The Commodity Futures Trading Commission is a regulatory body creating rules to ensure a properly functioning and relatively transparent marketplace. Through the Commitment of Traders report, they it offers traders insight into where certain types of traders are positioned in the commodity markets. Those trading stocks could only dream of having information on which groups of traders were long or short a stock. Commodity traders, on the other hand, tend to take such access for granted.
For example, a trend trader might look to "go with the flow" regarding the beginning signs of speculators piling into a certain commodity, whereas, countertrend traders might look for signs of overheated markets ripe for a mean reversion trade in the opposite direction of the trend. There are two forms of the COT report, a long-form and a short form. Again, there are opinions abound as to which offers the most useful insight. In my opinion, the commodity markets are complicated enough, and it is generally a good idea to lean toward simpler forms of analysis to avoid the inevitable so-calledthat occurs as the human brain is flooded with information. Accordingly, in this piece we will focus on the short form of the report.
The "reportables" group is then divided into commercial hedgers and large speculators; the non-reportables group is deemed to be small speculators. Our favorite group to follow is the large speculator. Because these accounts are holding large positions, which require large amounts of capital, they are assumed to be the "smart money." However, that isn't always the case.
There is a substantial risk of loss in trading commodity futures, options, ETFs. Seasonal tendencies are already priced into market values.
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