In regards to market positioning; the question being why some of this data is so relevant when the market is by definition always square (for every buyer there’s a seller). The relevant information that we need to look at is what the speculative community is doing. Corporate flows are one-way only and some Sovereign and real-money flows tend to be very long term as well.
Speculative flows are much more short-term and we know that these positions will be closed out sooner rather than later. That doesn’t mean that a market cannot go up just because the speccies are long but it does mean that if the corporate/Sovereign/real-money flows are tending one-way and the speccies are heavily leaning the other way, the speccies are likely to get hurt. When we see the commitment of trader’s reports or even better still the retail market’s positioning, this tells us primarily how the speculators are set up and as such is useful information. (One word of warning, in the past there have been some serious questions asked about the reliability of the retail broker’s information and I’m not sure whether this information has improved or not in recent years).
Note that 80% of all transactions on the FOREX market have a speculative nature. It means that the organization or person trading does not intend to take a real delivery of currency and just wants to gain profits from exchange rate fluctuations, basically on intraday trades.
Source Jamie Coleman