Originally Posted by
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I began using COT way back but did not actually understand what it meant until I read Larry Willi. He is an expert in COT reports.
Anyway, combining price action with COT has been really profitable for me. These trades generally last longer, generate a lot of pips (usually I get 500 pips) and I only look at daily, weekly and monthly charts.
Basically you wish to listen when both the advertisements and small speculators are in extreme and opposite positions. I exit the big speculators because generally they're trend followers. We wish to get into a trend right when it begins and get out when it ends. Open interest is discretionary but could be used to determine the strength of this trend. If the advertisements are extremely short and take 70% of positions you know a major trend change is coming so watch for change price action patterns.
Make it more easy, COTs are used for choosing market tops/bottoms, price action for entrance. I use a really wide stop loss, usually 200 pips or continue swing low, sometimes I don't use stop loss at all if I'm really, really certain.
This is actually difficult to explain in words so I will put up some charts so that you guys can better understand just how this works. Make sure you check out James16's chart thread to learn the basics of price action before you proceed.
Eventually I thank James16 because of his excellent thread on PA and of course Larry Willi because of his enlightenment on COTs.
Pictures will be posted soon.