Summary of what you'll learn in the article below:
- The Commitment of Traders Report tells you what the Professionals are doing. In the Report they are classified as 'Commercials'.
- If you trade Eminis don't follow the Emini (ES) Commercials. Instead follow the "full-size" contract (SP) Commercials. Back-testing shows they are a more reliable indicator of market direction.
- TradeStation doesn't have Commitment of Traders data built-in to their data feed. The best solution is to use a manually updated lookup function (free code).
- The Professionals have been short the market before every stock market crash from 1987 onwards. A simple Crash Warning indicator in included in the free code.
- If you don't have time to analyze the Commitment of Traders Report every week then subscribe to this site's free newsletter.
If you want the FREE Commitment of Traders Excel spreadsheet, TradeStation EasyLanguage code and text versions of the indicators go to the bottom of this page.
Commitment of Traders – Video 1
Commitment of Traders – Video 2
What is the Commitment of Traders Report?
Commitment of Traders: Raw Data from CFTC
The Commitment of Traders (COT) Report breaks down open interest for all traded futures contracts into long and short positions by type of player. The people to follow most closely are the large, professional traders or 'Commercials'. They are considered the "smart money" and can give you valuable clues as to future market direction.
The Commitment of Traders data is collected weekly after the close on Tuesday and the Commitment of Traders Report is published after the close on Friday. You can find the weekly Reports on the CFTC (Commodity Futures Trading Commission) website in text and spreadsheet formats. I use the 'Compressed – Futures Only Report' in Excel format.
Once you've downloaded and unzipped the Excel spreadsheet, the raw data looks like the screenshot above. I'll show you how to manipulate the data to generate trading signals, but before that we have to decide which Commitment of Traders data to use!
Which Commitment of Traders Data Should You Use?
| All | SP | ES | Large | Mini | |
| Profit | $38k | $62k | $5k | $46k | $25k |
| Profit Factor | 2.43 | 2.44 | 1.06 | 1.92 | 1.38 |
| No. Trades | 37 | 53 | 76 | 65 | 71 |
| % Profitable | 57% | 62% | 43% | 59% | 56% |
| Avg. Trade | $1,033 | $1,161 | $65 | $708 | $352 |
| Trade Drawdown | $10k | $11k | $8k | $10k | $15k |
| Max Drawdown | $29k | $29k | $37k | $24k | $26k |
Commitment of Traders: System Results Trading 1 Emini Contract
If you're an Emini trader you've got 5 Commitment of Traders data choices:
- Obviously data for the Emini (ES)
- Data for the large S&P500 contract (SP)
- Combined data for all the "mini" contracts (Emini, mini-Dow, mini-NASDAQ, etc.)
- Combined data for all the "full-size" contracts (S&P500, Dow, NASDAQ, etc.)
- Combined data for all indices (Emini, S&P500, mini-Dow, Dow, mini-NASDAQ, NASDAQ, etc.)
The Commitment of Traders data can be combined across different contracts by weighting the long/short open interest by the margin required to trade each different contract.
Using a simple system that goes long when the 'Commercials' are net long and short when the 'Commercials' are net short we can see which Commitment of Traders data is best – directionally at least. The results, trading 1 Emini contract between Sept. 1997 and Jan. 2008, are shown in the summary table above.
First of all, the absolute worst data to use trading the Emini is the Emini COT data. The Profit Factor is 1.06 (break even) and percent profitable is only 43%. Combining the other "mini" contracts helps a little (Profit Factor 1.38, percent profitable 56%) but we can do better.
The best data to use is the large S&P500 contract (SP). The Profit Factor is 2.44 and percent profitable 62%, while draw down results are no worse than the other data choices. Although the Profit Factor of using all indices is close to the large contract (2.43) the other metrics are worse – total profit is less and percent profitable is lower.
Follow this link to an updated analysis of ES versus SP Commitment of Traders data.
Using Commitment of Traders Data with TradeStation
Commitment of Traders: Better COT Indicator
The Commitment of Traders data is not included in TradeStation's built-in data feed. Therefore, to build COT indicators and trading systems the COT data has to be imported – and I do this using a lookup function that is manually updated each week.
