Sentiment in the Forex Market: Indicators and Strategies to Profit from Crowd Behavior and Market Extremes

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Sentiment Indicators 75

It is important to familiarize yourself with the details of the report so

you know what you’re looking at. The COT reports contain much more

information than just open interest and commercial and non-commercial

positioning, but these three numbers are the meat of the report and are

what I analyze. You can find more details at www.cftc.gov, such as the

definitions below.

Open Interest

Open interest is the total of all futures and/or option contracts en-

tered into and not yet offset by a transaction, by delivery, by exercise,

etc. The aggregate of all long open interest is equal to the aggregate of

all short open interest.

Commercial and Non-Commercial Traders

When an individual reportable trader is identified to the Com-

mission, the trader is classified either as “commercial” or “non-

commercial.” All of a trader’s reported futures positions in a com-

modity are classified as commercial if the trader uses futures

contracts in that particular commodity for hedging. To ensure

that traders are classified with accuracy and consistency, Com-

mission staff may exercise judgment in re-classifying a trader

if it has additional information about the trader’s use of the

markets.

A trader may be classified as a commercial trader in some com-

modities and as a non-commercial trader in other commodities.

A single ...