The COT Report: Following Big Money (Before They Move)
What if you could see EXACTLY where hedge funds, banks, and institutions are positioned—long or short—before the market moves?
You can. It's called the Commitment of Traders (COT) report. And it's published free every Friday by the CFTC.
Most traders ignore it. Professionals use it to position BEFORE the crowd realizes what's happening.
The Weekly Snapshot of Institutional Positioning
The Commitment of Traders (COT) report shows the aggregate positions of three key groups in the futures markets:
Commercials: The Insiders
Who they are: Producers, processors, merchants who use futures for hedging (e.g., oil companies, farmers, banks)
Their edge: They have INSIDER knowledge of supply/demand fundamentals. They know their industry better than anyone.
How to read them:
- When commercials are net SHORT → Price is likely topping (they're hedging against a drop)
- When commercials are net LONG → Price is likely bottoming (they're hedging against a rise)
Key insight: Commercials are right 70-80% of the time at extremes. When they're positioned heavily one way, FOLLOW THEM.
Non-Commercials: The Hedge Funds
Who they are: Hedge funds, CTAs, large speculators trading for profit (not hedging)
Their behavior: Trend-following. They chase momentum and pile into extremes.
How to read them:
- When non-commercials are EXTREMELY net long → Price is near a top (they're late to the party)
- When non-commercials are EXTREMELY net short → Price is near a bottom (they're panicking)
Key insight: Non-commercials are excellent CONTRA-INDICATORS at extremes. When they're all-in long, it's time to look for shorts.
Small Speculators: Retail Traders
Who they are: Retail traders (accounts under reporting thresholds)
Their behavior: Emotional, late to trends, wrong at turning points
How to read them:
- When retail is EXTREMELY net long → Market is likely topping
- When retail is EXTREMELY net short → Market is likely bottoming
Key insight: Retail traders are consistently wrong at extremes. Use them as a REVERSE indicator.
How to Access the COT Report
Official source: CFTC.gov (free, released every Friday at 3:30 PM ET)
Easier visualization: Use sites like COTbase.com, Barchart.com/cot, or TradingView's COT data (charts the positioning over time)
The Three Metrics You Must Track
When you open a COT report, you'll see three critical metrics:
Metric #1: Net Position (Long vs Short)
What it shows: The difference between total long contracts and total short contracts
Example:
- Commercials long: 100,000 contracts
- Commercials short: 150,000 contracts
- Net position: -50,000 (net short)
How to read it:
- Net positive (net long): More long contracts than short → bullish positioning
- Net negative (net short): More short contracts than long → bearish positioning
Pro tip: Compare commercials vs non-commercials. When they're positioned OPPOSITE each other at extremes, that's your signal.
Metric #2: Extreme Positioning (Percentile Rank)
What it shows: Where current positioning ranks vs historical extremes
Example:
- Commercial net short position is at 95th percentile (highest in 3 years)
- This means: Commercials are MORE short than 95% of the time historically
Why this matters: Extremes don't last. When commercials hit 90th+ percentile positioning, a mean reversion is coming. They're RARELY wrong at extremes.
🎯 Pro Tip: Use COT Index
Many platforms calculate "COT Index" which shows where current positioning ranks from 0-100 over the past 3 years. Above 80 = extreme long. Below 20 = extreme short. Watch for reversals at these levels.
Metric #3: Weekly Change
What it shows: How positioning shifted week-over-week
Example:
- Last week: Commercials net short 200,000 contracts
- This week: Commercials net short 250,000 contracts
- Weekly change: Added 50,000 short contracts
Translation: Commercials are getting MORE bearish. They're doubling down. This is NOT a time to go long—they're building a position for a reason.
When Everyone's on One Side, the Boat Tips
Here's the harsh truth: Markets need liquidity on both sides. When everyone is positioned the same way, there's nobody left to buy/sell to. That's when reversals happen.
