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Comprehensive Guide to Trading with Commitment of Traders (CoT): Strategies, Analysis, and Backtesting

This article provides a complete guide to using Commitment of Traders (CoT) reports in trading. CoT is a weekly report published by the Commodity Futures Trading Commission (CFTC) that reveals trading positions from various trader categories in commodity futures and forex markets.


Here's a summary of the article's content:

  1. 1. What is CoT (Commitment of Traders)?

    • CoT is a weekly report containing information about trading positions of market participants in the United States.
    • The report covers aggregate trading positions of all contracts involving more than 20 traders in commodity futures and forex markets.

  2. 2. Types of CoT Reports:

    • Legacy: Primary report breaking down open interest positions into non-commercial and commercial traders.
    • Supplemental: Displays 13 specific agricultural commodity contracts.
    • Disaggregated: Grouped by sector, such as agriculture, oil, natural gas, etc.
    • Traders in Financial Futures (TFF): Focuses on financial contracts like currencies, stocks, and indices.

  3. 3. How to Use CoT for Trading:

    • CoT is used to determine market sentiment direction by analyzing trading positions of large and small traders.
    • Small traders are considered to have less influence compared to large traders.
    • CoT data can be an indicator of price movements but should be used wisely and combined with other market analysis.

  4. 4. Trading Strategies Using CoT Reports:

    • Traders believe CoT can provide insights into "smart money" in the market.
    • Example strategy using TFF CoT report, focusing on Dealer and Asset Managers' positions.
    • Strategy involves buy signals when the number of Dealer long positions increases and short positions decrease, and vice versa.

  5. 5. How to Backtest Strategies with CoT Reports:

    • Tools used include MQL5-based Expert Advisors (EA) to read CoT data.
    • Backtesting conducted on major currency pairs from 2014 to 2021 with fixed position sizes.
    • Backtest results show significant variations in profits and losses among strategies and currency pairs.

  6. 6. Key Points to Note:

    • Profitable strategies are not always consistent, and backtesting should be done carefully.
    • The publication of CoT reports can sometimes be delayed or postponed, and traders need to take this into account.

While CoT can provide valuable insights, it should not be relied upon as the sole factor in trading decision-making. Trading strategies using CoT need to be carefully considered and thoroughly tested before implementation.

This article provides an in-depth understanding of using CoT reports in trading, warns about some risks, and highlights backtest results to give readers a clear overview.

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