All You Need to Know About the COT Report
You’ve come to the right place…
Here’s why I say that. I have been using the COT reports since 1970, wrote the first book ever about the reports, “Trading with the Insiders” (Wiley, 2005), and have taught more people how to use this report than anyone else. No one has more experience with it than myself.
Just about all of the other people out there talking about the COT reports learned about them from me or students of mine. No one, and I mean no one was writing about these reports when I first began discussing and trading with them in 1970.
My first lesson from the insiders…
I first learned about the importance of the Commitment of Traders Reports from Bill Meehan. Bill had been a member of the Chicago Board of Trade, and in 1969 revealed the basic secrets of these reports to me. I invented some ways to make it easier to see the impact of these guys buy making mechanical indicators with the data. I’ve been using them for over 40 years now and think you’ll find them to be invaluable tools.
WHAT THE COT REPORTS TELL YOU
The report is issued on Thursday evenings by the Commodity Futures Trading Commission. What it does is break down the amount of buying and selling done by three groups: Commercials, Large Traders, and Small Traders.
In other words, you really can find out each week exactly what the big guys have been doing in the marketplace… but it’s not quite that easy. Let me explain why.
The largest powers in the marketplace are the Commercials. These are the large users and producers of the commodity. They do not use the commodity markets to speculate or directly make money in the markets. They are producers and users of the commodity, so they sell forward or hedge their production/demand. They use the markets for selling and delivery, not speculating.
The Large Traders are the second most dominant figure in the report. These are not quite what you think. They’re not just large traders like me. They are nowadays, for the most part, commodity funds that are trying to speculate directly in the market.
Finally, there are the small traders, probably people like you… people who are trading in smaller amounts; the average trader. Interestingly enough, sometimes their record is very good in specific markets, but, usually they are wrong.
HOW TO USE THIS INFORMATION
Despite what you may have read from other traders (people who only looked at it for a few years), it is not a black-and-white situation. Just because the Commercials, the largest players in the marketplace, have been buyers does not mean a market will rally. How can that be true?
Let’s say you are a Commercial in Sugar. You need sugar to make candy. If the price of Sugar goes down; you will buy Sugar. In fact the more it declines, the more sugar you will buy in the futures markets now, for delivery later on when you will be making candy.
Your main concern is how much the sugar in your candy costs. As a Commercial you don’t care much about what price will do… no… you care about buying so you can take delivery and whip of a bunch of Taffy to sell for a profit.
THE COT INDEX EXPLAINED
Study this much and you’ll run across something called the COT Index or Commercial Index. Most of the followers of the Commitment of Traders Reports now use this index… it’s something I began doing in 1972. That’s why I think it’s fair to say I’ve been using this data longer than anyone else out there. Another fellow who’s been using it a long time, almost as long as me is Steve Briese. He’s a great guy and understands the COT report better than the rest.
Steve and I lead the move a few years ago to save the report when the Government tried to get rid of it. Steve and I pressured them with our subscribers and friends enough that report has continued.
WHAT TO LOOK AT
Using the COT index is not about chart reading or any of the mystical stuff called technical analysis. It’s plain and simple, as you can see in the above chart of Gold — when the red line is high and above 80% — the Commercials have been doing a relative large amount of buying, and prices usually rally. By the same token, when the line is low — below 20% — they been doing a relative large amoun selling and prices usually decline. Look at the $ potential in those moves! Of course not all indicators will make money and there is always risk; you can lose as much ot more than you can make on a trade.
Is this the type of indicator you are looking for to help your trading and investment decisions?
Let me show you another way of using it…
In this next chart we’re looking at the Commercials Net Position in Soybeans. Please look at the black horizontal line in the Commercial panel (red line indicator). When the red line is above the black it means the Commercials have been doing a relative large amount of buying.
This is where it gets tricky and were I suspect I can help you the most. It isn’t just a question of the Commercials being long or short, but how massively long or short they are. Notice the buy point in 2003 was evidenced by one of the largest Commercials long positions in years… and a rally that might have produced over $26,000 profit on a $1,500 investment!
Look at how high their Net Position was at the start of 2005… and again how this forecast a move of over $11,500 per contract, which had a $1,500 margin requirement.