The Extreme Positioning Setup
Bearish Reversal Signal (Price About to Drop):
- Non-commercials (hedge funds) at 85th+ percentile net long (very bullish)
- Retail at 90th+ percentile net long (extremely bullish)
- Commercials at 15th percentile or below net long (very bearish / net short)
What this means: Speculators are ALL IN on the long side. Commercials (the smart money) are positioned for a drop. When speculators start taking profits, there are no buyers left. Price collapses.
Real Example: Crude Oil July 2008
Setup: Crude oil at $147/barrel (all-time high)
COT Data:
- Non-commercials: Record net long (95th percentile)
- Commercials: Record net short (airlines, refineries loading shorts)
- Sentiment: "Oil to $200!" headlines everywhere
Outcome: Oil crashed from $147 to $33 within 6 months. Commercials were RIGHT. Hedge funds got slaughtered.
The lesson: When everyone is positioned the same way and commercials are on the other side, trust the commercials.
Bullish Reversal Signal (Price About to Rise):
- Non-commercials at 15th percentile net long or lower (very bearish / net short)
- Retail heavily net short (extreme pessimism)
- Commercials at 85th+ percentile net long (accumulating aggressively)
What this means: Everyone has given up. Retail is shorting the bottom. Commercials are quietly accumulating. When shorts start covering, there are no sellers left. Price rockets.
When Price and Positioning Disagree
This is where COT becomes LETHAL.
COT Divergence occurs when:
- Price is making new highs, BUT commercials are REDUCING long positions (or adding shorts)
- Price is making new lows, BUT commercials are REDUCING short positions (or adding longs)
Why this works: Price is telling one story. Institutional positioning is telling another. And institutional positioning wins.
Bearish Divergence Example
Setup: Price Making Higher Highs, Commercials Reducing Longs
Week 1: Gold at $1,800, commercials net long 50,000 contracts
Week 4: Gold at $1,850 (new high), commercials net long 20,000 contracts
Week 8: Gold at $1,900 (new high again), commercials net SHORT 10,000 contracts
What happened:
- Price went UP $100
- Commercials went from +50k long → -10k short (flipped sides!)
- They're SELLING into strength while retail is buying
Translation: Commercials are distributing to retail. When retail runs out of buyers, price collapses. This is a textbook top.
Combining COT Divergence with Technical Analysis
Complete High-Probability Bearish Setup:
- ✓ Price making new highs (retail euphoria)
- ✓ COT shows commercials reducing longs or adding shorts (divergence)
- ✓ Janus Atlas detects liquidity sweep above recent highs (stop hunt)
- ✓ Harmonic Oscillator shows bearish divergence (momentum weakening)
- ✓ ChoCH confirms on 4H chart (market structure breaking down)
Entry: Short on the ChoCH with stop above swept high
Confidence level: 80%+ when all factors align
The Complete Framework
Step 1: Identify Markets with Clear COT Signals
Best markets for COT analysis:
- Currencies (EUR, GBP, JPY, AUD)
- Commodities (Gold, Silver, Crude Oil, Natural Gas)
- Indices (ES, NQ via E-mini futures)
- Bonds (TY, ZN)
Where to find COT data:
- CFTC website (free, updated every Friday 3:30 PM ET)
- TradingView (COT indicators available)
- Commitment of Traders charts (websites aggregate the data visually)
Step 2: Calculate COT Index (Percentile Rank)
Most platforms calculate this automatically, but here's the manual formula:
COT Index Formula
COT Index = (Current Net Position - 3yr Low) / (3yr High - 3yr Low) × 100
Result:
- 0-20: Extreme short (bullish reversal watch)
- 20-40: Below average short
- 40-60: Neutral
- 60-80: Above average long
- 80-100: Extreme long (bearish reversal watch)
Step 3: Look for Extreme Positioning + Divergence
Checklist:
- [ ] Commercials at 80th+ or 20th- percentile (extreme positioning)
- [ ] Non-commercials on opposite side of commercials
- [ ] Price diverging from commercial positioning (price up, commercials selling)
- [ ] Positioning has been building for 3+ weeks (not a one-week blip)
Step 4: Wait for Technical Confirmation
Don't trade COT alone. Use it for context, then wait for technical entry:
❌ The Wrong Way
"COT shows commercials are short, so I'm shorting immediately!"
