders<\/strong> (the green line) dropped, so did EUR\/USD.<\/p>\n\n\n\n

    In the middle of September, net short positions hit an extreme of 45,650<\/strong>. Soon after, investors started to buy back EUR futures.<\/p>\n\n\n\n

    Meanwhile, EUR\/USD rose sharply from about 1.2400 to a high near 1.4700!<\/p>\n\n\n\n

    Over the next year, the net value of EUR futures position gradually turned positive. As expected, EUR\/USD eventually followed suit, even hitting a new high around 1.5100.<\/p>\n\n\n\n

    In early October 2009, EUR futures net long positions hit an extreme of 51,000<\/strong> before reversing. Shortly after, EUR\/USD began to decline as well.<\/p>\n\n\n\n

    Holy Guacamole! Just by using the COT as an indicator, you could have caught two crazy moves from October 2008 to January 2009 and November 2009 to March 2010.<\/p>\n\n\n\n

    The first was in mid-September 2009.<\/p>\n\n\n\n

    If you had seen that speculative traders\u2019 short positions were at extreme levels, you could have bought EUR\/USD at around 1.2300.<\/p>\n\n\n\n

    This would have resulted in almost a 2,000-pip gain in a matter of a few months!<\/p>\n\n\n\n

    Now, if you had also seen that net long positions were at an extreme in November 2009, you would have had sold EUR\/USD and you could have grabbed about 1,500 pips!<\/p>\n\n\n\n

    With those two moves, by using the <\/strong>COT report as a market sentiment reversal indicator<\/strong>, you could have grabbed a total of 3,500 pips. Pretty nifty, eh?<\/p>\n","protected":false},"excerpt":{"rendered":"

    Since the COT report comes out weekly, its usefulness as a market sentiment indicator would be more suitable for longer-term trades. The question you may be asking now is this: How the heck do you turn all that \u201cbig giant gobbled-up block of text\u201d into a sentiment-based indicator that will help you grab some pips?! […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[772],"tags":[],"_links":{"self":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts\/9803"}],"collection":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/comments?post=9803"}],"version-history":[{"count":0,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts\/9803\/revisions"}],"wp:attachment":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/media?parent=9803"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/categories?post=9803"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/tags?post=9803"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}