The Commitments of Traders (CoT) Report

✍ The Commitments of Traders (CoT) Report

※ Speculative ─ mid to long-term positioning
※ Manage Money (Slow & Fast money) ─ near to mid-term positioning

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☛ CoT data (Futures) is issued every Friday (3:30 PM EST) wherein the consolidated data is from Tuesday to Tuesday only. The three days before the release date are not included. It means there is a three-day lag between the report and the actual positioning of traders. This is an eternity by short-term investing standards, and by the time the new report is issued, it has already missed a large amount of trading activity. Think of it as illegal insider information received early by Michael Corleone (CFTC) but then he shared it only to the public after three days. ; )─

☛ The CoT data is an essential tool for gauging current and future sentiment in the Futures or Forex market. It is highly advisable not to use CoT data alone when it comes to your trading decision. For me, the report is not designed as a market entry tool, because the market can be near-term bullish in a long-term downtrend. Although, it can be used to confirm the mid/long term fundamental bias in a given market.

☛ Though there is never one report─data/information or tool that can give you certainty about where prices are headed in the future, the CoT data does allow the small investors a way to see what larger traders are doing and to possibly position their positions accordingly. Such as, if there is a large manage money shorts interest in Gold Futures, that is often an indication that a rally may be coming because the market is overly pessimistic and saturated with shorts - so you may want to take a long position (on normal market conditions).

☛ I'm using the data to compare or combined speculative & manage money (instruments - currencies, equities, commodities, etc.) if I can identify a clear skewed bias in terms of the overall strength or weakness of a particular currency or instrument. Like for example... for USD, I check the positioning of these instruments ─ DXY, Gold, Yen, Nikkei 225, and 10-Year U.S. Bond.

☛ On this CoT data table, I added a corresponding correlation besides the symbol or instrument name (caution: it may be outdated). In correlation, there is also positive & negative between pairs or crosses. This can turn to “normal” at any time, making through a pair to fall and the other to fall slower or to go sideways. A pair also can rally to “reach” the other pair.

☛ For technical analysis or you as a technician, watch for vital inflection points, and/or as an analyst that monitor headline risk as they relate to geopolitical situations and macroeconomic commentary.


☝ Always keep in mind that inter-market relationships govern currency price action. Therefore, you may need additional work to understand the CoT data.

✌ The CoT report - Futures data offer a proxy for volume but represent only a small fraction of the currency market.

☢ Since the report is issued every Friday (Saturday, GMT+8) that includes only the data from Tuesday to Tuesday only. The three days before the release date are not included. It means there is a three-day lag between the report and the actual positioning of traders. This is an eternity by short-term investing standards, and by the time the new report is issued, it has already missed a large amount of trading activity. Think of it as illegal insider information received early by Michael Corleone (CFTC) but then he gave it only to you after three days. ; )─

This thread is for information purposes only, wherein it acts as references to my trading journal (small part). No information contained herein should be regarded as suggestive to engage in or refrain from any investment-related course of action. It makes no guarantees as to the accuracy or completeness of the views expressed, including timeliness, the suitability of any information - e.g. videos, images, and documents posted or shared herein. All contents on this thread are subject to change and may have become unreliable for various reasons, including changes in the market conditions or economic circumstances.

Also, please be reminded that there is always the potential for loss. Your trading results may vary. Unique experiences and past performances do not guarantee future results. Hence, it is highly recommended to seek a duly licensed professional for investment advice whether any given investment idea, strategy, product, or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal.

Other things to observe...

If speculators and/or Manage or Fast Money bought or sold most of the market (don't approach this as overbought or oversold - a bad idea even with indicators),

1. There is nobody left to buy or sell
2. They will have to unload to cash in
3. The prices need to reverse

The above metric is never wrong... unless proven otherwise ; )─, but it may take some time for the price to finally follow through (just like correlation standard behaviors - mentioned above). It can’t be wrong as the speculators are the market makers and once, they run out of suckers to fill their positions, they will offload and cash in. Its pure SUPPLY & DEMAND in play and the signal plays out the same way across all futures markets.


Below are the mainstream guides being used by traders to interpret CoT data.

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You may need to check another type of transformation of the CoT data (FREE) >>> here

..with this example below, and a lot more from the shared link ─ like Seasonality thingy ; )─

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...Us retail traders are just too small to affect the market:
Central Bank Survey ─ Foreign exchange turnover in April 2016 Report (PDF)

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CoT data:


...about volume:

※ One of the Challenges in FX Trading ※

FX is one of the hardest markets from which to profit. Currencies are incredibly volatile and masquerade as normally distributed only to pop violently in the wake of major market events. “Impossible” 5-sigma moves are not uncommon, even in major currency pairs – as highlighted by the Brexit announcement.

