COT Report

Commitment of Traders Report shows the amount of Futures and options positions held by Commercials, Large Speculators and Small Speculators. Also, notice the weekly change in positions to gauge an increase or decrease in Futures and Options held.

Commercials: They are considered to be the users of the Commodity. For example, a chocolate manufacturer needs to by Cocoa. If the price rises, it will increase their raw materials costs and probably cut into their profit margins. Therefore, if they feel the price is cheap they will probably hold a net long position. If they feel the price is too high and over-priced, they will probably hold a short position. It is a common theory among commodity traders that the Commercials are experts in the business and probably know the prices better than anyone. Therefore, when they are long the Commodity, it is generally a good idea to follow them.

Large Speculators: The are considered the Managed Money Speculators of Commodities and Futures. They manage are the big players in the futures markets and can casue the markets to move quickly and dramatically. It is considered good to follow them in the short term, but if they are too long or too short, it may be a good time to fade them. They are typically considered trend followers and will hold their commodity positions until the trend changes. A simplified rule is that they will follow moving averages and stay on the side of the trend. If the commodity breaks the moving average, the price could move quickly as they exit the market.

Small Speculators: They are typically the small retail accounts. The theory is that most small speculators lose money trading commodities and they are almost always on the wrong side of the market. They will fight trends and when they do follow the trend, they are usually have the highest concentration at market tops and bottoms. Usually, you want to fade what the Small Speculator is doing Trading Futures and Options.

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