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Sell
Based on the latest 13 weeks of non-commercial positioning data. ℹ️

STEEL-HRC (Non-Commercial)

13-Wk Max 14,114 10,618 2,385 2,644 5,090
13-Wk Min 10,440 6,925 -2,478 -890 171
13-Wk Avg 12,089 9,556 62 269 2,534
Report Date Long Short Change Long Change Short Net Position Rate of Change (ROC) ℹ️ Open Int.
May 13, 2025 10,440 10,269 -94 541 171 -78.78% 35,187
May 6, 2025 10,534 9,728 -742 -890 806 22.49% 33,902
April 29, 2025 11,276 10,618 264 724 658 -41.14% 38,796
April 22, 2025 11,012 9,894 -59 268 1,118 -22.63% 37,938
April 15, 2025 11,071 9,626 124 383 1,445 -15.20% 37,015
April 8, 2025 10,947 9,243 -397 -79 1,704 -15.73% 35,142
April 1, 2025 11,344 9,322 -2,478 -729 2,022 -46.38% 35,244
March 25, 2025 13,822 10,051 -286 349 3,771 -14.41% 41,369
March 18, 2025 14,108 9,702 -6 100 4,406 -2.35% 41,425
March 11, 2025 14,114 9,602 1,100 -72 4,512 35.09% 40,755
March 4, 2025 13,014 9,674 -452 105 3,340 -14.29% 38,428
February 25, 2025 13,466 9,569 1,451 2,644 3,897 -23.44% 40,543
February 18, 2025 12,015 6,925 2,385 150 5,090 78.28% 37,205

Net Position (13 Weeks) - Non-Commercial

Change in Long and Short Positions (13 Weeks) - Non-Commercial

COT Interpretation for STEEL

Comprehensive Guide to COT Reports for Commodity Natural Resources Markets

1. Introduction to COT Reports

What are COT Reports?

The Commitments of Traders (COT) reports are weekly publications released by the U.S. Commodity Futures Trading Commission (CFTC) that show the positions of different types of traders in U.S. futures markets, including natural resources commodities such as oil, natural gas, gold, silver, and agricultural products.

Historical Context

COT reports have been published since the 1920s, but the modern format began in 1962. Over the decades, the reports have evolved to provide more detailed information about market participants and their positions.

Importance for Natural Resource Investors

COT reports are particularly valuable for natural resource investors and traders because they:

  • Provide transparency into who holds positions in commodity markets
  • Help identify potential price trends based on positioning changes
  • Show how different market participants are reacting to fundamental developments
  • Serve as a sentiment indicator for commodity markets

Publication Schedule

COT reports are released every Friday at 3:30 p.m. Eastern Time, showing positions as of the preceding Tuesday. During weeks with federal holidays, the release may be delayed until Monday.

2. Understanding COT Report Structure

Types of COT Reports

The CFTC publishes several types of reports:

  1. Legacy COT Report: The original format classifying traders as Commercial, Non-Commercial, and Non-Reportable.
  2. Disaggregated COT Report: Offers more detailed breakdowns, separating commercials into producers/merchants and swap dealers, and non-commercials into managed money and other reportables.
  3. Supplemental COT Report: Focuses on 13 select agricultural commodities with additional index trader classifications.
  4. Traders in Financial Futures (TFF): Covers financial futures markets.

For natural resource investors, the Disaggregated COT Report generally provides the most useful information.

