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. 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. 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. 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. 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. 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. 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.
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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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