Two Important Economic Indicators Traders Should Know


Most investors say: ‘Don’t take risks.’ The rich investor takes risks.
Robert  Kiyosaki

This article is the first in a series of three.  The series which can only be read at FX Trader Magazine will explain why only a small minority of traders consistently make money at the expense of the vast majority. It does this by analyzing important but overlooked and misunderstood indicators and applies them to a number of different asset classes. The article also assesses the psychology of how to trade a series of higher lows.

COT: Commitment of Traders Report.

This is a weekly report issued every Friday by the Commodity Futures Trading Commission collating the holdings of participants in various futures markets. COT is extremely useful in analyzing flow of capital over the medium term in the FX markets. It should therefore be used by retail traders, the majority of whom trade FX.

A good example of this currently is the Canadian Dollar. On Chart 1 we see that whilst both large speculators are holding net short positions close to a rolling 52 week high and small speculators are also short, clever money traded by the big commercial organizations and the small group of elite traders hold net long positions virtually at 52 week highs. This indicates that clever money continues to buy into every fall and that over the medium term the Canadian Dollar will prove to be a stellar performer.


Analyzing COT for currencies can also help point the way for other asset classes. As an example current COT readings for the major commodity backed currencies including the AUD and NZD paint a similar picture to that of the CAN$. This helps reinforce our current bullish stance on the precious metals and copper.