Getting to know the COT
The COT reports
Let us start with the COT reports. COT, as in "commitment of traders" report gets out every somewhere around 2:30 EST. The CFTC or the "commodity futures trading commission" is responsible for publishing this report that tells us about the measurement of net long and short positions that speculators and commercial traders take. Furthermore, this is a great way to know how crucial each of these market players' role in the market.
Tell me more about COT reports.
Market players play a crucial role in the market. We can categorize them into three groups: commercial traders or hedgers, non-commercial traders or large speculators, retail traders, or small speculators. Let us further elaborate on who they are, what they do, and how important are they in the market.
One of three: the commercial traders or hedgers
Commercial traders, also known as hedgers, try their best to avoid sudden price movements. So, when we think about hedgers, we can think of the people or traders who are way too bullish at the market bottoms and way too bearish at market tops - these are their distinct characteristics. An example of a hedger is a financial institution like a bank that will protect itself from an unexpected price movement of assets or currencies. We can also say that farmers are hedgers since they want to lessen the possibilities of altering commodity prices.
Two of three: the non-commercial traders or large speculators
Non-commercial traders, also known as large speculators, mostly care a lot about making money from the trading transactions and not the underlying asset ownership. We can say that the most distinct characteristics of large speculators are that they usually buy when there is an uptrend and sell during a downtrend. Hence, they always keep an eye on market trends.
Large speculators are not called as such for no specific reason. They are called large speculators because they have massive accounts. They tend to add more in their positions until the price movement finally reverses their trading actions, significantly impacting the market.
Let us add to the list of the things that they keep an eye on are moving averages. They do so because they want to hold their positions until the trend finally changes.
Three of three: the retail traders or small speculators
The retail traders, also known as small speculators, have smaller retail accounts composed of individual traders and hedge funds. Somehow, there are two types of small speculators. Scratch that; we mean they can either be on the wrong or right side of the market. If a small speculator is anti-trend and on the wrong side of the market, it makes sense that they are not too successful like the hedgers or large speculators. However, if they get on the right of the market and can follow the trend, they get too focused on the market tops and market bottoms.
So tell us
Which among these categories do you think you
belong? Which market player are you? How crucial is your position in the market?