The Options in a ForecastCycles COT Chart

Aug 16, 2022

In this article I will help you to know the different options to set-up a COT Chart in ForecastCycles.com Platform.

In addition, I will go deeper explaining you more about the different COT Reports, CFTC Categories of Traders, and how we simply use raw data to extract valuable information.

Rapid-best-choice COT Menu

Before to start, in the Top of the page there is a 'Rapid-best-choice COT Menu' that includes all-instrument having COT data available, divided by their Asset-Class.

By clicking one instrument, it will be displayed the COT Charts with the best settings (found by me): each instrument can have one or more categories of Traders that give the most-reliable indications.

So, a category of Trader may be good to be observed for one instrument, but bad for another one.

Rapid-best-choice COT Menu (with all-instruments)

Instead of using the default values, you can customize the parameters with the following Options.

'Ticker Search' Option

To search and select the instrument to be analyzed among the all-ones with COT data available (around 50).

COT---Tickers-1

'Chart Filters' Options

To decide which sub-Charts and which Lines to see in them.

There can be 1-to-5 sub-Charts:

  • The first is always present, and is the 'Price and Moving-Average' chart
  • Then, for each area, if you select at least one line, it will be plotted one additional sub-Chart below the first one.

FC---Chart-Filters

  • Seasonality:
    • if you select 'Show Seasonality', you will see a Chart with the Detrended Seasonality of the instrument
    • Seasonality is the average behavior of the price in a calendar-year
    • it can be a powerful indicator (giving more strength to a signal) especially if in harmony with Trend and COT
  • COT Legacy:
    • (to display this sub-Chart select at least one line)
    • Data are taken from the 'COT Legacy Report', the one with the deeper-history and most-used one.
    • This report categorize Traders in 3 groups:
      • Commercials:
        • They use the market not to speculate, but to manage or hedge their position in order to ensure the profit in their core business.
        • Since they are hedgers, a potential buy zone in price occurs when their net position is highly positive, especially relative to the previous N weeks (and the opposite for a short-zone)."
        • For example in Commodities they are Producers, or in Financials they are Big-Banks hedging positions.
      • Non-Commercials:
        • They are Large speculators (Hedge-Funds, Pension-Funds).
        • They are trend followers, so their maximum net long position will occurs at market peaks (and the opposite for price bottoms).
        • Almost always their net-position is exactly the opposite of the 'Commercials' ones.
        • With Commercials they are the 'Smart Money', but not for every market.
      • Small-Speculators:
        • They are market operators (mainly trend-followers) that move a significantly smaller amount of money than the previous 2 categories
        • Amost always they are just Noise, but for some markets their positions can be helpful to identify likely tops/bottoms.
        • Their official name is 'Non-reportable', because they do not reach the minimum n° of contracts' requirement set by the CFTC to be categorized as Commercials or Non-Commercials.
      • (plus) Open Interest (OI):
        • It's the n°of contracts remained open and held by market operators at the end of the day.
        • The higher the 'Open Interest' is, the more interest there is in the market.
  • COT Legacy Oscillators:
    • (to display this sub-Chart select at least one line)
    • A technical-analysis oscillator built over the COT Legacy Data
    • It gives area of over-bought and over-sold
      • 'Commercials' Tops occurs with Price Bottoms
      • 'Non Commercials' & 'Small Speculators' Tops occurs with Price Bottoms
      • 'Open Interest': sometimes (but most of the times not) 'OI' Tops coincides with Price Tops, and 'OI' Bottoms with Price Bottoms.
  • COT Disaggregated:

    • (to display this sub-Chart select at least one line)
    • Data are taken from the 'COT Disaggregated Report, with data from 2006.
    • This report categorize Traders in 5 groups.

    There are 3 different categories of Traders for Commodity and Financials (Stock Indices, Bonds, Forex) instruments, while 2 are the same.

