GeneralButtnaked said:
I know that smart money are accumulating during down moves and offloading during rallies.
Are you sure? How do you know that? Where did that idea come from? Did you think it through?
I ask these things because some people hear what they want to hear or only half understand something due to limited background. We know that "smart money" has a tendency to run a market in the opposite direction to the one they intend to move the market. They do this to fund their position by triggering or stimulating opposing orders.
Remember though, that the move can be in either direction. So they may run a market up before taking it down. Equally, they may run a market down before taking it up. You work out this direction by correctly reading a price chart.
But if you want to introduce COT data, who constitutes the smart money? As you have observed, it can be confusing. As Tansen rightly points out, it takes 2 to tango. The third party in the room, the small traders, can only watch. Note this carefully: compared to the small traders, both other parties are "smart" and that tango is a dance with a lot of energy so you don't want to get in the way of either of them.
I have been trading for many, many years (since before the internet - a lifetime to some!). Almost of of my experience is in futures and futures options. I have done extensive reading on the COT reports and subscribed to a specialty COT advisory service for years, costing thousands of dollars. After all of this my advice to you is to forget about the COT Report.
I can assure you that not even the experts actually use the COT data with significant and consistent success. They do occasionally make some spectacular calls based on their reading of the reports (or more correctly, the raw data actually) but this usually means more for their ongoing marketing efforts than for real traders' accounts growth.
You may have become interested in COT data because of ICT's demonstrated use of COT indicators. If so, I understand your interest and I certainly encourage you to study and apply ICT's materials. However, I think he did no one any service by introducing COT to amateur FX traders.
Consider the following questions:
[list type=decimal]
[*]Are you a spot FX trader?
[*]Is your execution platform MT4 or cTrader or similar?
[*]Have you made less than 1 million dollars profit from trading?
[/list]
If you answered yes to at least 2 of the above then I recommend that you forget about COT tools for now and invest your time and resources elsewhere. Becoming a successful trader is a significant journey that begins and ends in psychology, with but a brief encounter with some technical tools and an always developing knowledge base. You can manage all of this without ever seeing a COT indicator again.
Of course you don't know me and you have no way of evaluating my advice so as always, it's up to you to decide what to do. If you do choose to use COT then take it seriously. It requires a lot more than a simple question in a forum.
There are two good authors when it comes to learning about using COT reports. They are Larry Williams and Steve Briese. Despite Larry's superior self-promotion and ICT's endorsement of him as his "mentor" the better book, IMO, is by Briese. It is:
The Commitments of Traders Bible: How To Profit from Insider Market Intelligence
You can get it from Amazon. If you do a search online you'll probably find some videos of Steve discussing his use of COT data.
So either get serious about learning the intricacies of COT and how to use it or just move on to more productive development. I recommend the latter. Good luck!