Data Elements in COT Reports

Each report contains:

  • Open Interest: Total number of outstanding contracts for each commodity
  • Long and Short Positions: Broken down by trader category
  • Spreading: Positions held by traders who are both long and short in different contract months
  • Changes: Net changes from the previous reporting period
  • Percentages: Proportion of open interest held by each trader group
  • Number of Traders: Count of traders in each category

3. Trader Classifications

Legacy Report Classifications

  1. Commercial Traders ("Hedgers"):
    • Primary business involves the physical commodity
    • Use futures to hedge price risk
    • Include producers, processors, and merchants
    • Example: Oil companies hedging future production
  2. Non-Commercial Traders ("Speculators"):
    • Do not have business interests in the physical commodity
    • Trade for investment or speculative purposes
    • Include hedge funds, CTAs, and individual traders
    • Example: Hedge funds taking positions based on oil price forecasts
  3. Non-Reportable Positions ("Small Traders"):
    • Positions too small to meet reporting thresholds
    • Typically represent retail traders and smaller entities
    • Considered "noise traders" by some analysts

Disaggregated Report Classifications

  1. Producer/Merchant/Processor/User:
    • Entities that produce, process, pack, or handle the physical commodity
    • Use futures markets primarily for hedging
    • Example: Gold miners, oil producers, refineries
  2. Swap Dealers:
    • Entities dealing primarily in swaps for commodities
    • Hedging swap exposures with futures contracts
    • Often represent positions of institutional investors
  3. Money Managers:
    • Professional traders managing client assets
    • Include CPOs, CTAs, hedge funds
    • Primarily speculative motives
    • Often trend followers or momentum traders
  4. Other Reportables:
    • Reportable traders not in above categories
    • Example: Trading companies without physical operations
  5. Non-Reportable Positions:
    • Same as in the Legacy report
    • Small positions held by retail traders

Significance of Each Classification

Understanding the motivations and behaviors of each trader category helps interpret their position changes:

  • Producers/Merchants: React to supply/demand fundamentals and often trade counter-trend
  • Swap Dealers: Often reflect institutional flows and longer-term structural positions
  • Money Managers: Tend to be trend followers and can amplify price movements
  • Non-Reportables: Sometimes used as a contrarian indicator (small traders often wrong at extremes)

4. Key Natural Resource Commodities

Energy Commodities

  1. Crude Oil (WTI and Brent)
    • Reporting codes: CL (NYMEX), CB (ICE)
    • Key considerations: Seasonal patterns, refinery demand, geopolitical factors
    • Notable COT patterns: Producer hedging often increases after price rallies
  2. Natural Gas
    • Reporting code: NG (NYMEX)
    • Key considerations: Extreme seasonality, weather sensitivity, storage reports
    • Notable COT patterns: Commercials often build hedges before winter season
  3. Heating Oil and Gasoline
    • Reporting codes: HO, RB (NYMEX)
    • Key considerations: Seasonal demand patterns, refinery throughput
    • Notable COT patterns: Refiners adjust hedge positions around maintenance periods

Precious Metals

  1. Gold
    • Reporting code: GC (COMEX)
    • Key considerations: Inflation expectations, currency movements, central bank buying
    • Notable COT patterns: Commercial shorts often peak during price rallies
  2. Silver
    • Reporting code: SI (COMEX)
    • Key considerations: Industrial vs. investment demand, gold ratio
    • Notable COT patterns: More volatile positioning than gold, managed money swings
  3. Platinum and Palladium
    • Reporting codes: PL, PA (NYMEX)
    • Key considerations: Auto catalyst demand, supply constraints
    • Notable COT patterns: Smaller markets with potentially more concentrated positions

Base Metals

  1. Copper
    • Reporting code: HG (COMEX)
    • Key considerations: Global economic growth indicator, construction demand
    • Notable COT patterns: Producer hedging often increases during supply surpluses
  2. Aluminum, Nickel, Zinc (COMEX/LME)
    • Note: CFTC reports cover U.S. exchanges only
    • Key considerations: Manufacturing demand, energy costs for production
    • Notable COT patterns: Limited compared to LME positioning data

Agricultural Resources

  1. Lumber
    • Reporting code: LB (CME)
    • Key considerations: Housing starts, construction activity
    • Notable COT patterns: Producer hedging increases during price spikes
  2. Cotton
    • Reporting code: CT (ICE)
    • Key considerations: Global textile demand, seasonal growing patterns
    • Notable COT patterns: Merchant hedging follows harvest cycles