    • Commodities:

      • ProducersProducer/Merchant/Processor/User':
        • Are entities that predominantly engages in the production, processing, packing or handling of a physical commodity and uses the futures markets to manage or hedge risks associated with those activities.
        • They are Hedgers, a similar group to 'Commercials'
      • Swap Dealers:
        • are entities that use the futures markets to manage or hedge the risk of their swap transactions.
      • Money Managers:
        • Are CTA, CPO or Unregistered-Funds.
        • These traders are engaged in managing and conducting organized futures trading on behalf of clients.
    • Financials:

      • Leveraged Funds:
        • Large Hedge-Funds and big Money-managers (CTAs, CPOs).
        • Can lead the markets with their gigantic leverage, and they are tipically Trend-followers.
      • Dealers/Intermediaries:
        • Represent sell-side participants, that earn commissions on selling financial products, capturing bid/ask spreads.
        • Are Hedgers, a similar group to 'Commercials'
      • Asset Managers / Institutionals:
        • are institutional investors, smaller than the leveraged ones, and include Funds (pension, mutual), Insurance-companies and Portfolio-managers, whose clients are predominantly institutionals.
    • Common Categories:

      • Other Reportables:
        • are participants that have not been placed in the other 3 categories. This category includes central banks, corporate treasuries, and other financial institutions.
        • mainly use markets to Hedge business-risk (regardless of whether this risk is related to foreign exchange, equity or interest rates).
      • Small Speculators:
        • same category of COT Legacy Report
  • COT Disaggregated Oscillators:
    • (to display this sub-Chart select at least one line)
    • A technical-analysis oscillator built over the COT Disaggregated Data
    • It gives area of over-bought and over-sold

'Filters' Options

To decide the Periods of the Indicators, and whether to apply Moving-Averages in order to smooth lines.

COT---Filters

  • Price MA (periods): the n°of periods (in weeks) to compute the simple moving average over the price of the instrument.
    • The Moving Average will appear in the same sub-chart, with the price
    • Example of Periods: 26w (6 months), 39w (9 months), 52w (1 year).
    • Trend is your friend, and Moving Average can be useful to determine it.
  • Years of Seasonality: the n°of years to be used to compute Seasonality.
    • it matters only if 'Show Seasonality' is selected from 'Chart Filters'.
    • To use All-History available for an instrument, leave this field blank.
    • The algorithm will compute the 'Detrended Seasonality' with a 'Rolling-Years' method (explained below)
    • For example, if you choose 5 as Years of Seasonality:
      • the seasonality of 2021 will be computed from 2016 to 2020;
      • the seasonality of 2020 with the returns from 2015 to 2019;
      • etc.
  • COT Report Type, choice between:

    • Futures and Options: to see net-positions of operators for both Futures and Option Markets
    • Futures only: to see net-positions of operators only for Futures Market

    (This parameter will be applied to both Legacy and Disaggregated data)

  • COT Measure, choice between:

    • Net Position / Open Interest: to see the Net-positions of each group of operators as a percentage of the Open Interest
    • Net Position: to see the Net-positions of each group of operators in dollars

    (This parameter will be applied to both Legacy and Disaggregated data)

  • COT Moving Average (periods)

    • It is used for the lines of 'COT-Legacy' and 'COT-Disaggregated' sub-charts, not for lines of 'Oscillator' charts.
    • Is the n°of periods (in weeks) that will be used to compute the Simple-Moving-Average over the COT data
    • For example, if 8, the last data of a COT group (e.g. Non-Commercials) will be the average of the last 8 observations
    • Moving average is useful to smooth the line, to reduce the noise and see the trend more clearly.

    (This parameter will be applied to both Legacy and Disaggregated data)

  • COT oscillator (periods)

    • it is used for the 2 'Oscillator' sub-charts
    • The period, in weeks, to be used to compute the oscillator.
    • For example, if you choose 52, the oscillator will show how the group 'Commercials' is positioned today with respect to the 52 previous weeks.

    (This parameter will be applied to both Legacy and Disaggregated data)

  • COT oscillator MA (periods)

    • The n°of periods (in weeks) to be used to compute the Simple-Moving-Average over the COT oscillator data (e.g. over the Commercials Net-position oscillator).
    • For example, if 8, the last data of a COT group oscillator (e.g. Non-Commercials oscillator) will be the average of the last 8 observations

    (This parameter will be applied to both Legacy and Disaggregated data)

  • Year From
    • the starting year of the Charts
    • (default) 12 years-ago
  • Year To
    • the ending year of the Charts
      • (default) the current-year

Conclusions

If you are new on COT, I suggest you to study better this valuable tool, while using the default values of the parameters that I set, since they are good.

If you have more experience, you can try to analyze an instrument with different combination of parameters, and feel free to suggest us by chat or email better configurations for a particular instrument.

To see an example of COT Chart Analysis in ForecastCycles, click here

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Andrea Ferrari

I deal with programming and finance, I lead the research and development of ForecastCycles. I strongly believe in seasonal analysis for financial markets