The chart above illustrates a basic Commitment of Traders indicator – the Better COT indicator – plotted on a weekly chart of the Emini. The cyan histogram shows the large contract (SP) 'Commercials' net position. This was +2.5% of total open interest (i.e. long) for the last week of May 2008.
The red line shows the difference between the large contract 'Commercials' (the "true" professionals) and the small contract 'Commercials' (Emini). When the red line is rising the large contract professionals are becoming more bullish than the small contract professionals. You'll notice that this often gives advanced warning of turning points.
To update this Emini trading indicator this is what I do each week:
- Take the original CFTC spreadsheet and delete all markets except Dow, Dow Emini, S&P500, S&P500 Emini, NASDAQ, NASDAQ Emini, Russell, Russell Emini, S&P400 and S&P400 Emini
- Then delete all columns except market, report date, open interest, commercial long and commercial short
- Copy the remaining data into a spreadsheet that calculates net positions (i.e. long minus short) as a percentage of open interest and adjusts by margin requirements for combined (e.g. all "mini") contracts
- Copy the TradeStation EasyLanguage formulaes that this spreadsheet generates into the COT data lookup functions and verify
The screenshots below show the COT analysis spreadsheet, one of the TradeStation EasyLanguage functions and the Better COT indicator. Note the indicator can plot any one of the COT data functions (ES, SP, Large contracts, "Mini" contracts, etc.). To lean more, watch the video above that shows the updating process in real time.
Commitment of Traders: Analysis Spreadsheet
Commitment of Traders: TradeStation EasyLanguage Function (SP)
Commitment of Traders: TradeStation EasyLanguage Indicator
Commitment of Traders and Stock Market Crashes
Commitment of Traders: Stock Market Crash 1987
See more stock market crash screenshots here
To illustrate the power of knowing what the 'Commercials' or Professional traders are doing I've developed a simple stock market crash warning indicator. For the warning indicator to signal the following sequence of events needs to take place:
- The stock market makes a new 52 week high while the 'Commercials' are net long
- The 'Commercials' flip from net long to net short
- A "Warning" signal is printed on the chart
- The signal is confirmed once the market drops 10% from the high
Simple, but very effective. Check out the chart above that shows Black Monday in 1987. Note that the Commitment of Traders data was only published every fortnight back in 1987. The link above will take you to similar charts for 1997, 1998, 1999, 2000, 2007 and 2008.
Trading the Emini with the Commitment of Traders Report
Commitment of Traders: Better COT Oscillator
Follow this link to an updated analysis of the Commitment of Traders and Professional hedging versus trend following.
In using the Commitment of Traders Report to trade I have found the most useful signals come from:
- Understanding whether the 'Commercials' are net long or net short
- Watching for large weekly jumps in the 'Commercials' activity, and
- Comparing the Emini trend direction with the trend direction of the 'Commercials'
To achieve this last point I've developed a proprietary indicator, called the Better COT Oscillator. The chart above shows the Oscillator on a weekly chart of the Emini. As you can see it trakcs market swings nicely. The cyan and red dots on the weekly Emini bars are superimposed after the Oscillator crosses the zero line to mark the high or low point of each swing.
Through back-tested I have found that the best Commitment of Traders data to use with this Oscillator is the combined COT data for all "full-size" contracts. The overall shape of the Commitment of Traders Oscillator did not change markedly between using the SP contract and all large contracts. But the signals at a couple of important market turning points were superior using the combined "full-size" COT data.
Again, results from using the Emini COT data (or all "mini" sized contracts) were disappointing. To see results of this test follow this Commitment of Traders link.
What People Are Saying About the Commitment of Traders Oscillator
“I tested all the different combinations and found that your method of futures only, all large contracts and net % had the best profit factor. I was really impressed because this tested better than Steve Briese's method and he is known as "the" COT expert. Your COT Oscillator is so simple, it's ingenious!” Michael M.
You now have all the tools to keep track of the 'Commercials' yourself. Just visit the CFTC website each week, download the latest data and update the Excel spreadsheet and indicators. Alternatively, I publish the updated Commitment of Traders charts at the end of every week. Make sure you subscribe to the free website updates.
Follow this link to read over 50 previous weekly Commitment of Traders analyses.
Click on the button below to download the FREE Commitment of Traders Excel spreadsheet, TradeStation EasyLanguage code and text versions of the indicators.
