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[Oluti]

As you would’ve guessed, ideal places to go long and short are those times when sentiment is at an extreme.

If you noticed from the previous example, the speculators (green line) and commercials (blue line) gave opposite signals. While hedgers buy when the market is bottoming, speculators sell as the price moves down.

Here’s that COT report chart again:


Hedgers are bearish when the market moves to the top while speculators are bullish when the price is climbing.

As a result, speculative positioning indicates trend direction while commercial positioning could signal reversals.

If hedgers keep increasing their long positions while speculators increase their short positions, a market bottom could be in sight.

If hedgers keep adding more short positions while speculators keep adding more long positions, a market top could occur.

Of course, it’s difficult to determine the exact point where a sentiment extreme will occur so it might be best to do nothing until signs of an actual reversal are seen.

We could say that speculators, because they follow the trend, catch most of the move BUT are wrong on turning points.

Commercial traders, on the other hand, miss most of the trend EXCEPT when price reverses.

Until a sentiment extreme occurs, it would be best to go with the speculators.

The basic rule is this: every market top or bottom is accompanied by a sentiment extreme, but not every sentiment extreme results in a market top or bottom.

 

[lioralace]

Sentiment Extremes & COT Reports: The Real Trader Cheat Sheet

Alright, let’s just cut the crap: everyone talks about “timing the market,” but half those folks are just praying for dumb luck. Want a real edge? It’s not about some magic moving average or guessing when the next influencer’s going to pump Dogecoin—it’s about understanding who’s actually behind the trades, which is what the COT report is all about.

So what’s the deal with this COT thing? Picture a backstage pass at a casino—except instead of blackjack tables, you’ve got commercial hedgers on one side and wild speculators on the other. The commercials? Old boring companies hedging their wheat or whatever, just trying not to get wrecked if prices swing. Speculators are the hot shots—funds, whales, big egos—piling in when there’s blood in the water. They’re trend chasers, momentum junkies. And when the crowd starts stampeding one way? You better believe it's showing up in the COT numbers.

Here’s where it gets juicy: When speculators keep shoving more chips into the pot, that’s usually good news for trend followers. Go with the herd—until that herd is literally dangling off a cliff. Because right at those extremes, speculators have this hilarious habit of being completely overexposed. The market reverses, and they’re the ones left holding the bag (sorry, not sorry).

Meanwhile, commercials are basically the grownups—sure, they’re not chasing trends or scoring flashy returns, but damn, do they smell a turning point. If you notice commercials quietly loading up on longs near the bottom or stacking shorts near the top, start paying attention! They might not always nail the timing, but when they bet big, you want to listen.

But let’s get something straight: Just because everyone’s crowded on one side doesn’t mean you dive in the opposite and become a genius overnight. Extremes don’t immediately lead to reversals. Most reversals start with sentiment extremes, though. So… patience, grasshopper.

TL;DR? Wait for proof, not just hope. Watch that price action like a hawk—reversal candles, wobbly trends, failed breakouts, that kind of thing. Marry the sentiment info with some common sense technicals. Until you see the whites of the reversal’s eyes, ride the trend and let the speculators pull you along. But the minute commercials and speculators are playing tug-of-war and the rope’s about to snap, get ready. That’s when the fun starts.

Bottom line: The COT report? It’s less about crystal-balling tops and bottoms, more about spotting when the party’s getting out of hand—and being smart enough to grab the last slice of pizza before it’s gone.