Spy on the competition with the Commitments of traders'

trading with the commitments of tradersRegardless of what business you are in, you will always keep one eye on your competitors, and trading should be no different. In trading, it might feel like they are invisible to you, sitting at their big hedge fund desks or high up in their glass covered office blocks, but they are there, and they are your competition. But how can you see what they’re up to, I hear you ask, well the easiest way for you to see what they are doing is via the commitments of traders’ report, and the best part about it is its completely free.

This report is released every week by the CFTC (Commodity Futures Trading Commission) and details all the positions currently being held in all your favorite markets. The CFTC provide this for free each week and you can download it at the link below. I did this myself by hand for years before building an automated platform (charts below) that did all the heavy lifting for me, but I recommend digging into the numbers for yourself to really help understand them. If you'd prefer not to have to download the data, you can use our COT charts by logging in HERE


There is something big going on in USDCAD. 

You might be forgiven for thinking USDCAD is currently a very dull market, with price stuck within the same range between 1.3600 and 1.3800 for the last 3 months, but some traders with very deep pockets have been building up very significant positions in recent weeks, (Yellow box highlighted on chart below). So significant in fact, that commercial buying just hit a 20-year high while non-commercial traders selling reached an even more impressive all-time high. 

This is the beauty of the commitments of traders’ report, being able to see ‘behind the curtains’, at trading activity you would have no idea was unfolding based on the price chart alone. 

Commitments of traders chart for USDCAD

What does the Commitments of traders' data tell us.

Well, history tells us that when positions reach these extremes there are always fireworks, and the big winners are usually the commercial traders. Commercial traders are big businesses involved in physically transacting with the asset in question and have a much better understanding of its current and future value. Non-commercial traders are simply speculators like you or I, and don’t know the market in the same way as commercials. That is why they are typically on the wrong side when a market trend reverses and goes in the direction commercial traders were typically preparing for. Some examples of this can be seen marked in the blue boxes on the chart above. 

The green line of commercial buying on the COT chart above, has crossed 200k contracts for only the 2nd time in their history. This shows us they see this market as being undervalued and see the need to buy now to protect their bottom line, ahead of an expected rally, and before it gets 'too expensive’. Non-commercial selling, having crossed 150k contracts for the 1st time, shows they have been adding into shorts as CAD has weakened in recent months but with shorts already so high and no one else left to keep selling, these traders will start heading for the exit door as soon as CAD begins to move higher. Watch out for this behavior in the coming weeks COT reports. Look for a big reduction in non-commercial shorts and an increase in their longs. This will confirm to us that they know they are now on the wrong side of this market and need to reposition. 

We’ve already seen extreme positions in many other currency markets this year, that have played out exactly how I am describing above for USDCAD. Markets such as AUDUSD, GBPUSD, USDJPY and most recently USDCHF, have all seen extreme battles between commercial and non-commercial traders, with commercial positioning for future direction, being right every time. Being able to spy on your competition like this will completely change how you look at financial markets, but more importantly, will also transform your trading strategy. 

It might take a couple of weeks for this battle in USDCAD to play out, and of course we will need to make sure there are no drastic changes to either sides positions in the coming weeks, but the message here is simple, if you are involved in the business of trading, you need to be able to see what your competitors are doing and the commitments of traders' report is the only way to do just that. Jump in to the latest COT charts HERE.

Happy trading

Ray Gilmour
Founder & Senior analyst at Markets Made Clear.com