{"id":9809,"date":"2022-10-13T05:12:03","date_gmt":"2022-10-13T05:12:03","guid":{"rendered":"https:\/\/mdr.foobrdigital.com\/?p=9809"},"modified":"2022-10-13T05:12:03","modified_gmt":"2022-10-13T05:12:03","slug":"how-to-interpret-the-cot-report","status":"publish","type":"post","link":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/2022\/10\/13\/how-to-interpret-the-cot-report\/","title":{"rendered":"How to Interpret the COT Report"},"content":{"rendered":"\n<p>Now that we know how to determine sentiment extremes, what\u2019s next?<\/p>\n\n\n\n<p>Recall that not every sentiment extreme results in a market top or bottom so we\u2019ll need a more accurate indicator.<\/p>\n\n\n\n<p>Calculating the percentage of speculative positions that are long or short would be a better gauge to see whether the market is topping or bottoming out.<\/p>\n\n\n\n<p>The equation to calculate for the %-long and %-short is indicated below:<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter\"><a href=\"https:\/\/bpcdn.co\/images\/2010\/11\/long-short.png\"><img decoding=\"async\" src=\"https:\/\/bpcdn.co\/images\/2010\/11\/long-short-300x117.png\" alt=\"COT Report\" class=\"wp-image-41256\" title=\"COT Report\"\/><\/a><\/figure>\n\n\n\n<p>To illustrate this better, let\u2019s go back a few years and see what happened with Canadian dollar futures.<\/p>\n\n\n\n<p>Going through the COT reports released on the week ending August 22, 2008,&nbsp;<strong>speculators were net short 28,085 contracts<\/strong>.<\/p>\n\n\n\n<p>On March 20, 2009, they were&nbsp;<strong>net short 23,950 contracts<\/strong>.<\/p>\n\n\n\n<p>From this information alone, you would say that there is a higher probability of a market bottom in August since there were more speculators that were short in that period.<\/p>\n\n\n\n<p>But hold on a minute there\u2026 You didn\u2019t think it would be THAT easy right?<\/p>\n\n\n\n<figure class=\"wp-block-image aligncenter\"><a href=\"https:\/\/bpcdn.co\/images\/2016\/05\/freshman-short-ratio2-2.png\"><img decoding=\"async\" src=\"https:\/\/bpcdn.co\/images\/2016\/05\/freshman-short-ratio2-2.png\" alt=\"COT Report: Short and long ratios can help you spot market tops and bottoms\" title=\"COT Report: Short and long ratios can help you spot market tops and bottoms\"\/><\/a><\/figure>\n\n\n\n<p>A closer look would show that 66,726 contracts were short while 38,641 contracts were long. Out of all the speculative positions in&nbsp;<strong>August<\/strong>&nbsp;(66,726 \/ (38,641 + 66,726)),&nbsp;<strong>63.3%<\/strong>&nbsp;were short positions.<\/p>\n\n\n\n<p>On the other hand, there were just 8,715 long contracts and 32,665 short contracts in&nbsp;<strong>March<\/strong>.<\/p>\n\n\n\n<p>This means that (32,655 \/ (8,715 + 32,665))&nbsp;<strong>78.9%<\/strong>&nbsp;of the speculative positions were short positions during that period. What does this mean?<\/p>\n\n\n\n<p><strong>There is a higher chance that a bottom will occur when 78.9% of all speculative positions are short as opposed to just 63.3%.<\/strong><\/p>\n\n\n\n<p>As you can see on the chart above, the bottom, in fact, did not occur around August 2008, when the Canadian dollar was worth roughly around 94 U.S. cents.<\/p>\n\n\n\n<p>The Canadian dollar continued to fall over the next few months.<\/p>\n\n\n\n<p>By the time March came around and the %-short ratio hit 78.9%, the Canadian dollar had hit a bottom around 77 U.S. cents.<\/p>\n\n\n\n<p>Then what happened? It started to steadily rise!<\/p>\n\n\n\n<p>A market bottom? Yep, you got it.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Now that we know how to determine sentiment extremes, what\u2019s next? Recall that not every sentiment extreme results in a market top or bottom so we\u2019ll need a more accurate indicator. Calculating the percentage of speculative positions that are long or short would be a better gauge to see whether the market is topping or [&hellip;]<\/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\/9809"}],"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=9809"}],"version-history":[{"count":0,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts\/9809\/revisions"}],"wp:attachment":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/media?parent=9809"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/categories?post=9809"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/tags?post=9809"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}