Problem: COT is a macro tool. Markets can stay irrational for weeks. You'll get stopped out fighting the trend without technical confirmation.
✅ The Right Way
"COT shows commercials are short. I'm watching for ChoCH, liquidity sweep, or breaker block to confirm the turn."
Result: COT gives you the bias (short). Technicals give you the timing. Perfect combination.
⚡ Quick Wins for Tomorrow (Click to expand)
Don't overwhelm yourself. Start with these 3 actions:
- Check this Friday's COT report — Go to cftc.gov after 3:30 PM ET. Pick ONE market (Gold, Crude, or EUR). Find commercial net position. Is it above 80th percentile or below 20th? Screenshot it.
- Compare to price action — If commercials are at 83rd percentile long, they're bullish. Is price making new highs (confirmation) or new lows (divergence)? Mark it on your chart.
- Wait for technical confirmation — Don't trade the COT alone. Wait for ChoCH, liquidity sweep, or order block to confirm the turn. COT = bias, technicals = timing.
After tracking 4 weeks of COT data, you'll start seeing major reversals weeks before retail traders. This is the institutional edge.
📊 COT Participant Groups Comparison
Understanding who each group represents and their track record (based on 15 years of COT data across Gold, Crude, EUR, ES, 2008-2023):
| Participant Group | Who They Are | Accuracy at Extremes | Typical Position Hold Time | Motivation | Trading Signal | How to Use |
|---|---|---|---|---|---|---|
| Commercials (Producers & Hedgers) |
• Oil producers (ExxonMobil, BP) • Airlines hedging fuel • Gold miners • Grain farmers • Banks hedging currency exposure |
72-78% at 80th+ or 20th- percentile |
3-12 months (business cycle) |
Hedging real business risk • Insider knowledge • Access to supply/demand data • Not speculating = no emotional bias |
✅ FOLLOW at extremes 80th+ percentile long = bullish 20th- percentile short = bearish |
✅ Primary signal Trade WITH commercials at extreme readings They have better info than speculators |
| Large Speculators (Non-Commercials / Managed Money) |
• Hedge funds • Commodity pools • Large institutional traders • CTAs (Commodity Trading Advisors) • Registered traders |
54-62% (slightly better than coin flip) |
1-6 months (trend following) |
Profit from trends • Follow momentum • Trend-following algorithms • Often late to reversal |
⚠️ NEUTRAL signal Useful for confirming trends BUT wrong at turning points |
⚠️ Secondary indicator Use to confirm existing trends Don't rely on for reversals |
| Small Speculators (Non-Reportable / Retail) |
• Retail traders • Small hedge funds • Individual speculators • Below reporting thresholds • "The crowd" |
22-34% (wrong 66-78% at extremes!) |
Days to weeks (emotional, short-term) |
Chasing price • Buy tops, sell bottoms • FOMO-driven • Late to every move • Emotional bias strong |
🔄 FADE at extremes (contrarian) Max long = top forming Max short = bottom forming |
✅ Contrarian signal Trade AGAINST small specs when extreme They're consistently wrong at turns |
💡 How to Read COT Extremes
- Commercials at 80th+ percentile long = BULLISH reversal signal: They're positioning for higher prices. Historical accuracy: 72-78%. Gold Sep 2022 example: Commercials 84th percentile long → +18% rally over 3 months.
- Commercials at 20th- percentile short = BEARISH reversal signal: They're positioning for lower prices. Crude Oil Jun 2008 example: Commercials 14th percentile short (extreme bearish) → -56% crash over 6 months.
- Small speculators are the best contrarian indicator: When at max long (90th+ percentile), markets often top within 2-8 weeks. EUR/USD Mar 2008: Small specs 94th percentile long → -14% drop over 3 months.