Other than the infamous carry trade, which tempts traders with consistent, low volatility returns while leaving them short event risk, there are no risk premiums on offer from FX. No inherent beta means investors work hard for profits while contending with the impact of intermittent interest rate moves from central banks. More than perhaps any other market in the world, currency markets are driven by positioning and liquidity and speculation.

Furthermore, currency traders labor under a marked information disadvantage compared to their counterparts in the equity and fixed income worlds. The entirely over-the-counter global forex market is vast, fragmented, and opaque. There are no centralized exchanges where FX trades. As a result, while quoted currency prices are easily observable, executed currency volumes are not.


☛ “Volume Confirms Price”

This makes trading FX more difficult. Stock traders take volume data for granted and leverage it to the maximum. Price can reveal where the market is moving, but the only volume can tell how significant the move is. At the simplest level, “volume confirms price”: rising volume at the start of a trend suggests the trend will continue, while flat or falling volume suggests the trend will reverse. Trading with the price but no volume data is like driving with a compass but no speedometer: you know the direction you’re going, but you have no idea how much ground you’ve covered.

Apart from trading, the volume is also essential to judging market liquidity, transaction costs, and portfolio risk. It’s impossible to estimate the capacity of a strategy, or the friction for a transaction, or the speed and cost to liquidate a position, without knowing the volume profile of the underlying market. Many strategies, portfolios, and algorithms that price well on paper fail when the volume is entered into the equation.

Currency traders have devised some mechanisms to cope with the scarcity of reliable FX volume data. It’s possible to estimate FX transaction volumes using various proxies: currency futures, currency ETFs, short-term rate hedges like LIBOR futures, and so on. It’s also possible to gauge the “real” final demand for various currencies, based on trade patterns and balance of payments data. Central banks and public companies are obliged to publish their holdings and activities, albeit with a lag. Putting all these sources of information together, many currency traders have built their currency volume datasets.

Source: Quandl ─ Free & premium data provider - Hence, a little bit of bias article, but a good & simple reality check to read...


※ Volume in the Forex markets - useful or not? ※

As traders, we’re always looking for useful data that might give us an extra edge. That’s even truer for technical/price-focused traders where all we have is the open, high, low, and close of a market (or tick data, but that usually ends up in some similar transformation as OHLC data). Sure there are thousands of indicators but these are all just transformations of that price data.

Now in many markets volume can be a useful addition to that. Knowing if there was heavy trading within a certain time period or not can be valuable information. It can be used as a filter for trade signals, looking for strong volume on a breakout for example. But there’s also a couple of volume-based indicators that incorporate volume in a useful way.

In the futures markets, when you look at the volume you see how many contracts have been traded at the exchange during that time period. And you see all of it, of all market participants in that market as there’s just one exchange.

But Forex trading is decentralized, OTC trading. There is no single place to look at to see the actual volume of a currency pair. That’s why it’s often said that the volume provided by your broker is pretty useless. All you would see is the trading volume that happened at your broker, either between clients and liquidity providers in an ECN or if you’re trading at a market maker between your broker and it’s clients. But retail traders are not moving the markets, their volume is meaningless in such a big marketplace.

And of course, the institutional traders that are responsible for the volume that matters don’t trade at a retail broker. They’re on Reuters, EBS, or just trading directly with other banks/institutions. So if you just see the volume that happened at your retail broker, it’s useless information right? That’s what I thought too and so I never paid much attention to volume in FX.

Maybe it was time to have another look at volume data in the Forex markets and investigate the FX volume data provided by your broker/ECN might indeed be valuable information! <<< source: fxstreet

#v2vDisclaimer

#v2vIndicators

CoT data ─ Week #33: Speculative positioning



CoT data ─ Week #33: Managed Money (Slow & Fast money) positioning

Current release: CoT Data Week #42 (Speculators)



Previous release: CoT Data Week #41 (Speculators)

1. Gold traders increased their net short exposure to net short $5.2 billion
2. JPY/USD is a very crowded spec short trade. If risk-off sentiment increases JPY shorts will be under pressure. MXN/USD stands out as one of the few consensus spec longs against the USD. AUD/USD spec positioning is near the 2016 lows, indicating most traders are pessimistic on the Australian currency. NZD/USD is still the #1 most crowded spec short FX trade among the contracts I track. CHF/USD spec short exposure has decreased.
3. Traders increased their net short VIX exposure and were carrying a $1.5 billion net short into late last week. ─You may check and see how much that changed on the current release of CoT report (Week #42)

Managed Money - CoT Data Week #42-41 >>> here


source: cftc, movement capital

Just a small survey results over the weekend:



source: top down

...just a sample data gathering by traders who are converting CoT data to put it as a useful information... even if the data would still be useful or not on a week-by-week basis...

