Hello,
I've heard much mentioned about the us of COT data as an indicator of future price action. People quote COT figures claiming "Commercials adding Longs", interest increasing, etc. as an arguement to short or long a particular pair. Looking at some of the charts presented it does look intriguing.
Like all traders I'm looking for an edge so I decided to investigate the correlation between the COT data and the following weeks price. As I understand the COT data is provided every Friday for the positions held the previous Tuesday by the Commercial, Non-Commercials, and Small Traders. The arguement is that the position held by the Commercials or "smart money" will indicate the future direction.
For now I looked at the GBP/USD pair and using about 560 weeks of data I compared the following weeks difference between open and close price against the overall position held by the Commercials. The results were less than satisfactory. It appears the position held by the "Commercials" were only correct a little over 50% of the time in determining following weeks price. Here's some of the work i did:
COT Study for GBPUSD
I also compared the weekly pivot, high/low average and the numbers where only slightly better. I also compared the delta between previous weeks position, I evaluated the prices only when positions increased a certain % and again the results again were only about 50%.
I'm inclined to say the COT data lags so much or only provides a snapshot of the current positions that it can not effectively be used as an indicator of future price.
Any thoughts?
cb