Futures Measures

Utilizing The Commitment Of Traders Report To Your Advantage

Futures Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

The Commitment of Traders Report is released weekly and can be used to help guide our trading strategy.

In the last episode, Pete discussed the three primary premises we can use from the COT report on which to base trade:

  • flips in market position may be accurate trending indicators
  • extreme positioning in the currency futures market has historically been accurate in identifying important market reversals
  • changes in open interest can be used to determine strength of trend

Let’s explore these premises a little bit closer...

Flips In Market Positioning

You can use the net-short open interest numbers to see the market sentiment.

For example, if we were to look at the net-short open interest in the futures market for Euro FX, we would see a bullish sentiment for EUR/USD. The Fed did a study showing that using open interest in EUR futures will allow a trader to correctly guess the direction of EUR 73% of the time!

Extreme Positioning In The Currency Futures Markets

Another relatively accurate predictor of important market reversals is extreme positioning in the currencies futures market.

Abnormally large positions being taken up in futures for GBP/USD by noncommercial traders has coincided with tops in price action. The reason of this is because when the futures prices hit these extremes there are so many speculators weighted in one direction that there is no one left to buy/sell. Everyone who wants to be long is already long and as a result, exhaustion ensues and prices start to reverse in direction.

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