The Regular Trader

Sunday, August 24, 2025

Dollar Index Future COT report Analysis as of 19 Aug 2025

Let's break down this Commitment of Traders (COT) report for the Dollar Index Futures (ICE U.S.) as of the week ending August 19, 2025.

Executive Summary

The market is dominated by Leveraged Funds, who hold a significant net short position. This is counterbalanced by Asset Managers/Institutions, who are the primary net long group. Dealer Intermediaries are also strongly net long, which is a typical hedging activity. Overall, the positioning suggests a market where speculative players (Leveraged Funds) are betting against the dollar index, while institutional and dealer players are taking the other side of that trade.

Detailed Analysis by Trader Group

Here’s a breakdown of what each group is doing and what it typically signifies:

1. Dealer Intermediaries

Position: Net Long.
Long Positions: 9,625 (33.3% of Open Interest)
Short Positions: 177 (0.6% of Open Interest)
Analysis: This group is overwhelmingly net long. Dealers are often market makers and hedgers. Their massive long position suggests they are providing liquidity to the market by taking the other side of trades from players who want to be short (like Leveraged Funds). This is a common and expected pattern.

2. Asset Manager / Institutional

Position: Net Short.
Long Positions: 2,075 (7.2% of OI)
Short Positions: 7,722 (26.7% of OI)
Analysis: This group holds a substantial net short position. Institutional investors often use the Dollar Index for macro hedging or directional bets. Their significant net short position indicates a broad institutional expectation that the U.S. Dollar will weaken against the basket of currencies in the index.

3. Leveraged Funds (e.g., Hedge Funds, CTAs)

Position: Net Short.
Long Positions: 8,676 (30.0% of OI)
Short Positions: 12,483 (43.2% of OI)
Analysis: This is the most important group for gauging speculative sentiment. They hold the largest gross short position of any group and are decisively net short. This shows that the speculative community is heavily betting on a decline in the Dollar Index. The change in their positions (the number below, e.g., +1,881 for their short positions) suggests they increased their net short exposure during the reporting week.

4. Other Reportables

Position: Net Short.
Long Positions: 1,757 (6.1% of OI)
Short Positions: 2,679 (9.3% of OI)
Analysis: This mixed group of large traders who don't fit the other categories is also net short, aligning with the overall bearish speculative sentiment.

5. Nonreportable Positions (Small Speculators)

Position: Net Long.
Long Positions: 4,046 (14.0% of OI)
Short Positions: 3,118 (10.8% of OI)
Analysis: Small retail traders are net long. Often considered a contrarian indicator, this net long positioning from the "crowd" against the net short positioning of large speculators (Leveraged Funds) can sometimes signal that the prevailing trend (down) might have further to go.

Key Takeaways and Market Implications

Clear Divergence: There is a clear battle between two major forces:
- The Speculators (Net Short): Leveraged Funds are aggressively short.
- The Institutions & Dealers (Net Long): Asset Managers and, especially, Dealers are providing the long-side liquidity.
Bearish Speculative Bias: The overwhelming net short position from Leveraged Funds is a strong bearish signal for the Dollar Index in the short term. This group tends to be trend-following, so this suggests the recent price trend has been down, and they are betting on its continuation.
Contrarian Warning Sign? Extremely one-sided positions can sometimes be a contrarian indicator at major turning points. If the market stops falling and begins to rise, these large short speculators could be forced to buy back contracts to cover their losses (a "short squeeze"), which would fuel a sharp rally. For now, the pressure is to the downside.
Strength of the Move: The large number of traders in the Leveraged Funds category (25 traders short vs. 23 long) indicates the bearish view is broad-based, not just concentrated in a few large funds. This can give the downtrend more sustainability.

In summary, this COT report paints a picture of a market with heavy speculative short interest betting against the U.S. Dollar Index, with institutional and dealer players on the other side. The dominant force for the immediate future is the bearish sentiment from Leveraged Funds.

What Is Drawndown in Forex Trading?

The market doesn’t move in a straight line. As you trade, you will experience gains and losses, and moments when the market rises and falls. The value of your account, too, will rise and fall according to market prices and your trading strategies. When you’re trading in Forex, it’s therefore not just about how much money you can make: it’s also about how much money you can lose. That’s where drawdown comes in.

What is a drawdown?