5. Reading and Interpreting COT Data

Key Metrics to Monitor

  1. Net Positions
    • Definition: Long positions minus short positions for each trader category
    • Calculation: Net Position = Long Positions - Short Positions
    • Significance: Shows overall directional bias of each group
  2. Position Changes
    • Definition: Week-over-week changes in positions
    • Calculation: Current Net Position - Previous Net Position
    • Significance: Identifies new money flows and sentiment shifts
  3. Concentration Ratios
    • Definition: Percentage of open interest held by largest traders
    • Significance: Indicates potential market dominance or vulnerability
  4. Commercial/Non-Commercial Ratio
    • Definition: Ratio of commercial to non-commercial positions
    • Calculation: Commercial Net Position / Non-Commercial Net Position
    • Significance: Highlights potential divergence between hedgers and speculators
  5. Historical Percentiles
    • Definition: Current positions compared to historical ranges
    • Calculation: Typically 1-3 year lookback periods
    • Significance: Identifies extreme positioning relative to history

Basic Interpretation Approaches

  1. Trend Following with Managed Money
    • Premise: Follow the trend of managed money positions
    • Implementation: Go long when managed money increases net long positions
    • Rationale: Managed money often drives momentum in commodity markets
  2. Commercial Hedging Analysis
    • Premise: Commercials are "smart money" with fundamental insight
    • Implementation: Look for divergences between price and commercial positioning
    • Rationale: Commercials often take counter-trend positions at market extremes
  3. Extreme Positioning Identification
    • Premise: Extreme positions often precede market reversals
    • Implementation: Identify when any group reaches historical extremes (90th+ percentile)
    • Rationale: Crowded trades must eventually unwind
  4. Divergence Analysis
    • Premise: Divergences between trader groups signal potential turning points
    • Implementation: Watch when commercials and managed money move in opposite directions
    • Rationale: Opposing forces creating potential market friction

Visual Analysis Examples

Typical patterns to watch for:

  1. Bull Market Setup:
    • Managed money net long positions increasing
    • Commercial short positions increasing (hedging against higher prices)
    • Price making higher highs and higher lows
  2. Bear Market Setup:
    • Managed money net short positions increasing
    • Commercial long positions increasing (hedging against lower prices)
    • Price making lower highs and lower lows
  3. Potential Reversal Pattern:
    • Price making new highs/lows
    • Position extremes across multiple trader categories
    • Changes in positioning not confirming price moves (divergence)

6. Using COT Reports in Trading Strategies

Fundamental Integration Strategies

  1. Supply/Demand Confirmation
    • Approach: Use COT data to confirm fundamental analysis
    • Implementation: Check if commercials' positions align with known supply/demand changes
    • Example: Increasing commercial shorts in natural gas despite falling inventories could signal hidden supply
  2. Commercial Hedging Cycle Analysis
    • Approach: Track seasonal hedging patterns of producers
    • Implementation: Create yearly overlay charts of producer positions
    • Example: Oil producers historically increase hedging in Q2, potentially pressuring prices
  3. Index Roll Impact Assessment
    • Approach: Monitor position changes during index fund roll periods
    • Implementation: Track swap dealer positions before/after rolls
    • Example: Energy contracts often see price pressure during standard roll periods

Technical Integration Strategies

  1. COT Confirmation of Technical Patterns
    • Approach: Use COT data to validate chart patterns
    • Implementation: Confirm breakouts with appropriate positioning changes
    • Example: Gold breakout with increasing managed money longs has higher probability
  2. COT-Based Support/Resistance Levels
    • Approach: Identify price levels where significant position changes occurred
    • Implementation: Mark price points of major position accumulation
    • Example: Price levels where commercials accumulated large positions often act as support
  3. Sentiment Extremes as Contrarian Signals
    • Approach: Use extreme positioning as contrarian indicators
    • Implementation: Enter counter-trend when positions reach historical extremes (90th+ percentile)
    • Example: Enter long gold when managed money short positioning reaches 95th percentile historically

