COT: Accurate Backtesting

CtrlAltDaveLargeIn theory, there is no difference between theory and practice. In practice, there is.

Yogi Berra

Accurate backtesting is essential while developing new strategies. Hardly an original concept, but sometimes key properties of the source information are overlooked.

In this case, the standard schedule for the Commitment of Traders (COT) is that the data is reported on Tuesdays and released on Fridays. This three day delay is so often overlooked. Any system running in real time would have to wait until Friday, approximately 15:30 EST, for the release of the data. However, while backtesting, the COT data itself is dated for the Tuesday, effectively New York close, and thus any trades would be made three days before they actually could have been. All COT charts that you see, like the frequently used TimingCharts.com are based on the reported day, Tuesday, not the released day.

Clearly, the overlords here at Littlefish FX wanted a time machine. Fortunately, I was able to distract them by adding functionality to the COT Indicator to switch between these date systems.

$EURUSD (Daily)  28_01_2013 - 01_07_2013 - COT Daily Reported $EURUSD (Daily)  28_01_2013 - 01_07_2013 COT Daily Released

This does have a large effect on the backtests, but the COT data can still be traded profitably. This is just a basic crossover strategy to highlight the difference, starting from 2008 when the world changed. Otherwise known as the period that I personally call, freedom.

Based on Reported Data (Tuesday)
Based on Reported Data (Tuesday)
Based on Released Data (Friday)
Based on Released Data (Friday)