Similar to the world of technical analysis and its varied ocean of technical indicators in Forex market, the world of fundamental analysis is just as diverse with various forms of fundamental indicators. One such indicator is known as the commitment of traders or the COT report.
In this article we are going to take a deep look into the significance of fundamental factors such as the commitment of traders’ report on the forex market and we will analyze this particular report in detail. We will also see how you can implement such reports and fundamental indicators to the benefit of your trading in the foreign exchange market.
You should read: Creating Profitable Forex bot Trading Strategies in 2024
The Significance of Fundamental Analysis in Forex market
Before we start discussing the commitment of traders’ report (COT), we need to gain an ideal understanding of how and why fundamental factors such as this report are influential in the forex market to begin with.
It is both simple and complex at the same time. First off, the foreign exchange market, similar to all other financial markets, is only part of the larger economy of the world. This clearly means whatever significant happens in the broader economy will inevitably impact that financial market.
Similarly, the foreign exchange market, being made up of currencies of all economies around the world, is both directly and indirectly impacted by various economic factors. Even the release of such economic data can simply affect the market. Of course given the significance of the precise figure being reported, we can see various degrees of impact.
This is the simple explanation of how the forex market is impacted by fundamental factors. The complex part is calculating to what extent these impacts occur and more importantly how they can be used as a positive influence in your trading process. So without further ado, here is the commitment of traders’ report.
What Is the Commitment of Traders Report (COT Report)?
As the name suggests the commitment of traders’ report is just that – i.e. a report. This report is published by the American agency in charge of overseeing and regulating the majority of the trading market in the US, which is known as the Commodity Futures Trading Commission or the CFTC.
The CFTC publishes the COT report on a weekly basis, and in fact it is released every Friday. The report is a measure of the total holdings of all traders and investors in the futures market of the US.
So it gives traders a general outlook of the amount and volume of money held by such traders in this market. In fact, it also shows traders the types of positions that other traders have in the market as well. As such, with the help of the COT report you will be able to see how many traders in the futures market have long positions and how many have opted for a short position.
As you might be able to guess, because you are basically able to see the position taken by all traders in the market, and whether they have gone long or short, you can mimic the position of the majority of traders and act accordingly. This means based on the COT report you can similarly take a long or short position in the market.
But of course there is more to this report and we also need to see its precise usage in the forex market.
You should read: A Step-by-Step Guide to Setting up Your Forex Trading Robot in 2024
How Does the COT Report Work?
The way the commitment of traders’ report works is rather simple in its nature. First of all, the CFTC published this report by a simple data gathering technique which is carried out in the course of two separate days. So as it has always been the convention, the CFTC starts gathering market data on Tuesday. After the data has been gathered, they are verified and confirmed on Wednesday. When they are approved by the commission, they are finally released on Friday the same week.
There are many websites on which you can find and read this report every week. But naturally the main website for doing so is the official website of the CFTC. Wherever you might be reading this report, you will find that it is simply made up of the name of the contract n the market and then followed by four main sections and their relevant figure:
- The number of Open Interests
- The number of Long positions
- The number of Short positions
- The number of Spreads
You should read: Troubleshooting Common Issues with Forex trading robots
How Can You Use the COT Report in Your Forex Trading?
As you might have been able to surmise by now, the COT report is basically a sentiment report. And you need to know that trader sentiment is one of the most important factors in any market, especially the forex market.
So by reading the COT report you can find out the general approach and sentiment of the traders toward the market. Naturally, it will show you the direction of the market sentiment by whether it is overwhelmingly made of long or short positions.
The way the COT report can be used for forex trading is by gauging whether the majority of traders have gone long or short.
- Bearish reversal: if the overwhelming number of traders have gone long according to the COT report, then the market might be ready for a bearish reversal.
- Bullish reversal: if the overwhelming number of traders have gone short according to the COT report, then the market might be ready for a bullish reversal.
You should read: Scalping vs. Swing Trading with Forex bots in 2024
Conclusion
The COT report stands for the commitment of traders’ report. This report is published by the Commodity Futures Trading Commission (CFTC) on every Friday. The COT report indicates the total number of invested assets in the futures market. It does so by specifically showing the number of positions, and whether they are long or short positions. The COT report can be used in the forex market as an important and accurate market sentiment indicator.