Market-Specific Strategies

  1. Energy Market Strategies
    • Crude Oil: Monitor producer hedging relative to current term structure
    • Natural Gas: Analyze commercial positioning ahead of storage injection/withdrawal seasons
    • Refined Products: Track seasonal changes in dealer/refiner positioning
  2. Precious Metals Strategies
    • Gold: Monitor swap dealer positioning as proxy for institutional sentiment
    • Silver: Watch commercial/managed money ratio for potential squeeze setups
    • PGMs: Analyze producer hedging for supply insights
  3. Base Metals Strategies
    • Copper: Track managed money positioning relative to global growth metrics
    • Aluminum/Nickel: Monitor producer hedging for production cost signals

Strategy Implementation Framework

  1. Data Collection and Processing
    • Download weekly COT data from CFTC website
    • Calculate derived metrics (net positions, changes, ratios)
    • Normalize data using Z-scores or percentile ranks
  2. Signal Generation
    • Define position thresholds for each trader category
    • Establish change-rate triggers
    • Create composite indicators combining multiple COT signals
  3. Trade Setup
    • Entry rules based on COT signals
    • Position sizing based on signal strength
    • Risk management parameters
  4. Performance Tracking
    • Track hit rate of COT-based signals
    • Monitor lead/lag relationship between positions and price
    • Regularly recalibrate thresholds based on performance

7. Advanced COT Analysis Techniques

Statistical Analysis Methods

  1. Z-Score Analysis
    • Definition: Standardized measure of position extremes
    • Calculation: Z-score = (Current Net Position - Average Net Position) / Standard Deviation
    • Application: Identify positions that are statistically extreme
    • Example: Gold commercials with Z-score below -2.0 often mark potential bottoms
  2. Percentile Ranking
    • Definition: Position ranking relative to historical range
    • Calculation: Current position's percentile within 1-3 year history
    • Application: More robust than Z-scores for non-normal distributions
    • Example: Natural gas managed money in 90th+ percentile often precedes price reversals
  3. Rate-of-Change Analysis
    • Definition: Speed of position changes rather than absolute levels
    • Calculation: Weekly RoC = (Current Position - Previous Position) / Previous Position
    • Application: Identify unusual accumulation or liquidation
    • Example: Crude oil swap dealers increasing positions by >10% in a week often signals institutional flows

Multi-Market Analysis

  1. Intermarket COT Correlations
    • Approach: Analyze relationships between related commodity positions
    • Implementation: Create correlation matrices of trader positions across markets
    • Example: Gold/silver commercial positioning correlation breakdown can signal sector rotation
  2. Currency Impact Assessment
    • Approach: Analyze COT data in currency futures alongside commodities
    • Implementation: Track correlations between USD positioning and commodity positioning
    • Example: Extreme USD short positioning often coincides with commodity long positioning
  3. Cross-Asset Confirmation
    • Approach: Verify commodity COT signals with related equity or bond positioning
    • Implementation: Compare energy COT data with energy equity positioning
    • Example: Divergence between oil futures positioning and energy equity positioning can signal sector disconnects

Machine Learning Applications

  1. Pattern Recognition Models
    • Approach: Train models to identify historical COT patterns preceding price moves
    • Implementation: Use classification algorithms to categorize current positioning
    • Example: Random forest models predicting 4-week price direction based on COT features
  2. Clustering Analysis
    • Approach: Group historical COT data to identify common positioning regimes
    • Implementation: K-means clustering of multi-dimensional COT data
    • Example: Identifying whether current gold positioning resembles bull or bear market regimes
  3. Predictive Modeling
    • Approach: Create forecasting models for future price movements
    • Implementation: Regression models using COT variables as features
    • Example: LSTM networks predicting natural gas price volatility from COT positioning trends