A drawdown is the percentage difference between the highest value of an investment, and the following lowest point before the value recovers. Drawdowns are used in Forex trading to assess the performance and risk of different trading strategies

In a drawdown, the time it takes a price to recover from the drop, if it ever does, is just as important as how far it dropped. It isn’t a loss unless the trader sells the investment at a loss.

Drawdowns are normal. Traders hold on to their investment and wait for it to recover and become profitable.

Key concepts of a drawdown

To understand what a drawdown is, it’s important to know a few key concepts.

The peak is the highest value of an asset or a trader’s investment over a specific period. If you’re looking at a chart, this would look like the peak of a mountain.

The trough is the lowest value of an asset or investment following the peak, before bouncing back and reaching a new high.

The percentage of a drawdown is the percentage by which the asset or investment has dropped from its peak to its trough.

The recovery is the period of time following the trough, during which the asset or investment recovers and returns to its previous peak.

The expansion is the new rise that follows the recovery, when the asset or investment continues to move past the old peak towards a new one.

Drawdown can be floating or fixed. Floating drawdown refers to unrealized losses from positions that are still open and haven’t been closed yet. If a trader holds on to these positions, they have the possibility of moving back up into positive territory. Fixed drawdown refers to realized losses from positions that have been closed. This money is lost forever because the assets have been sold at a loss.

Types of drawdown

Maximum drawdown refers to the biggest drop an account has ever experienced before bouncing back and recovering. It shows the worst that can happen. The bigger the drop is, the riskier the investment is, and the more money you can potentially lose. If you’re using leverage or trading for the long term, maximum drawdown can tell you how much pain you’d need to sit through before recovering.

Average drawdown is the average of all the dips over time and gives investors a sense of how often their account dips and how low those dips usually go. If in the last six months, a trader’s account experienced a few small drawdowns of 10%, 12%, 8%, and 14%, the average drawdown would be around 11%.

The Calmar Ratio is not a drawdown, but it uses a drawdown to check how much return you are getting per year in exchange for the amount of risk you take. It compares how much profit you made in a year to the biggest drop, or maximum drawdown, your investment experienced. For example, if your investment made 15% in one year, but at one point during the year dropped 5%, the Calmar Ratio would be 3 (15 divided by 5). A higher Calmar Ratio means you're making more money with less risk. Using this is a quick way to see how efficient your strategy is in terms of making money,and in terms of risk.

Example of a drawdown in Forex

Suppose a trader buys the EURUSD pair at 1.1000. The price then rises to 1.2000 before dropping to 1.0000. After hitting 1.0000, it climbs back up to 1.2000 again. The price never goes below 1.0000 during that period, so in this case, the peak was 1.2000 and the trough was 1.0000.

The drawdown is the drop from the peak, or highest point, to the trough, or lowest point. The drawdown from 1.2000 to 1.000 is 16.67%.

Even though the stock had a 16.67% drawdown, however, the trader didn’t actually lose 16.67%. They bought at 1.1000, so their unrealized loss at the bottom of 1.0000 was just 100 pips, not 200.

Drawdown is how far the price dropped from its highest point, not how much the trader personally lost. How much they lost depends on when they entered the trade.

Afterwards, if the price climbs to a new peak of 1.3000, drops to 1.2000, and then bounces back up to 1.3000 again, you have a drawdown of 7.69%. Each time the stock hits a new high and then dips, that’s a new drawdown.

Risks of drawdowns

One of the tricky things about drawdowns is that the bigger the drop, the harder it is to get back to where you were. For example, if your Forex account drops by 5%, you only need about a 5.26% gain to break even. But if it falls by 40%, you need a 67% gain just to get back to the starting point. The bigger the fall, the steeper the climb.

That’s why a lot of traders get worried when they see a big drop. Imagine someone’s account goes from $6000 down to $3600. That’s a 40% loss. It’s easy to feel stressed and want to pull out to avoid losing more money.

But if you don’t need the money right away, it might be better to wait. During the pandemic in 2020, the market dropped hard on some days, sometimes over 7%. Many people sold out of fear. But those who stayed in saw their accounts bounce back big time. Over the next year or two, some even grew by 50% or more.

Drawdowns can be tough and mess with your head. But if your strategy makes sense and you don’t have to sell, hanging in there and riding the wave usually pays off in the long run. Remember, it’s only a real loss if you sell when things are down.

Why are drawdowns important?

