BASIC TECHNIQUES
A Market Sentiment Tool For Futures Traders
The Commitment Of Traders Report
by Jon Andersen
The numbers reveal plenty about market participation.
There are two basic ways to analyze the futures market: technically and fundamentally. Many traders have a purely technical approach, with total disregard for the fundamentals. While that can be profitable, it can also allow you to be blindsided by the market. It pays to know the fundamentals, because they can help you anticipate which direction the market will move.
But trading purely on fundamentals is also dangerous. Fundamentalists calculate a value for a specific commodity based on the laws of supply and demand. At some point, a given commodity may become cheap or expensive in relation to supply and demand. By quantifying the sentiment level among various traders, valuable information is added to the mix. This is the purpose of the Commitment of Traders report.
WHAT IS THE COT REPORT?
The first Commitments of Traders report was published on June
30, 1962, for 13 agricultural commodities by the Commodity Futures Trading
Commission (CFTC) as "another step forward in the policy of providing
the public with current and basic data on futures market operations."
The COT report provides a breakdown of each TuesdayÕs open interest for
markets in which 20 or more traders hold positions equal to or above the
reporting levels established by the CFTC. The first reports were compiled
on an end-of-month basis and published on the 11th or 12th calendar day
of the following month. The reports were eventually published biweekly,
and then weekly.
Figure 2: The COT short form. You can see the various data categorized by the different types of traders. These numbers show whether there are more long or short positions.
...Continued in the April 2002 issue of Technical Analysis of STOCKS & COMMODITIES
Excerpted from an article originally published in the April 2002 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2002, Technical Analysis, Inc.