Advanced Visualization Techniques

  1. COT Heat Maps
    • Description: Color-coded visualization of position extremes across markets
    • Application: Quickly identify markets with extreme positioning
    • Example: Heat map showing all commodity markets with positioning in 90th+ percentile
  2. Positioning Clock
    • Description: Circular visualization showing position cycle status
    • Application: Track position cycles within commodities
    • Example: Natural gas positioning clock showing seasonal accumulation patterns
  3. 3D Surface Charts
    • Description: Three-dimensional view of positions, price, and time
    • Application: Identify complex patterns not visible in 2D
    • Example: Surface chart showing commercial crude oil hedger response to price changes over time

8. Limitations and Considerations

Reporting Limitations

  1. Timing Delays
    • Issue: Data reflects positions as of Tuesday, released Friday
    • Impact: Significant market moves can occur between reporting and release
    • Mitigation: Combine with real-time market indicators
  2. Classification Ambiguities
    • Issue: Some traders could fit in multiple categories
    • Impact: Classification may not perfectly reflect true market structure
    • Mitigation: Focus on trends rather than absolute values
  3. Threshold Limitations
    • Issue: Only positions above reporting thresholds are included
    • Impact: Incomplete picture of market, especially for smaller commodities
    • Mitigation: Consider non-reportable positions as context

Interpretational Challenges

  1. Correlation vs. Causation
    • Issue: Position changes may reflect rather than cause price moves
    • Impact: Following positioning blindly can lead to false signals
    • Mitigation: Use COT as confirmation rather than primary signal
  2. Structural Market Changes
    • Issue: Market participant behavior evolves over time
    • Impact: Historical relationships may break down
    • Mitigation: Use adaptive lookback periods and recalibrate regularly
  3. Options Positions Not Included
    • Issue: Standard COT reports exclude options positions
    • Impact: Incomplete view of market exposure, especially for hedgers
    • Mitigation: Consider using COT-CIT Supplemental reports for context
  4. Exchange-Specific Coverage
    • Issue: Reports cover only U.S. exchanges
    • Impact: Incomplete picture for globally traded commodities
    • Mitigation: Consider parallel data from other exchanges where available

Common Misinterpretations

  1. Assuming Commercials Are Always Right
    • Misconception: Commercial positions always lead price
    • Reality: Commercials can be wrong on timing and magnitude
    • Better approach: Look for confirmation across multiple signals
  2. Ignoring Position Size Context
    • Misconception: Absolute position changes are what matter
    • Reality: Position changes relative to open interest provide better context
    • Better approach: Normalize position changes by total open interest
  3. Over-Relying on Historical Patterns
    • Misconception: Historical extremes will always work the same way
    • Reality: Market regimes change, affecting positioning impact
    • Better approach: Adjust expectations based on current volatility regime
  4. Neglecting Fundamental Context
    • Misconception: COT data is sufficient standalone
    • Reality: Positioning often responds to fundamental catalysts
    • Better approach: Integrate COT analysis with supply/demand factors

Integration into Trading Workflow

  1. Weekly Analysis Routine
    • Friday: Review new COT data upon release
    • Weekend: Comprehensive analysis and strategy adjustments
    • Monday: Implement new positions based on findings
  2. Framework for Position Decisions
    • Primary signal: Identify extremes in relevant trader categories
    • Confirmation: Check for divergences with price action
    • Context: Consider fundamental backdrop
    • Execution: Define entry, target, and stop parameters
  3. Documentation Process
    • Track all COT-based signals in trading journal
    • Record hit/miss rate and profitability
    • Note market conditions where signals work best/worst
  4. Continuous Improvement
    • Regular backtest of signal performance
    • Adjustment of thresholds based on market conditions
    • Integration of new data sources as available

