Every Friday the CFTC publishes the Commitments of Traders Report detailing open interest in futures contracts as of the previous Tuesday’s close. Both current and historical reports (futures only reports beginning in 1986, full reports in 2005) are publicly available at the CFTC’s web site. These reports supplement material included in standard charting software programs. “Open interest listed in the newspaper, shown on price charts, or downloaded with historical price data includes spreading open interest in the total. [The spreading total] can easily camouflage the state of the outright positions.” (p. 51) The COT report offers traders a separate data set that shows the long and short positions of the reporting commercials (hedgers) and speculators (funds) as well as of the nonreporting small traders. The problem is how to make use of the data to improve an already viable trading strategy or to construct a new trading strategy.
Stephen Briese’s The Commitments of Traders Bible: How to Profit from Insider Market Intelligence (Wiley, 2008) is a useful guide—clearly written, easily understood, and informative for anyone who either swing trades or position trades futures. He debunks such myths as “always follow commercials” and “always fade the small speculator.” The second myth, by the way, is false because the “nonreportable positions” column in the report includes both small commercial hedgers and small speculators and there is no way to separate one from the other. He shows how he calculates the COT Index and the COT Movement Index and offers some trade setups. And he looks at the peculiarities of the individual futures markets.
It’s difficult to extract one or two nuggets from this book as I often do in my blog posts. The most valuable information cannot be summarized in a paragraph. Sorry, but this is one of those junior high book reports that ends with “you have to read the book.” Briese has a website for readers of his book: CommitmentsOfTraders.ORG with free “cleaned up” COT data (current and historical) and regularly updated COT charts.