COT report. The big bank's playbook

Spend enough time on the charts and you will begin to wonder what makes it all tick. The big answer is big banks looking for liquidity. The thing is they cannot move all of their money into the markets, they have to do it slowly. Not only that, but they have to report their positions to the government every week which it releases as the Commission Of Traders (COT) report. Today we will discuss what this report does and why you need to keep your eye on it.

What is the COT report

To ensure that big banks and financial institutions are playing by the rules, the USA government requires that these institutions report their current positions on any instrument they hold. They report their positions on Tuesday, the government then gathers all the data from multiple institutions then releases the data in a comprehensive format as the COT report on Friday 9am New York time

Within that report you can gain an overall insight into the long term moves by looking at their current positions. As I said, big banks have no intention of pouring all of their money at once. Some moves usually take weeks to work out and so by looking at which instruments they are most invested in and by looking which side (short or long) do they have their most positions open, you can then state that as your long term direction and invest accordingly

Pros and cons of the COT report

Pros

This is the only available trading tool out there that gives you the best insight into the big players playbook. Over weeks you can monitor their moves and play along with their direction, not against (you will always fail if you do). It is consistent too. By law these institutions are meant to report their positions so they are forced to play along, meaning we do not have to wait on the good will of the big institutions to conform.

Cons

The report sometimes lags. These positions are reported on Tuesday then released on Friday. A lot can happen in those three days that may not make sense when you finally get the report. There are times that these institutions decide to only throw in their meaningful moves after the report. Sometimes you can get set in for a move for the coming week with information that will literally be a week old by the time you want to use it on Monday, which can work against your favor as the banks might switch tune over that week and you will only find out at the end of the week of their change of mind. But remember, it takes a long time for these institutions to stir the ship. So it is not so common that they will make drastic moves during the week

Another thing is this report is mostly suited for swing traders. Day traders who trade for 100 to 50 pips at a time, it will be hard to make this information all that useful as the market will move up and down multiple times during the day. It can help you decide your trading direction bias for the week but you are expected to exercise caution.