Gold futures ... just use your keen observation from March 2018 up to September 2018



Anyway, there are various ways to use or read/interpret/process CoT data. Others, just simply glance at the data by checking only the extremes and oversold value. However, that is just one of the mainstream approach. Others may do some extra work of their own and came up with their own perceived bias. Imagine, if it is not a valid data anymore, then you have two choices - Buy & Sell only... But if you are smart enough add the option of not to trade and walk away ; )─

Current release: CoT Data Week #42 (Managed Money - Fast Money)



Previous release: CoT Data Week #41 (Managed Money - Fast Money)



Speculators CoT Data Week #42-41 >>> here


source: cftc, movement capital

#themarketiceberg


☛ "The technical analyst sees only a small part of the total picture. Price charts show HOW price behaves (the EFFECT -- above the water in the image), while the underlying drivers combine in tug-of-war fashion to determine WHY (the CAUSE -- beneath the water in the image). Because the cause always precedes the effect, TA/PA is lagging.
☛ All Technical Analysis (TA) / Price Action (PA) is derived from price data that has already occurred. Some folk believes that PA is leading. But (for example) by the time a pin-bar on a 1-hour chart has formed/closed, its extreme price has been left behind -- and even an indicator-based crossover (on a shorter TF) might have given an earlier signal. Perhaps the best chart-based tool you'll found is S&R (or S&D zones, if you prefer). Now, the reason: it is caused by institutional order flow, that seeks to exploit vagaries in liquidity.
☛ Is it possible to profit from TA alone? Absolutely YES.
☛ Most money manager uses TA... But TA practitioners are nonetheless at a disadvantage, in that TA/PA lags price, and price itself lags its drivers, in an industry where the speed of access to quality info can provide a competitive advantage. Some of the tools used by institutions are available to retail traders. For example, charts like Order Flow Analytics (OFA), footprint and bookmap it can get the trader one step nearer the action, by providing a liquidity map.
☛ A lot of algo-based trading is based around liquidity imbalances, for the obvious reason that heavyweights seek best-price fills with the least slippage. And if many large institutions trade according to the same principles, then their actions will likely have a cumulative effect, creating repetitive and potentially exploitable patterns." — by Hanover —

...other explanations below :

☛ “Technicals move only with fundamentals behind it. And at times... Technicals move ahead of Fundamentals. Market buys (or sells) on anticipation of profit. Always, it is an intuition for profit. And whatever fears there are — political, social or economic — are calculated risks in business.” — by Harry G. Liu —

☛ Why Technicals move ahead of Fundamentals? “Sometimes, too much speculation drives the price and added with some greed, the technical will lead too much ahead of its fundamentals that will cause the price to correct, consolidate...then either it breaks out to start, resume or end a trend.”

☛ It affects the price as an example... The price movement in terms of correlation, wherein positive & negative between pairs or crosses exist. This can turn to “normal” at any time, making though a pair to fall and the other to fall slower or to go sideways. There is also the possibility for a pair to rally in order to “reach” the other pair in terms of their prevalent correlation (positive or negative).

☛ Then on charts, you'll notice a price divergence and/or convergence and other times a price consolidation occurs before a break-out or respect to certain price inflection points (S&D or S&R or Pivot levels, Fibs... etc.).

“Markets can remain irrational longer than you can remain solvent.” ― by John Maynard Keynes ―

☛ Markets aren't efficient and that they are subject to herd behavior.

☛ If you're smart and rational you'll see the irrationality long before the market does.

☛ That is, even if you are right that the market should go up (or down), the weight of opinion can keep that from happening for an unpredictable length of time. And during that time the market may go opposite to the 'right' direction.

☛ “Markets can remain irrational” - this implies contrary to old school economics that markets are sometimes irrational. Old school economics asserts that markets are always rational because they are stable and self-correcting due to the fact the participants are rational. Unfortunately, with masses of people there are manias of optimistic greed and pessimistic fear. This is because people observe their peers, both optimists and fear are contagious. Often times this contagion becomes universal. Old school ECONOMICS or even algo based systems FAILS to account for this HUMAN REALITY. Though there are Artificial Intelligence systems that collectively read news and sentiments via rss feeds, tweets, headlines, API services, etc... that may sum up as some type of human behavior.

☛ “longer than you can remain solvent” - old school economics assumes that an economic collapse cannot exist when supply and demand relentlessly spiral downwards to zero. That is because when everyone cuts back on consumption in response to uncertainty the paradox of thrift begins. Demand falls which induces further cuts in consumption. This was most recently evidenced in the depression of the 30's and for a brief period in late 2008 / early 2009. The modern policy response is to stimulate demand by government stimulus. What is logical for a single person, a cutback in consumption is fatal when implemented by all people. The key factor here is confidence. The economy cannot survive without the rational assurance of confidence which has to be guaranteed by the government as a last resort if the market fails to create it.

