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COT REPORT ANALYSIS-PERCENTAGE OF NON COMMERCIAL LONG AND SHORT POSITIONS

yourFXguide-In a COT report published by CFTC, we generally find a bunch of data presented in a concise form. Thanks to CFTC for doing this awesome work. Before COT report there was no effective tool to analyze the market sentiment.  In this post, I am going to write about the way to apply the percentage of non commercial positions to understand the market sentiment.

Following two formulas are applied to calculate the percentage of non commercial long and percentage of non commercial short positions.
  • Percentage of  Long = {(Long + Short)/Long} X 100
  • Percentage of Short = {(Long + Short)/Short} X 100
Both percentage of long and percentage of short positions of non commercial traders alone sufficient to be applied in COT report analysis.

Okay !!! above discussion may be little complex to you. Let me explain it in easier way. To do so, I am going to plot 5 years percentage of non commercial long positions in a spread sheet and present them in a line chart form.

The above illustration shows the percentage of non commercial long positions in last five years. The question is how we will interpret this presentation to understand the market sentiment. Following are the key points.
  1. When percentage of long positions going up that means the market sentiment is bullish.
  2. When the percentage of long positions going down the market sentiment is bearish.
  3. When the percentage of long positions reaches a top, the market is about to make a top.
  4. When the percentage of short positions reaches a bottom, the market is about to make a bottom.
Similarly, I plotted the percentage of non commercial short positions in a spread sheet and drawn the following graphical presentation. 

To interpret the above graphical presentation we should remember the following key points:
  1. When percentage of short positions going up that means the market sentiment is bearish.
  2. When the percentage of short positions going down the market sentiment is bullish.
  3. When the percentage of short positions reaches a top, the market is about to make a bottom.
  4. When the percentage of short positions reaches a bottom, the market is about to make a top.
Dear Traders,If you have any question regarding this post, you can drop it into the comment section below. I generally respond to your comments within 24 hours.

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