Case Studies: Practical Applications

  1. Natural Gas Winter Strategy
    • Setup: Monitor commercial positioning ahead of withdrawal season
    • Signal: Commercial net long position > 70th percentile
    • Implementation: Long exposure with technical price confirmation
    • Historical performance: Positive expectancy during 2015-2023 period
  2. Gold Price Reversal Strategy
    • Setup: Watch for extreme managed money positioning
    • Signal: Managed money net short position > 85th percentile historically
    • Implementation: Contrarian long position with tiered entry
    • Risk management: Stop loss at recent swing point
  3. Crude Oil Price Collapse Warning System
    • Setup: Monitor producer hedging acceleration
    • Signal: Producer short positions increasing by >10% over 4 weeks
    • Implementation: Reduce long exposure or implement hedging strategies
    • Application: Successfully flagged risk periods in 2014, 2018, and 2022

By utilizing these resources and implementing the strategies outlined in this guide, natural resource investors and traders can gain valuable insights from COT data to enhance their market analysis and decision-making processes.

Market Sell
Based on the latest 13 weeks of non-commercial positioning data.
📊 COT Sentiment Analysis Guide

This guide helps traders understand how to interpret Commitments of Traders (COT) reports to generate potential Buy, Sell, or Neutral signals using market positioning data.

🧠 How It Works
  • Recent Trend Detection: Tracks net position and rate of change (ROC) over the last 13 weeks.
  • Overbought/Oversold Check: Compares current net positions to a 1-year range using percentiles.
  • Strength Confirmation: Validates if long or short positions are dominant enough for a signal.
✅ Signal Criteria
Condition Signal
Net ↑ for 13+ weeks AND ROC ↑ for 13+ weeks AND strong long dominance Buy
Net ↓ for 13+ weeks AND ROC ↓ for 13+ weeks AND strong short dominance Sell
Net in top 20% of 1-year range AND net uptrend ≥ 3 Neutral (Overbought)
Net in bottom 20% of 1-year range AND net downtrend ≥ 3 Neutral (Oversold)
None of the above conditions met Neutral
🧭 Trader Tips
  • Trend traders: Follow Buy/Sell signals when all trend and strength conditions align.
  • Contrarian traders: Use Neutral (Overbought/Oversold) flags to anticipate reversals.
  • Swing traders: Use sentiment as a filter to increase trade confidence.
Example:
Net positions rising, strong long dominance, in top 20% of historical range.
Result: Neutral (Overbought) — uptrend may be too crowded.
  • COT data is delayed (released on Friday, based on Tuesday's positions) - it's not real-time.
  • Combine with price action, FVG, liquidity, or technical indicators for best results.
  • Use percentile filters to avoid buying at extreme highs or selling at extreme lows.

Okay, let's craft a comprehensive trading strategy for Steel-HRC (Hot-Rolled Coil Steel) based on the Commitment of Traders (COT) report, geared towards both retail traders and market investors.

I. Understanding the STEEL-HRC Market & COT Report

  • The Asset (STEEL-HRC): Hot-Rolled Coil Steel is a basic steel product used extensively in manufacturing, construction, automotive, and other industries. Its price is sensitive to global economic activity, infrastructure spending, and raw material costs (iron ore, coal).

  • Market Exchange (COMMODITY EXCHANGE INC.): This is the exchange where the STEEL-HRC futures contracts are traded. Understanding the specific contract specifications (delivery location, grade of steel, etc.) is essential.

  • CFTC Market Code (CMX): Identifies the market in the CFTC's reporting.

  • Contract Unit: 20 Short Tons (This dictates the size of each futures contract, affecting margin requirements and potential profit/loss).

  • The COT Report: A Key Tool

    • The COT report is published weekly by the Commodity Futures Trading Commission (CFTC). It breaks down the positions held by different categories of traders in the futures market. It is released every Friday, and the data is current up to the previous Tuesday.
    • Key Trader Categories:
      • Commercials (Hedgers): These are producers and consumers of steel. They use futures to hedge against price fluctuations in their actual business operations (e.g., a steel mill hedging against a drop in steel prices). They are usually considered "informed" traders.
      • Non-Commercials (Large Speculators): These are large entities like hedge funds, money managers, and other institutional investors. They trade futures for profit, based on their view of market trends.
      • Retail Traders (Small Speculators): This category encompasses smaller, individual traders who trade for speculative purposes. Their collective positions can still influence the market.

