Follow the Smart Money / COT Analysis

This is a discussion on Follow the Smart Money / COT Analysis within the Futures & Options forums, part of the Markets category; Hi Dunstan I really appreciate the efforts you have put in on this thread to explain the cot and how ...

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Old Jul 23, 2012, 9:42am   #9
 
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Re: Follow the Smart Money / COT Analysis

Hi Dunstan

I really appreciate the efforts you have put in on this thread to explain the cot and how it works. I did spend time looking at this a while ago and came to the conclusion I couldnt get an edge when it came to live trading. You still have to find an entry point, place a stop and manage the trade. Do you feel you have an edge with this. i would absolutely love to see some live calls using this method on my live call thread.
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Old Jul 23, 2012, 10:58am   #10
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Re: Follow the Smart Money / COT Analysis

Dunstan started this thread Hi Lord Flasheart,

Thank you for your post!

I believe that COT analysis on its own is not enough. I think it can be used in two ways: one way as a signaling tool, the other way as a confirmation tool, but in both cases you should have a solid system for your trading, a system that can help you enter and exit trades.

In my thread I do not wish to go in to any specific system recommendations... I would be narrowing down the usage of it (COT analysis) to one type of time frame and tactic, which could leave out other great trades on different time basis and different strategies. What I mean by this, is that there are traders out there, who might be trading on shorter time frame, for example only on forex or a trader who prefers options on metal markets and on a longer time frame (from few weeks up to a couple of months) and they will be viewing the specific “formula” from different angles.

A lot of traders out there still do not have an idea, or might not even heard about Commitments of Traders Report. My goal is to introduce them to it and teach them the basis of COT analysis. After that it is the challenge of each viewer of my thread to do his or her historical analysis and back test their system with the integrated COT report.

What I do believe is this: Using COT analysis integrated in your tested system can filter out some bad trades or it may focus your attention to trading opportunities that your existing system might not have found on its own.

I think of COT analysis as a “car-part” --> It is like a GPS navigation system, or the windshield etc… Like let’s say the MACD histograms or bar charts or EMA-s are wheels, door knobs etc… I would say that a car on its self cannot get from A to B with only the wheels or only the engine. But a good combination of these elements can make a good car and that will deffinitely get you from A to B.
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Old Jul 23, 2012, 11:21am   #11
 
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Re: Follow the Smart Money / COT Analysis

Very sound approach you got there, Dunstan...
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Old Jul 23, 2012, 11:32am   #12
 
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Re: Follow the Smart Money / COT Analysis

sounds like a better filter than an ma etc,good luck
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Old Jul 23, 2012, 11:33am   #13
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Re: Follow the Smart Money / COT Analysis

Dunstan started this thread Thanks!
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Old Jul 23, 2012, 11:46am   #14
 
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Re: Follow the Smart Money / COT Analysis

Out of interest - what is COT saying about corn prices right now?
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Old Jul 23, 2012, 12:08pm   #15
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Re: Follow the Smart Money / COT Analysis

Dunstan started this thread Hi Dionysus Toast,

I have attached a chart on Corn, showing you the latest COT report. Small Speculators are the ones showing anything interesting: They are at 191 reports extreme and the COT Index – set on a 5 years range – shows 91%. All this is sort of a bearish signal, but it would be nicer, if Commercials and Large Speculators were also in such extreme territories. I don’t think that this signal from small speculators has that significant effect on prices on this market at least that’s what I can see now looking at similar situations in the past.

What also bothers me, when thinking of a short opportunity is that the volume and open interest score is showing me +18 out of the possible 20, which is an extremely bullish signal. (for more info on volume and open interest analysis: this page I found has great info)

I would be standing aside on this market and wait for a large sell signal from Commercials ( > 20-25% change on a 52w range) and a COT index closer to 90% before going short... OR I would stay long and follow the LS!

Dunstan
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Old Jul 24, 2012, 12:59pm   #16
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Re: Follow the Smart Money / COT Analysis

Dunstan started this thread Hi everyone,

I figured that now that I have more or less talked about all of my COT analysis tools I use, I should start something else.

I’m still open to any questions regarding this topic, so please don’t hesitate to ask!

There is a so called “Weekly Commitments of Traders Review” that is published every week on YouTube and gives a sneak peak on the most active markets – regarding the COT report. I thought that I could pick some of the markets mentioned in these reports and give you my own thoughts about them. How does that sound?

The most recent report can be viewed .

2-year Note

There was a -39% change in the Commercials positions, they changed their net short positions from -100.000 contracts to more than 210.000 contracts short. The attached 1-yr chart shows that there was one similarly large change in the past one year which resulted in a price-decline in a few days.

The other interesting thing to see is that the COT picture is pretty extreme, Small Speculators COT Index shows 99%, while the Commercials COT Index shows 1%.

All this looks pretty bearish to me, and as the report said, it could be a good risk/reward trade, because there are some close stop levels not far.

If you don’t feel comfortable to trade futures, don’t forget that these days there are other great instruments as well --> ETFs. This page I found has a list of them. You can trade them like stocks!

All the best,
Dunstan
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