Also note that when the Commercials Net Position was low, with the largest selling positions in years, as it was at the first of 2004, it warned of the ensuing bear market with a profit potential of over $17,000 per contract. Again, there is always risk; these are examples not actual trades and re-read the disclousure not on the bottom of this and all pages on our website.
Shortly after the start of 2007 the Commercials Index made a multi year low, and Beans plummeted.
I use this data in a variety of ways… many more than what I’m showing here. I teach it in my commodity trading course, Cracking the Money Code. I’ve learned a little bit more about how to use it correctly in the last 10 years because as I said, it is an art and does need to be understood in relationship of the current price structure. That’s exactly what I can teach you.
A FUNNY STORY — Last year I was interviewed by a newspaper reporter about the COT report. Just like you, he saw how powerful it was so he started researching the data by running a bunch of numbers in a computer and then coming up with a new career for himself. He now has a COT report and is already on the Internet!
But sad to say, his predictions have not been very good, because all he did was crunch numbers. He DOES NOT understand the significance of the interplay of the Commitment of Traders Reports and that the Commercials are not speculators. He has all the numbers but none of the experience and understanding. That’s what I can offer you…YEARS OF EXPERIENCE. Go to the source to get the best information.
Here’s what a few of my students have said about what they’ve learned from me.
"Thank you for all your precise books and commentary. I have finally profited from the futures market. I feel confident that I will continue as long as I am trading. Of all the books and financial writers I’ve read you are by far the BEST!!!
Thank you. – K.S."
"Larry, Just a word of encouragement. Your books and information are by far the most powerful available to mankind. I know because I seen the others. This trading is now my life thanks to you. I just don’t know anywhere else where you can see your net worth soar to new heights so quickly and have the odds in your favor… – James "
THESE COMMENTS WERE SENT TO USE WE HAVE NOT PERSONALLY VERIFED THEM AND THEY MAY OR MAY NOT BE REPRESENTATIVE OF ALL THE USERS OF OUR MATERIALS
Click HERE to read more about what people are saying regarding Larry’s Trading Education Courses.
Well, I guess the question now is up to you. There are several ways I can help you take advantage of the COT reports:
1. Buy my book Trading with the Insiders. That will get you started.Trade Stocks & Commodities with the Insiders. This book is based on my work with the COT report that began in 1970. You will learn who the Commercials are, how they use the markets, and how you can use what they do to stack the odds in your favor.
This book literally shows you what the Insiders are doing with real money and how you can follow their action. This is the first book ever written on this subject and will substantially improve your understanding of why markets do what they do. Forget technical analysis, Insiders move the markets and now you can move with them!
2. Get my Core Fundamentals Course, Cracking the Money Code Online… it is really dirt cheap, $249. THIS IS ONLINE—YOU ARE JUST ONE CLICK AWAY FROM TRADING MY WAY. This gives you a superior education about the Commitment of Traders Reports.
If you want to continue your educational journey and learn even more ways to use and apply the COT Report data to trading, then enroll in the Larry Williams University. Purchasing Cracking the Money Code qualifies you as a "student" and you will receive significant discounts by following our curriculum. To read more about the Larry Williams University, click HERE.
3. Larry TV. My weekly commentary for only $25 per month. You want to see how I use the COT reports on a regular basis?
Now you can have market updates, a minimum of 4 times each month, on Larry Williams’ select trades and market observations.
Larry TV gives you Larry’s personal and immediate market insights that apply to the today’s markets. These are special situations and special lessons in the art of trading.
Larry TV shows are market commentaries full of trading tips and trading techniques. These video reports cover futures and stock markets. Larry will create a new video when he sees a unique and special situation in a particular market.
His insights for a particular "show" might be on one market or on a few markets. The market(s) discussed might be a currency (so Forex would apply), grains, metals, meats, softs, or the overall stock market (ie SP500/Emini or Dow Jones Industrials)… read more
Why trust the Johnny-come-latelies, would be COT crowd? They don’t know what I know… they have not been trading as long as I have, they haven’t made millions of dollars in real time, really trading the markets.(SEE ARTICLE ON SITE THAT SUPPORT THIS) I’m the only guy out there that has really done that. Yes, I have made millions of dollars numerous times trading, largely thanks to the Commitment of Traders Reports… and what I know about them.
I hope can do the same for you and I hope I can help you understand and profit from this information.
Good luck and good trading,