The VIX

Pairing the U.S. dollar index and the VIX together is powerful because the VIX measures the level of volatility in the market—specifically implied volatility in SPX options. It is sometimes called the “Fear Index” because it tends to spike up when fear and uncertainty abound. Now, if the VIX is showing a high level of volatility and fear, which direction do you think the U.S dollar index will go? Of course, it will most likely be headed up. Conversely, if the VIX is relatively low, showing strong confidence in the market, then the U.S. dollar index will most likely be falling.

CoT Data Week #43 (Speculators)

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CoT Data Week #43 (Managed Money)

US-centric charts: There is still a credible case for significant upside risk for the DXY.

Bonds...

...stronger USD ahead but with potential upside risk:

Latest NFCI Release
Index Points to Steady Financial Conditions in Week Ending October 19
The NFCI was unchanged at –0.87 in the week ending October 19. Risk indicators contributed –0.36, credit indicators contributed –0.35, and leverage indicators contributed –0.15 to the index in the latest week.
The ANFCI ticked up in the latest week, to –0.74. Risk indicators contributed –0.44, credit indicators contributed –0.38, leverage indicators contributed –0.11, and the adjustments for prevailing macroeconomic conditions contributed 0.19 to the index in the latest week.
The NFCI and ANFCI are each constructed to have an average value of zero and a standard deviation of one over a sample period extending back to 1971. Positive values of the NFCI have been historically associated with tighter-than-average financial conditions, while negative values have been historically associated with looser-than-average financial conditions. Similarly, positive values of the ANFCI have been historically associated with financial conditions that are tighter than what would be typically suggested by prevailing macroeconomic conditions, while negative values have been historically associated with the opposite.

US October consumer confidence 137.9 vs 135.9 expected

...so how about the US Corporate CDS?

Take notice of a sudden or potential upswing.

CDS pricing trending up - important to note: credit risk pricing blowouts tend to happen either out of the blue (sudden shock) or following a period ofgradual uptrend (slowly then all of a sudden). One to keep an eye on...

US Dollar Trade Weighted Index



The charts have a yellow background that indicates the square dimension of the chart. The orange dot indicates today's position relative to the high (top of chart) and low (bottom of chart) of the FX index during the last 365 days. So if the orange dot is close to the top, the currency is close to its highest valuation. If the orange dot is close to the bottom, the currency is near its lowest valuation. The blue bars indicate the distribution of valuations over the course of one year. The span between high and low valuation is divided into ten ranges (ie, deciles). Then the number of days during which the currency's valuation has been in each of these deciles is counted. The number of days is proportional to the width of each of the ten blue bars. Thus the position of the orange dot relative to the width of the blue bars indicates if the current valuation is a relatively common event or a relatively rare event. For example, if the bulk of valuations has been in the lower deciles, and the orange dot is near the top where the bars are narrow, the currency has recently moved up sharply. These charts ("FX conifers") are a simple method of visually summarizing the performance of a currency over the time period of one year. One useful feature of this chart is that it automatically adjusts for the different volatility of currencies, as the span between one-year high and one-year low is a reflection of a currency's volatility.

CAD & USD TWI

Latest NFCI & ANFCI Release

You may use this tool to gauge the financial liquidity - more importantly look at the ANFCI values

1. When liquidity is tightening, take bearish trades. When liquidity is loosening, take bullish trades.
2. Risk is a coincident indicator, credit is a lagging indicator, and leverage is a leading indicator of financial stress.

Index Points to Tighter Financial Conditions in Week Ending October 26 (published 31st October 2018 | EST)

The NFCI ticked up to –0.84 in the week ending October 26. Risk indicators contributed –0.33, credit indicators contributed –0.35, and leverage indicators contributed –0.15 to the index in the latest week.

The ANFCI edged up in the latest week, to –0.70. Risk indicators contributed –0.42, credit indicators contributed –0.37, leverage indicators contributed –0.10, and the adjustments for prevailing macroeconomic conditions contributed 0.19 to the index in the latest week.

The NFCI and ANFCI are each constructed to have an average value of zero and a standard deviation of one over a sample period extending back to 1971. Positive values of the NFCI have been historically associated with tighter-than-average financial conditions, while negative values have been historically associated with looser-than-average financial conditions. Similarly, positive values of the ANFCI have been historically associated with financial conditions that are tighter than what would be typically suggested by prevailing macroeconomic conditions, while negative values have been historically associated with the opposite.

America first... obviously at Global Equities ─ PE10 valuation rankings ; )─