  • Types of COT Reports:

    • Legacy Report: The traditional format, separating traders into Commercial and Non-Commercial.
    • Disaggregated Report: Provides a more granular breakdown of Non-Commercials into categories like Managed Money (hedge funds), Swap Dealers, and Other Reportables. This can offer deeper insights.
    • TFF (Traders in Financial Futures) Report: Not directly relevant to STEEL-HRC, as it focuses on financial instruments.

II. Trading Strategy Based on the COT Report

This strategy blends COT analysis with technical analysis and fundamental considerations.

  1. Data Acquisition & Preparation:

    • Source: Obtain the COT report data. The CFTC website is the official source. There are also numerous financial websites that present the data in a more easily digestible format (e.g., Barchart, TradingView).
    • Report Type: Start with the Disaggregated report for a more detailed view of speculator positioning.
    • Data Cleaning/Formatting: Download the data into a spreadsheet (Excel, Google Sheets) or a trading platform that can import COT data. Calculate the following:
      • Net Positions: Long positions - Short positions for each trader category (Commercials, Managed Money, Swap Dealers, Other Reportables, Retail).
      • Changes in Net Positions: Compare the current week's net position to the previous week's.
      • Percentage of Open Interest: Calculate the percentage of total open interest held by each group.
      • COT Index: This involves calculating the range of net positions for each group over a specific period (e.g., 52 weeks) and normalizing the current net position to a value between 0 and 100. This helps visualize how extreme current positioning is relative to its historical range.

  2. COT Signal Generation:

    • Commercials as a Leading Indicator:
      • Bullish Signal: When Commercials are heavily net long (or significantly decreasing their net short position), it may suggest that they anticipate higher steel prices (because they want to lock in input costs). This is especially true when the COT Index for the Commercials is high.
      • Bearish Signal: When Commercials are heavily net short (or significantly decreasing their net long position), it may suggest that they anticipate lower steel prices. This is especially true when the COT Index for the Commercials is low.
      • Confirmation: Confirm this signal with trends in the steel prices. If commercials are increasing their long position but the price action does not reflect this sentiment, consider this signal with caution.
    • Non-Commercial Sentiment:
      • Extreme Positioning: Look for situations where Non-Commercials (especially Managed Money) are at historically high or low net long/short positions. This can indicate potential for a reversal. The COT index is crucial here. High COT index shows extreme long position and vice versa.
      • Trend Following: In a strong uptrend in steel prices, confirm the trend with Non-Commercials increasing their net long positions. If they start to decrease their longs (or increase shorts) while the price is still rising, it could signal a weakening trend and potential correction.
      • Divergence: A divergence occurs when price action doesn't correlate to the movement of a spec group's position. For example, if price is trending downward but the non-commercials are increasing their long position, this could be a bullish divergence.
    • Retail Traders (Cautionary Indicator):
      • Retail traders are often considered to be on the wrong side of the market. Pay attention to their positioning, but use it cautiously.
      • Contrarian Signal: If retail traders are heavily net long, it might suggest an overbought condition and a potential for a price decline (and vice-versa).

  3. Technical Analysis Confirmation:

    • Trend Lines: Identify the prevailing trend in STEEL-HRC prices on a price chart.
    • Support and Resistance Levels: Pinpoint key support and resistance levels where price is likely to find buying or selling pressure.
    • Candlestick Patterns: Look for reversal patterns (e.g., engulfing patterns, doji patterns) near support/resistance levels.
    • Moving Averages: Use moving averages (e.g., 50-day, 200-day) to confirm the trend direction.
    • Momentum Indicators: Use RSI (Relative Strength Index) or MACD (Moving Average Convergence Divergence) to gauge overbought/oversold conditions and identify potential divergences.

