ICT Forex - COT Insights For Effective Price Action Analysis

Introduction

In this video, the speaker discusses how to use the Commitment of Traders (COT) report to gain insights for effective price action analysis.

Using the COT Report

• The speaker explains how to locate COT data and load it into a graph format.

• The website used to illustrate the COT reports in graph form is introduced.

• The largest open interest on a specific contract is identified and selected.

• The chart is scrubbed down into an area where candlestick charts can be viewed.

Understanding the Graph

• The different lines on the graph are explained: red line represents commercial speculators, dark blue line represents small speculators, and green line represents large speculators.

• Anything above the zero line is deemed bullish while anything below or at it would be neutral to bearish.

• When commercials get a very large position, it indicates a net long position which can lead to a rally in price.

• A huge buildup of net long positions leads to a significant move on the upside.

Trading with COT Data

• A heavily net short position by commercials leads to a drop in price which is bullish for Forex pairs such as USD/CAD.

• Significant net long or short positions can justify long or short entries respectively.

• Historical data shows major turning points when commercials indicate strong willingness to buy or sell.

Introduction to Commitment of Traders Report

In this section, the speaker introduces the Commitment of Traders report and explains how it can be used to gauge maximum saturation in terms of buyers and sellers.

Understanding the Euro Consolidation

• Just changing the first letter to an "e" gives us the Euro on a weekly.

• Every time there's a big buildup, there was a small little rally.

• Commercials are accumulating those positions long.

Net Long Position

• Price dips down below equal lows on a weekly capacity.

• We are in a net long position so commercials are accumulating those positions long.

Maximum Saturation in Terms of Buyers and Sellers

• The benefit of having this tool is to well gauge the maximum saturation in terms of buyers and sellers.

• The red line will put the top in the bottom in the marketplace when everything gets to an extreme whether it be net long or net short.

Indicative Directional Change

In this section, we learn that swinging below zero line does not indicate directional change.

Swing Below Zero Line

• Just because they swung below the zero line like they did here that is no way indicative of a directional change.

• If they're bullish up here and they swing down below there's your line that does not mean that they're gonna expect this thing to start going lower all this means is they started doing a transition from a heavy long position to now that of a heavy north net short position.

Institutional Order Flow

• There has to be some measure of liquidity ran out which we see here then a net short position by commercials would be significant or noteworthy.

• Understanding institutional order flow and how to read price action when you blend these two things together you get really amazing results.

Conclusion

In this section, the speaker concludes the presentation and recommends two books for those interested in learning more about the Commitment of Traders report.

Learning More About Commitment of Traders Report

• If you want to learn more about this subject matter these two books here are in my opinion the two best individual books on the topic.

• It's not limited just currencies it's in stock indices and it's in bonds and it's in commodity futures.

• Larry Williams introduced it to the trading community and it took off like a wildfire.