As part of my weekly forex trading review, I look towards sentiment data.

For me this includes the Commitment of Trader reports, identifying where the commercials, large speculators and non-reportable are positioned.

What am I trying to identify?

Extremes.

An extreme occurs when a position held by any one of the above entities is weighted too heavily on one side.

Think of it like a rubber band.

You can keep stretching the rubber band, but eventually under extreme pressure it can snap.

Similarly, if large speculators like hedge funds hold an extreme long or short position in each market, it can become unbalanced, and the market ‘snaps back’ or reverses.

Let’s look at some of the extremes.

The price of EURO futures or EURUSD to us retail traders, has skyrocketed since the beginning of the year.

This is largely due to:

As time goes on and this narrative remains, positioning begins to become heavily weighted in one direction.

For this instance, it is weighted to the buyside for large speculators and non-reportable, and to the sell side for commercials (as they hedge the markets).

The chart below represents the non-reportable category of the reports. This category often jumps on trends a little later than large speculators and can increase positions heavily at the end of a trend.

The down arrows represent where long contracts reach extremes by the non-reportable. The up arrows represent where short contracts reach extremes by the non-reportable.

You may notice that this can lead to a reversal in price.

Why? Because they tend to be overleveraged at the wrong time.

Now let’s look at the large speculators.

They are in the market to make money, but they also end up reaching extremes.

As of right now, large speculators are approaching a previous extreme that formed on the 2^nd September last year.

The price on this event fell from the highs of 1.1200 to the lows of 1.0200.

This time the price is trading much higher near the 1.1700.

Whilst clear resistance on EURUSD sits at 1.1700 the next extreme resistance isn’t until 1.2200.

So, if price does start to stall here then we could expect a reversal soon.

Silver has been my best performing asset this year.

I have only lost 1 out of my 12 trades on silver.

The gold/silver ratio chart has been a big help to me when it comes to identifying when to buy silver.

But also knowing when to get out using the CoT reports has also helped.

The chart above shows us how the large speculators seem to take profit on their positions when their long contracts reach a level between 60-70k.

I say take profits as the overall trend of silver has been up.

Could the same happen this time?

If it does it means we could see the price of silver fall back to levels of support such as $34.00, which are the highs before the recent breakout.

Remember the CoT reports are not great at timing, but they can help us with our approach to the markets, especially if we can combine them with other fundamentals and tools.