| MAY 1990
Commitments of Traders as a sentiment indicator By Stephen E. Briese
Commitments of Traders as a sentiment indicator By Stephen E. Briese In the past, conventional market sentiment indicators have been criticized for deficiencies such as the delay involved in reading market letters, weighing their content, estimating their influence on public traders and publishing the results. Also criticized has been the lack of precision (and potential conflict) in polling short-term investors such as pit traders and in projecting public trader market positions from a poll of market gurus, especially given the growing reliance on personal computers. I designed the Commitments of Traders (C.O.T.) Index to address some of these deficiencies. Because an accurate survey necessitates some time delay, I have concentrated on the longest time frame trader — the large commercial hedger. These market insiders are required to report their actual market positions daily to the Commodity Futures Trading Commission (CFTC). Using actual market positions eliminates the margin of error inherent in the polling process and accounts for traders who don't follow trading advisors. Of course there are tradeoffs but, as will be shown, these are not fatal. The CFTC reports actual trader positions only once a month. While this frequency is less than optimum, the quality of the data more than compensates for this inconvenience.
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