Benefits of using the Commitments of Traders indicator
The Commitments of Traders indicator allows you to determine the level of traders’ involvement. It contains important information from which you can monitor the mood of the financial markets. COT allows you to see what strategy banks, hedge funds and other big players have chosen. It also shows the mood of small traders who also influence the market.
The indicator gets the data for analysis from the weekly reports of the Commodity Futures Trading Commission – CFTC. The document contains information about the positions opened on the previous Tuesday. For this purpose, the Commission analyses the reports received from companies in the first half of Wednesday. They then check the reliability of the information provided and publish their documents.
Reasons for using Commitments of Traders indicator
The use of the COT is based on the assumption that the general mood of traders has a greater impact on market processes than on global factors. By following the indicator data, you can identify general trends and develop a trading strategy.
The commodity futures sector is closely related to the currency market. In fact, currency futures and options are traded on real exchanges. In addition, futures provide details on trading volume, which is an essential indicator for overall market analysis. The COT shows major players’ interest levels in a particular asset. It can be used to understand whether it is worth taking a particular action on an asset.
The COT chart is based on transactions by groups of financial institutions that are considered non-commercial participants. These include banks, investment firms and hedge funds. Open interest in the COT is the total volume of all open orders to buy or sell a financial instrument. It is used as an additional indicator for selecting an asset and developing further actions.
Open Interest starts to grow when the dynamics of a particular asset are intense, which may mean a call to change trading strategy. It should be noted that Commitments of Traders is suitable for analysis on most trading pairs. In addition, this tool is suitable for detecting peak volumes based on the total number of long and short positions. Detecting such trends can indicate an impending market reversal or the beginning of a new trend.
The COT is useful for a general understanding of what is currently of interest to market participants and how it can be applied to achieve your objectives. The indicator is easy to use and understandable even to beginners just starting trading.
