COT: Strategy Results

CtrlAltDaveLargeExecution is everything.

Jeff Bridges

Retail traders sat at home, or professional traders sat in a shiny office of a top tier Investment Bank. They have the same question for any new product. Does it make any money?

I learned early on in my own career that all demonstrations to traders must make money. The technology was just a means to an end, making money was all-important, even if on a simulated account in a tightly controlled demonstration situation. It made them happier.

We have discussed the Commitment of Traders many times, and even wrote a book on it. If you have not already done so, please take some time to read that because I will soon jump to some backtests.

There are some available resources online, such as timingcharts.com/ and www.myfxbook.com/commitments-of-traders. And does it make any money?

Actually, no. Simply because there is no method to backtest strategies based on these charts, or import these numbers into your preferred execution platform to place live orders. Of course, I do know of a good solution to this problem.

These online resources only show the net position. However, I find the normalised figures easier to use which are called Strength in our indicator. I’m also using our flexible MultiSystem to easily customise the settings. Let’s fire it up on just a daily time frame, since 2008 and mini-lots. I’ve chosen four important instruments while avoiding some currencies that are strongly governed by a Central Bank. Never trade against a Central Bank, they play by their own rules.

cotmulti - strength crossover reported

Great, we’re already in the money for a basic crossover. Sadly, this is quite unfair because we are backtesting using data which would not have been available at the time of the trade. Please see my previous article for further details on this.

cotmulti - strength crossover released

Here, we’re still in the money but just not quite as much as before and we have only just begun. Basic Strength crossover waits for commercials to cross above or below non-commercials. The crossover will typically occur at 50, which is half way on our normalised scale.

But perhaps waiting for a stronger signal to confirm the trade setup would be more profitable. So, a quick optimisation later to experiment with other levels, and 45/55 makes 50% more money.

cotmulti - strength threshold

Clearly two of these instruments perform better than the other two. When considering putting this live, especially with limited funds, it would make sense to concentrate on these instruments only.

So, back to my original key question, does it make money? Well, actually, yes it does.

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