COT Extremes

 

COT Extremes are as powerful as the name suggests and is designed to act as your very own warning system for what is to come. 

A COT Extreme occurs when either the number of long or short positions in a market reach an all-time high (ATH) or if their net position reach an all-time high (ATH) or all-time low (ATL). (Note, Long or Short positions cannot make a new all-time low).

The amount of money required in a market for it to reach a COT Extreme such as these, is so large that it causes an imbalance that will need to be corrected. Being alerted of this imbalance means we have a chance to capitalise on its correction. Extreme positioning often leads to extreme moves.

How to read our COT Extremes page.

1. Bias
Bias is the term used to describe how each group of traders are positioned, i.e. either long or short. Their ‘bias’ is always derived from their Net position and it is used to describe whether a group is net long or net short. E.g. if a group, say non-commercials, have a long bias this is saying they are net long, meaning they have a larger long position than short position.

For trend following traders, switches in bias from long to short or short to long are often an indication of new trend direction. In this case, it is better to follow non-commercial switches in bias as this group are also trend followers. 


2. COT Extreme alerts
In this section, our primary interest is the extreme alerts, not the % figures shown. While these can give us context as to how other markets are positioned, this is secondary to those markets already at extremes.

When an extreme position is reached by either, commercial traders, non-commercial traders, non-reportable traders or in open interest, an orange ATH or ATL will be highlighted. These alerts should be used as a starting point for further analysis into this markets positions, this can be done by viewing the full positions history of that market in our COT Charts page.
3. ATH/ATL calculations
As stated above, ATH or All-Time High alert, is the confirmation that a group of traders have built up their largest ever long, short or net position, while an ATL or All-Time Low alert, is the confirmation that a group’s net position has reached is lowest ever point. This is calculated by taking the current reading for all long, short and net positions and comparing them to their previous highest and lowest readings.

The example below shows the history of EURO Commercial Long positions. The history begins with 0 long contracts in January 1999 (when the EURO was first traded), and then reaching its highest point of 372,420 contracts in March 2015. If we then compare this week’s number of 261,922 contracts to the highest and lowest recordings we can see that current EURO commercial long positions sit at 70%, within the 0 – 100% range of the ATH and ATL alerts.
As this number increases towards 100 %, we can say that commercials are becoming more bullish in this market and as it falls towards 0% we can say they are becoming more bearish.   

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How to trade alerts

Note: Alerts should only be used as a basis for further analysis of that market and do not constitute a trading signal.
 
The implications of each extreme can be unique to the situation of that market but there are many similarities between each extreme and their impact on the market. Below is a list of scenarios and how each scenario should play out in the market.


Scenario 1. Non-commercial trend followers have been building a large long position as they see the market moving higher, this has not been countered by commercial selling meaning they also see price going higher. This is a bullish alert.


Scenario 2. Non-commercial trend followers have been building a large short position as they see the market moving lower, this has not been countered by commercial buying meaning they also see price going lower. This is a bearish alert.


Scenario 3. Both Commercial buying and non-commercial selling have reached all-time highs. This will be the result of a move lower in which commercial traders have aggressively bought as they see this move lower as being unsustainable. Non-commercial traders, being trend followers, have simply added to their shorts as the market has fell, they will almost always be caught on the wrong side after commercial traders have stepped in. This is a bullish alert.


Scenario 4. Both Commercial selling and non-commercial buying have reached all-time highs. This will be the result of a move higher in which commercial traders have aggressively sold as they see this move higher as being unsustainable. Non-commercial traders, being trend followers, have simply added to their longs as the market has rallied, they will almost always be caught on the wrong side after commercial traders have stepped in. This is a bearish alert.

 

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Open Interest Extremes

Scenario 1. Open interest all-time highs are often driven by extreme non-