Chapter 24, Part I. Market Sentiment and COT report Page 6

Pipruit: Hm, it still looks very confusing to me…​

Commander in Pips: Ok, I see. So, if you do not want to dig in all that text tables – here is Wall Street courier source, that have all the history and charts where you can see in visually:

Wall Street Courier and OTC report​

In general, the major sense of that report is in picture of overall market positions, i.e. sentiment – does the market sentiment lean bullish, bearish or neutral and in what degree.

Groups of COT Report and their value

As we’ve said COT Report classifies total positions by different groups:

1. Commercial traders (mostly hedgers);

2. Non-commercial (speculatest speculators);

3. Retailers (just speculators, like you and me).

So, why do we have to keep an eye on positions of the first two groups? Let’s discuss what kind of transactions and positions each group holds and why they give us important information about market sentiment.

Hedgers

These guys do not use Forex for speculative income but for controlling currency risk – unwelcome change in currency rate. This could be large corporations (importers or exporters), those who realize some long-term project that involves currency risk and banks. Just for further clarification let’s discuss some examples.

1. Let’s suppose that some wheat producer has a contract on delivery some amount of wheat to some Japanese buyer. But this delivery should happen not now, but after some time, say, 9 month. The price has been fixed in contract in JPY. But producer worries that JPY will fall compared to the USD and so he will get less money in USD. This is a risk for him, since he counts on some minimum return ratio and he needs to compensate some fixed expenses that do not depend on revenues. This compensation is possible at price in contract but with current USD/JPY ratio.