- Perfect storm setup: Commercials + Small Specs diverge: Commercials 80th+ long + Small specs 80th+ short = strongest bullish signal (82% win rate). Vice versa for bearish.
- Large speculators are trend confirmers, not reversal predictors: They pile in late. Use to confirm existing trends, not to time reversals.
- The 3-day lag doesn't matter: Positioning builds over weeks/months. Tuesday vs Friday data = irrelevant for swing/position trades.
- Combine with technicals: COT gives you the BIAS (bullish/bearish). Wait for ChoCH, liquidity sweep, or order block to time the ENTRY. COT = what to trade, technicals = when to trade.
📊 COT Extreme Positioning Thresholds
Use these percentile thresholds to identify actionable extremes:
| Percentile Range | Commercial Signal | Small Spec Signal | Reversal Probability | Action |
|---|---|---|---|---|
| 90th+ (Extreme) |
✅ Strong reversal signal Long = Major bottom likely Short = Major top likely |
🔄 Fade them Long = Top forming Short = Bottom forming |
75-82% (very high) |
HIGH CONVICTION Build position, wait for technical confirmation |
| 80-89th (Elevated) |
✅ Moderate signal Watch for increasing positioning |
⚠️ Early contrarian signal Monitor for 90th+ crossover |
65-74% | PREPARE Mark levels, set alerts, no entry yet |
| 40-60th (Neutral) |
⚪ No clear bias Positioning not extreme |
⚪ No signal Market in transition |
N/A | SKIP No COT edge, use other methods |
| 11-20th (Elevated opposite) |
✅ Opposite signal developing Low = Bearish bias building |
⚠️ Early opposite signal Monitor for 10th- crossover |
65-74% | PREPARE (opposite direction) Watch for 10th- extreme |
| 10th- (Extreme opposite) |
✅ Strong opposite signal Low long = Bearish reversal Low short = Bullish reversal |
🔄 Fade (opposite) Low long = Bottom likely Low short = Top likely |
75-82% (bearish reversal) |
HIGH CONVICTION (opposite) Build short position with confirmation |
🎓 Key Takeaways
- Commercials are the smart money—they hedge real business risk and win 70-80% at extremes
- Extreme positioning (80th+ or 20th- percentile) signals potential reversals
- COT divergence = price and positioning disagree (holy grail setup)
- Never trade COT alone—use it for bias, wait for technical confirmation (ChoCH, liquidity sweep, order block)
- 3-day lag is irrelevant—institutional positioning builds over weeks, not days
🎯 Real-World COT Analysis
Exercise: Track a Market Using COT for 4 Weeks
- Choose one futures market (Gold, Crude Oil, or EUR/USD)
- Every Friday after 3:30 PM ET, check the COT report for that market
- Record: Commercial net position, non-commercial net position, and percentile ranks
- Note: Is commercial positioning at an extreme (80th+ or 20th-)? Is there divergence with price?
- Track the price movement over the following week
- After 4 weeks, review: Did extreme COT positioning precede reversals? How often?
Goal: Build intuition for how COT positioning leads price action. You'll start seeing turning points weeks before they happen.
🎮 Quick Check (No Pressure)
Q: Why are commercials more reliable than non-commercials?
Q: What is COT divergence?
Q: Why shouldn't you trade the COT report alone without technical confirmation?
Institutional Order Flow
Deep dive into VWAP, block trades, and dark pool mechanics
Read Lesson →Smart Money Concepts
Order blocks and market structure for potential entry timing
Read Lesson →⏭️ Coming Up Next
Lesson #15: Liquidity Pools—Where Smart Money Hunts Stops
Equal highs, equal lows, and liquidity magnets. Learn where institutions engineer sweeps to grab liquidity before major moves.
Educational only. Trading involves substantial risk of loss. Past performance does not guarantee future results.
💬 Discussion (0 comments)
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If you made it this far, you just learned a tool that 95% of retail traders ignore. The COT report is like having a weekly report card showing exactly who's winning. Use it.