  4. Fundamental Analysis Overlay:

    • Economic Indicators: Track key economic indicators like GDP growth, manufacturing PMI (Purchasing Managers' Index), and construction spending. Strong economic growth generally translates to higher steel demand.
    • Infrastructure Spending: Government infrastructure projects can significantly impact steel demand.
    • Raw Material Prices: Monitor the prices of iron ore, coal, and scrap metal, as these are major inputs for steel production.
    • Steel Production & Inventory Levels: Pay attention to steel production data and inventory reports. Rising inventories can put downward pressure on prices.
    • Trade Policies: Trade policies (tariffs, quotas) can significantly impact the flow of steel and influence prices.

  5. Trade Execution and Risk Management:

    • Entry Points:
      • Long Entry: Look for a confluence of signals: Commercials increasing net long positions, Non-Commercials confirming the trend, a bullish candlestick pattern near a support level, and positive fundamental news.
      • Short Entry: Look for a confluence of signals: Commercials increasing net short positions, Non-Commercials at extreme long positions (potential for reversal), a bearish candlestick pattern near a resistance level, and negative fundamental news.
    • Stop-Loss Orders: Place stop-loss orders to limit your potential losses. The placement of the stop-loss depends on your risk tolerance and the volatility of the market. Consider placing it below a recent swing low (for long positions) or above a recent swing high (for short positions).
    • Take-Profit Orders: Set take-profit orders at predetermined levels based on technical analysis (e.g., near a resistance level for long positions, near a support level for short positions) or based on your profit target.
    • Position Sizing: Carefully determine your position size based on your risk tolerance and account size. Do not risk more than a small percentage (e.g., 1-2%) of your capital on any single trade.
    • Leverage: Be very cautious with leverage. STEEL-HRC can be volatile, and excessive leverage can amplify both your profits and your losses.
    • Trade Management: Be prepared to adjust your stop-loss and take-profit levels as the market moves. Consider using a trailing stop to lock in profits.

III. Example Trade Scenario:

  1. Scenario: You observe that steel prices have been trending upward for several weeks.
  2. COT Analysis: You notice that Commercials have been steadily increasing their net long positions over the past few weeks, and the COT index is high (above 70). Managed Money (hedge funds) are also holding significant net long positions, confirming the trend.
  3. Technical Analysis: The price has broken above a key resistance level and is trading above the 50-day and 200-day moving averages. The RSI is not yet in overbought territory.
  4. Fundamental Analysis: The latest economic data shows strong growth in the manufacturing sector and increased infrastructure spending.
  5. Trade: Based on this confluence of signals, you decide to enter a long position in STEEL-HRC futures. You place a stop-loss order below the recent swing low and a take-profit order near the next resistance level.
  6. Monitoring: You continue to monitor the market and the COT report. If the Commercials start to decrease their net long positions or the price starts to show signs of weakness, you will consider reducing your position or exiting the trade.

IV. Important Considerations:

  • Lag Time: The COT report is released with a three-day lag. Market conditions can change significantly in that time.
  • Correlation, Not Causation: The COT report provides insights into trader positioning, but it does not guarantee future price movements. It's correlation, not causation.
  • Open Interest: Pay attention to open interest. A rising open interest generally validates a trend, while a declining open interest might signal a weakening trend.
  • Market Liquidity: STEEL-HRC futures may have lower liquidity than some other commodity futures contracts. Be mindful of slippage and wider bid-ask spreads.
  • Continuous Learning: The market is constantly evolving. Stay up-to-date on the latest news, economic data, and trading techniques.

V. Adapting the Strategy for Different Trader Types:

  • Retail Trader: Focus on the overall trends in the COT report and use technical analysis to pinpoint entry and exit points. Be conservative with leverage and prioritize risk management.
  • Market Investor: Take a longer-term view and use the COT report to identify potential long-term trends. Consider building a diversified portfolio of commodity futures contracts.

VI. Disclaimer:

This is for educational purposes only. Trading commodities involves risk of loss. You should carefully consider your financial situation and risk tolerance before trading. Always consult with a qualified financial advisor before making any investment decisions.