How to Use the Commitment of Traders (COT) Report

Focus: STRATEGIES

John Jagerson Image John Jagerson Co-Founder and Contributor, LearningMarkets.com

The commitment of traders, or "COT" report, is useful, but the raw data from the CFTC can be a little dense and confusing without some historical context. It is usually more helpful to be able to see changes within the information over time rather than just a single snapshot. Historical graphs of the COT report data can solve this problem very effectively.

You can find and examine the report by hand each week and construct a graph yourself for the commodities you are trading. The CFTC releases the data on Fridays, but the report is current as of the Tuesday before each Friday's release. The data is available from the CFTC's Web site and is prominently featured right from the home page.

If you want to track the COT data changes each week, the numbers are contained within a long text file. You can see an example of what this looks like below using crude oil futures. I’ve highlighted a few key features below:

1. The non-commercial traders column is the one you want to examine most closely. The commercial traders to the right are mostly hedging and will often be positioned in the opposite direction of the non-commercial investors or speculators.

2. As you can see, there is a mild bias towards long positions in oil among the non-commercial traders. This is technically bullish, but there are warning signs on the horizon.

3. The change in long or short positions can tell us a little bit about the trend in investor sentiment. Long positions have declined since last week and short positions have increased. This seems to indicate that there is some decline in bullish sentiment.

COT Report for Crude Oil

chart
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The decline in bullish sentiment has been trending like that since mid-June before this particular image was taken.