On COT Report – Part VI. – Usefulness of Commitments of traders data

The basis of COT analysis is finding seizable imbalances in trader positioning (’commitedness’). COT reports show traders positions: how many long and how many short contracts did Commercials, Large and Small Speculators hold after the close of the previous Tuesday’s trading (or on another day, if Tuesday was a holiday).

In the commitments of traders report if a trader group holds the same amount of short and long contracts, we cannot ’speculate’ on where that group, in aggregate, sees the market going. Fortunately, this is a rare case – most of the time longs and shorts of a trader group (eg. Commercials) differ, often in a large degree, that allows us to see in which direction that given group is positioning itself. If, for example, Commercials on the Wheat market are net long (ie. they hold more longs than shorts), we may speculate that the ’insiders’ of the Wheat market are betting on price rise (or hedging against it, that is essentially the same in terms of buying pressure).