Drawdowns are a normal part of investing and will happen even with the most successful strategies. Keeping this in mind can help traders keep a cool head and manage their emotions when encountering losses or when the market peaks and reverses. If you look at the history of the S&P 500, you’ll see that it experienced many drawdowns. Long-term, however, it always ended up recovering and expanding.

Drawdowns can also be used to measure risk and performance related to portfolios and trading strategies. You can decide whether the amount of risk you’re taking is worth the gains you’re making, leading to better management of your money. You can compare different strategies and their respective drawdowns to find the one that works best for you.

Knowing the average drawdown of a particular strategy can help traders identify levels at which to set their stop-loss orders to limit potential losses. Just because a stop-loss gets triggered doesn’t mean the strategy doesn’t work. You just want the strategy to be profitable more times than it is unprofitable.

Why wait? – Analyzing the Power of Patience

Have you ever found yourself making statements like,

“I’ve got to make some money today.”
“I’ve got to get in this trade.”
“I’ve got to make a move.”
“I need to find some action.”

Is any of this sounding familiar?

For a lot of traders the urge to ‘get in the game’ can be overwhelming. An even more powerful urge can be watching a trade you are in go sideways and wanting to DO something about it. For minutes, hours even days you must sit and wait for the market to either move in your favor, or worse, against you. During such times a traders internal dialoged can be going crazy as he or she struggles with what to do.

You see, we must DO something right? If we’re just sitting at our computer and nothing is happening we must be doing something wrong….right? If there is no action in our trade that means we’re missing the action somewhere else doesn’t it?

Many, many traders get involved in FOREX with dreams of quitting their job, working from home and possibly making more money than they ever thought possible. We can encapsulate all of these ambitions into one simple desire, freedom. Freedom from a job that require us to keep regular hours. Freedom from a boss who tells us what to do and how to do it. Freedom from the fear of losing that job and having nothing. And most of all, freedom from financial stress.

The idea of ‘calling your own shots’ and ‘making your own rules’ is enticing to most traders. We are free thinkers, tend to be fairly risk tolerant, and tend to view money as a tool rather than a commodity. That’s why it might be strange to learn that these same traits can be extremely detrimental to your account balance.

You see, trading (when done correctly) can be quite boring. Sure working in the pits on an exchange or on a high risk trading floor can be exhilarating, but there is nothing exciting about watching your trade move sideways for minutes, hours or days. It takes a great deal of discipline to trade your system day in and day out. Trading requires you to be unemotional. Nothing kills an account quicker than an ego.

But these traits fly in direct opposition to our stated goal….freedom. When we fix ourselves to a set of rules and conditions we MUST follow, we are no longer free. Discretion (read ego) must be set aside. How many of you have purchased a trading system or EA only to second guess it at every turn? The desire to add your own bit of ‘human element’ (read ego) undoubtedly led to loss after loss. Maybe the system was junk to begin with, but how could you really know?

Another heavy contributor to our desire to trade comes from this concept of “time for dollars”. For many of you, trading is not your first carrier. It certainly wasn’t mine. Some of you have spent 10, 15 even 20 years in a carrier before moving into trading. For a large chunk of your adult life you equated ‘hours worked’ to ‘dollars paid’. The overwhelming desire to trade often comes from that unreasonable expectation that we must DO something in order to EARN our paycheck. We MUST trade. Because if we simply sit in our chair and watch the market without trading we have not EARED any money.

Traders, we are not in the ‘got to make money’ business. Our compensation is not determined by how many trades we take, or how long we spend in front of the computer screen. We are PAID (if you must use that term) for our discipline and sound decision making. This means that some weeks we’ll make nothing. On occasion we will lose money. But over time we are profitable because we have a plan we know works and we have the discipline to follow it.

People who have run businesses have an easier time understanding this than those that have not. You see, when you run a business there are days, weeks, even months when you won’t make one penny. You may spend 18 hours a day trying to build that business into something great only to see those efforts lost in the result. If we stop thinking in terms of Hours Worked = Dollars Paid we can shift our focus and our expectations from one of, “I have to trade.” To something more profitable like, “I have got to stay disciplined.”

Ask yourself a simple question today. Do I have an urge to trade because of some unreasonable expectation I have been putting on myself? If the answer is yes there are some simple things you can do to refocus your goals and change your beliefs. You have already begun to ask yourself more empowering questions, so you are one step closer to discovering more empowering answers.