Commitment of Traders indicators

COT Index and Stochastic Oscillator of Non-commercial traders

COT index is the indicator proposed by Larry Williams. This is basically Stochastic Oscillator of net commercial position defined as follows.

COT Index = (Current net commercial position in look-back period – Lowest net commercial position in look-back period) / (Highest net commercial position in look-back period – Lowest net commercial position in look-back period)

Larry Williams suggested that we use 3 years (= 156 weeks) as look-back period. This indicator is very useful to look at relative direction of commercial positions.

 

However, as we think non-commercial traders’ position are more useful information, we extend this concept to non-commercial traders and construct the following indicators.

Stochastic Oscillator of Non-commercial traders = (Current net commercial position in look-back period – Lowest net commercial position in look-back period) / (Highest net commercial position in look-back period – Lowest net commercial position in look-back period)

If this indicator is above 0.5, non-commercial traders has relatively high net long positions, if it is below 0.5, non-commercial traders has relatively low net positions.

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Above chart is gold price chart with non-commercial net positions and Stochastic Oscillator (look-back period = 156 weeks). As you can see, when the indicator kept above 0.5, there was strong bullish trend, and when the indicator kept below 0.5, there was strong bear trend. Understanding non-commercial positions are very important when you make a trade.