By Jim Wyckoff

I've discussed in previous articles how volume and open interest can be utilized to help identify and confirm market situations and trading opportunities. I will take open interest one step further in this column by examining the Commnts of Traders (C.O.T.) report, issued by the Commodity Futures Trading Commission (CFTC).

The C.O.T. report is released bi-weekly--every other Friday afternoon. There is also a C.O.T. report issued to the following Mondays which includes options and futures information. But this report is not as closely followed as the Friday day report which covers only futures, because the futures and options report has history.

The CFTC requires futures traders and hedgers who hold market positions larger than the CFTC's necessary reporting levels to report their rankings on a daily basis. This is how the C.O.T. report is based.

The C.O.T. report breaks down by open curiosity large trader places in to Commercial and Non-Commercial egories. Commercial traders need to register with the CFTC by demoning a related money business for which stocks act as a hedge. The Non-Commercial egory is comprised of large speculators--namely the commodity funds. The equilibrium of open curiosity is qualified under the Non-reportable classifiion which includes both tiny commercial hedgers and small speculators.

What is most important for the individual trader (you) to examine in the reports is that the actual positions of this egories of traders--specifically the net position changes from the prior report. To derive the net trader position for every egory, subtract the short contracts from the extended contracts. A positive consequence indies that a net-long position (more longs than shorts). A negative effect indies that a net-short position (more shorts than longs).

Now, if I have lots of you lost now, DON'T WORRY. I have got some tips later on this allow you to take a look at some examples of reports on different websites. What I am trying to do at this point is really familiarize you with the overall basis of this report, associated terminology and how traders utilize the C.O.T. report. This stuff will sink --it only takes a little while.

My friend, Steve Briese, is the world's foremost expert on C.O.T. data. He publishes the Bullish Review, which arrives right after every C.O.T. report. It's from conversations with Steve through the years and reading some of his material that I have learned about the C.O.T. report and its value to traders.

The most important aspect of this C.O.T. report for most traders is that the change in net positions of the commercial hedgers. Why? Since studies show that advertisements hold a superior record to additional trading classes in forecasting significant market moves. The large commercials are generally believed to have the most effective fundamental supply and need information on their markets, and so place their trades so. Along with the advantage of getting the very best fundamental supply and need information on their markets, large advertisements also trade large size, which in itself transfers markets in their own favor. It is important here to note that whether a particular trader group is net long or net short is not important to assessing the C.O.T. report. For example, advertisements in silver are the manufacturers and they have never been net long, because they hedge their earnings. In gold, however, the commercial mix is more heavily weighted toward fabriors who buy long contracts as a hedge against future stock requirements. So, again you have to look at the net change in places from the previous report or several of the recent reports.

Individual traders who consider placing themselves on the exact same side of this market as large advertisements, when the large advertisements become one-sided in their market opinion, is the best way to use the C.O.T. report.

Some traders do like to take the opposite surfaces of the trades where the little trader in the C.O.T. reports are revealed taking. This is because most small speculative traders of futures markets are often under-capitalized or on the incorrect side of this market.

Additionally, some traders may also stick to the coat-tails of this large speculators, thinking the large specs must be good traders or they would not be in the large trader egory.

Briese claims that contrary to what some think, divergences from seasonal available curiosity rates in C.O.T. report information aren't dependable trading indiors. That is even true with agricultural markets, in which one would guess that hedging is a seasonal thought.

To Learn More on the C.O.T. reports, check out the Internet websites http://www.bullishreview.com or http://www.cftc.gov/dea/cot.html. The websites should offer actual examples of previous reports.

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