In this graph, you will notice the red bars, which indicate that the
commercials are all selling, or going short, while the trend of the
market is going up; that is what this COT graph is representing. (The
Commercials are using the futures market to "hedge" either the cash
market, or their current inventory, that's why they are going short or
selling during an uptrend.)
You'll also notice that the blue lines, which are representative of the
large speculators, do follow the trend of the market more closely, and
that's because they are speculators, not hedgers. That's why when the
market goes up, the large speculators go long, or buy the market in an
attempt to capture profits from buying low and selling high. But, the
commercials, or hedgers go short. Again, in an attempt to price protect
their cash crop or inventory.
You'll notice that the small green bars represent the small speculators.
What you generally find is that the large speculators and the
professional traders will use the small speculators as a contrarian
indicator, if the small speculators are all buying the market, (lines
extend above the zero line.), then they begin to sell, if they say sell,
then they consider being a buyer. (This is not always true, the small
speculator is not always contrary to the general market direction, but
unfortunately for the small speculator, it is more true than not.)
The best thing about COT, is that it is not based on the market's price
whatsoever. The JBCOT (Jake Bernstein proprietary buy/sell indicator.)
does not even take the markets price into account. This is strictly an
indicator that looks at what the largest industry players are doing, and
then simply points out their actions.
The COT reports provide a breakdown of each Tuesday's open interest for
markets in which 20 or more traders hold positions equal to or above the
reporting levels established by the CFTC. The weekly reports for
Futures-Only Commitments of Traders and for Futures-and-Options-Combined
Commitments of Traders are released every Friday at 3:30 p.m. Eastern
time.
Commitment of Traders Key
The outer most numbers are the range of the largest of the three
commitment of traders (Commercial, Large, and Small). The inner numbers
are the range of the Open interest of all of the commitment of traders
(shown below).
Displaying the Commitment of Traders Indicator:
Click on the COT button located in your indicators menu bar (shown
below).
Methods of Displaying the COT Indicator:
1. Bearish/Bullish: This type of chart displays as the COT as
bearish or bullish position. It is calculated by taking the number of
Long positions minus the number of Short positions. If it is positive,
then more trades are long, if it is negative more trades are short, if
it is zero then it is equal.
2. Total Position: This type of chart displays the COT values as
a stacked column. The long position number on top and the short position
number on bottom.
Customizing Commitment of Traders Indicator:
To customize your Commitment of Traders indicator pull up your Program
Options screen by clicking on this button on your main Toolbar. Click on
the "My Default Settings" to make changes to the default options on the
COT Indicator. Click on the "Current Chart Settings" to make changes to
the currently opened chart only. In each of these sections, you can
click on the COT section.
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