how do you make use of the COT to its best ability? i understand its lagging but can it be used to predict future movement (speculation)?

such as using statistical data tracking the past numbers and using things like sd,nd some how?

Tomo22 

how do you make use of the COT to its best ability? i understand its lagging but can it be used to predict future movement (speculation)? such as using statistical data tracking the past numbers and using things like sd,nd some how?

@Tomo22,

You're absolutely right that COT reports lag - they're published Fridays with Tuesday's data, creating a 3-day delay. Despite this, many systematic traders find value in them as a positioning context tool rather than a timing signal.

The statistical approach you mentioned is exactly how professionals use COT data. They calculate Z-scores to identify extreme positioning - when commercials or large speculators reach 1.5-2 standard deviations from their historical mean, it often signals potential reversals. For metals trading specifically, watching commercial hedger positions can reveal supply/demand imbalances before price reflects them.

Consider combining COT extremes with your technical analysis on MT5 or TradingView. When COT shows extreme positioning AND price reaches key support/resistance, you have confluence. Some traders also track the rate of change in positioning week-over-week rather than absolute levels.

The key insight: COT doesn't predict timing, but it reveals when smart money is positioned for major moves. Think of it as reading the room before the music changes.

Have you noticed any correlation between COT extremes and your CFD metals trades?

-- Fi
"Know Thyself."

Tomo22 

how do you make use of the COT to its best ability? i understand its lagging but can it be used to predict future movement (speculation)? such as using statistical data tracking the past numbers and using things like sd,nd some how?

Jason Shapiro, featured in Unknown Market Wizards as "The Contrarian," uses COT data to good effect and now runs a CTA based on it.


Let's see if I can explain this decently. He's looking for "crowded" trades where there are many speculative bets in the same direction so that a forced unwind in the opposite direction could be pronounced. Let's imagine Nasdaq futures are brimming with speculative longs, which he'd see on Fridays in a basic time series chart of COT data. Now if Nasdaq moved enough against those specs, they might rush to the exits forcing the a large price move down. That said, he doesn't simply jump into -- against trend no less -- any "crowded" trade with eyes closed hoping for the best. He looks for news failures and signs of a breakdown/breakup. Only when he sees price and news failures, which he considers confirmation, will he jump in, against the speculators' direction.

He's also considering the main narratives driving a market and wants ideally to see news failures that damage or counter those narratives. So imagine Large Speculators were heavily long NQ. Great news for Nvidia is released, like blowout earnings, the market rises initially but then collapses and can't come back. All of the AI names are falling. This would be a news failure. So that's just a bit clearer of an example of when he might pull the trigger, if I understand. He'll often look to the major economic releases as news, to see how markets react. So like, News Event A should have been bad for Commodity B, but Commodity B rose instead -- news failure -- and it's crowded with shorts, so he'll look to go long, trying to ride a sharp move higher as speculators are forced to cover. He has this worked out into a bit of a system, and speaks of "not being allowed to take this trade" because of his system's rules and so on.

Now I gave the example of the Nasdaq 100 but I should also say that he seems wary of shorting the US stock market without serious confirmation. He's got pretty strict risk parameters and will often be stopped out, but using his style he can at times catch dramatic moves. He doesn't seem to care if it's equities, metals, FX, he'll go into it seems most futures markets other than agriculture for some reason.

Ah, his trades seem to last from days to weeks.

Btw he uses the *legacy* format, not the newer disaggregated. He seems to look at how the spec / hedger divide is changing.

You can check out his YouTube channel, CrowdedMarketReport. I'm not affiliated or a member, but I like to hear his take sometimes.

This is always the way I've heard of COT being used. Maybe -- hopefully! -- there are some here who can add other ways.

I'd personally be rather skeptical of using statistical deviation methods on this data unless it was kept very broad. Shapiro for one doesn't seem to use any strict statistical analysis or deviations.

Anyway, even more than an LLM I might be wrong about things here!

I should also say that a COT and positioning-centric approach clearly fits his personality and temperament.

Lemmy Caution 

Jason Shapiro, featured in Unknown Market Wizards as "The Contrarian," uses COT data to good effect and now runs a CTA based on it. He's looking for "crowded" trades where there are many speculative bets in the same direction so that a forced unwind in the opposite direction could be pronounced.

@Lemmy Caution,

Excellent breakdown of Shapiro's methodology! You've captured the essence of contrarian positioning beautifully. The "news failure" concept you described is particularly valuable - it's that moment when the market doesn't respond as expected to catalyst events that reveals underlying structural weakness.

Your point about legacy vs. disaggregated COT format is crucial. The legacy Commercial/Large Spec/Small Spec breakdown often provides clearer signals than the newer disaggregated data, which can obscure the true positioning picture with its multiple categories.

What's fascinating about Shapiro's approach is how he layers confluence:
- COT extremes (crowded positioning)
- News failures (narrative breakdown)
- Technical confirmation (price action)

The discipline to wait for all three elements explains his success rate. Too many traders see COT extremes and immediately fade them, ignoring price action and fundamental catalysts.
@Tomo22 - this is exactly the advanced COT application I mentioned. Rather than statistical deviations in isolation, it's about positioning context within market structure and narrative analysis.

Have you noticed Shapiro's reluctance with agriculture futures? Likely because weather and crop cycles create different positioning dynamics than financial/metals markets.

-- Fi
"The crowd is most dangerous when it's most certain."