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[Oluti]

Having your very own COT indicator is like having your own pony.

Using the COT report can be quite useful as a tool for spotting potential reversals in the market.

There’s one problem though, we cannot simply look at the absolute figures printed on the COT report and say, “Aha, it looks like the market has hit an extreme… I will short and buy myself 10,000,000 pairs of socks with my easy profits.”

Determining extremes can be difficult because the net long and short positions are not all relevant. What may have been an extreme level five years ago may no longer be an extreme level this year. How do you deal with this problem?

What you want to do is create an index that will help you gauge whether the markets are at extreme levels. Below is a step-by-step process on how to create this index.

Decide how long of a period we want to cover. The more values we input into the index, the less sentiment extreme signals we will receive, but the more reliable it will be. Having less input values will result in more signals, although it might lead to more false positives.
Calculate the difference between the positions of large speculators and commercial traders for each week.


The formula for calculating this difference is:

Difference = Net position of Large Speculators – Net position of Commercials

Take note that if large speculators are extremely long, this would imply that commercial traders are extremely short. This would result in a positive figure.

On the other hand, if large speculators are extremely short, that would mean that commercial traders are most likely extremely long; this would result in a negative figure.

Rank these results in ascending order, from most negative to most positive.
Assign a value of 100 to the largest number and 0 to the smallest figure


And now we have a COT indicator! This is very similar to the RSI and stochastic indicators that we’ve discussed in earlier lessons.

Once we have assigned values to each of the calculated differences, we should be alerted whenever new data inputted into the index shows an extreme: 0 or 100. This would indicate that the difference between the positions of the two groups is largest, and that a reversal may be imminent.

Remember, we are interested in knowing whether the trend is going to continue or if it is going to end. If the COT report reveals that the markets are at extreme levels, it would help pinpoint those tops and bottoms that we all love so much.

We dug around the forums and found this little gold nugget for you. Apparently you can download the COT indicator if you’re trading on an MT4 platform and you can find the link in our COT data to indicator forum thread!

 

[lioralace]

So, you wanna wade into the crazy world of trading, huh? If that’s the case, you’ve probably tripped over something called the Commitments of Traders report (COT for short). People act like it’s some kind of crystal ball for figuring out what all the big players are up to—hedge funds, commercial dudes, you name it. Some folks swear by it, use it to sniff out reversals like bloodhounds. Just one thing—the data alone won’t hand you a treasure map. You can’t just eyeball a big number and immediately go “Aha! Buy!” Run away with your loot? Yeah, good luck with that.

Here’s where stuff gets tricky: what looked “extreme” on that report back in, say, 2018, might feel kinda basic now. Markets are always changing their mood, so those old thresholds? Kinda useless as time moves on. You need to read the room, not just the numbers. So, how do you know when the market’s really at a breaking point?

Here’s the move: ditch the plain numbers and whip up your own COT indicator. I’m talking about an index—something that actually makes that mess of numbers useful, so you catch real turning points instead of false alarms. Here’s the 5-minute version on how to build one for yourself:

Step 1: Pick Your Lookback Period
First thing—decide how far back you wanna peek. Use a few years and your indicator will only go nuts at major moments (which, yeah, is more reliable, but you’ll get fewer signals). Pick a short sample and, sure, you’ll get more alerts, but some will be duds. It’s all about what you can handle—shots fired or sniper style?

Step 2: Find the Difference Between Big Shots
Every week, take the net position for the large speculators, then subtract the net position of the commercial traders. Like this:
Difference = Net Speculators – Net Commercials

Why’s this interesting? Because speculators are adrenaline junkies, usually chasing trends, and the commercials? They just want to hedge. So when speculators go way long, commercials are deep in the opposite trench. High positive number? Speculators are dominating. Negative? Commercials must see something the others don’t.

Step 3: Rank Those Differences
Now take all those numbers and line ‘em up—lowest to highest. This is like putting your kid’s school grades on the fridge, except now you know if this week’s reading is actually special, or just another Tuesday.

Step 4: Normalize, Baby
Give 100 points to the most positive number you’ve got, and 0 to the nastiest negative. Everything else fills in between. Boom. Suddenly, your raw COT numbers make sense, like RSI or stochastics, but less…boring.

So, what’s in it for you?
If that index is chilling near zero or up close to 100, it’s a signal that stuff is getting wild—positions are stretched. That’s when the market might flip, so now you’ve got a legit heads-up before everyone else wakes up.

Honestly, what makes this homemade COT index so slick is that it doesn’t really care if markets have changed. It compares things in context, not just cold numbers. It cuts through the noise (and there’s a LOT of noise out there).

If you’re messing with MetaTrader 4 (MT4), you’re in luck. Traders have already coded up these indicators, so you don’t even have to do the math yourself. Hop over to the forums (look for stuff like “COT data to indicator” threads) and you’ll find downloads, tricks, hacks—whatever you need.

Long story short? Turning that COT chaos into your own custom index gives you way better shots at spotting when the market’s on the brink. It’s like trading with your own secret cheat code. Or, I dunno, like smuggling a pony into the Kentucky Derby. Suddenly, you’ve got an edge, and edges are the whole game.

 

[kerryjoy]

I used to get completely overwhelmed when I looked at the COT report because it was just columns of numbers with no idea what to do with them. But after I created my own COT index, everything fell into place. I began identifying true turning points instead of chasing every spike. After normalizing the data and comparing speculators and commercials, I was able to obtain context in addition to numbers. When it first indicated a significant reversal before the crowd realized, I can still clearly recall it. That was the "aha" moment for me. It's like having a radar when everyone else is flying blind, so I wouldn't trade without it now.