Smart money and the COT data

Confused newbie here. :-\

I know that Im missing something.. because I know that smart money are accumulating during down moves and offloading during rallies.
Should'nt that be clearly visible in the COT data?

The attached COT chart show that the large speculators(smart money) are doing the contrary.
 

Attachments

Tansen

Well-Known Member
Someone has to take the other side.

The Large Spec and Comms are almost always (I haven't been around long enough to confirm them going the same) opposed. The phrase when their at extreme is Diametrically opposed and can be some serious money in the bank if you manage to catch them on a distribution run (When they get back to the 0 / come closer to each other)

(Nobody cares about the small traders)
 

AusDoc

Well-Known Member
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!
 

Hopiplaka

My thanks go out to ICT - the life changer
AusDoc said:
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!
Thanks for your honest feedback AusDoc.

Learning COT was high on my - still long - learning list, but it just got a promotion to the bottom of the list :)

I might read the book you recommend though, but just to get a general idea of the COT data, or possibly to identify key turning point during seasonal tendencies (Spring high, summer low, september rally, ...)
 

SLT

Official GDayFX.com Rep
I am a 2 years and 3 months trader, i find the COT & open interest a very powerful tool, used in conjunction with other aspects of market psychology, for instance the Aussie dollar sell off recently. not that anybody gives a shit, but i picked the recent top in Aussie. So i am pretty proud of myself for that. I dont use the COT and open interest to make a trade decision,
my models are not designed for it, though any new Bias is a good bias to have in the back of your mind.
 

TheInnerCircleTrader

Well-Known Member
I think you have a minor flaw in your perspective...

We view the Red Line or Commercials as "Smart Money" not the Large Speculators.

Study your chart example and notice the highs and lows are seen with heavy net short and net long positions held by Commercials - respectively. They sell into rallies early and have deep pockets... same holds true to lows as they are seen buying into them early as well.

Key:
Look at Price action and key levels and couple the Commercial net positions when they are aligned... this is the foot prints of their trend and thus the likely future direction of Price action over the coming weeks and months.

Hope that helps... GLGT

______________________________


GeneralButtnaked said:
Confused newbie here. :-\

I know that Im missing something.. because I know that smart money are accumulating during down moves and offloading during rallies.
Should'nt that be clearly visible in the COT data?

The attached COT chart show that the large speculators(smart money) are doing the contrary.
 
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