Commitment of Traders (COT) & Following the Professionals

The Commitment of Traders (COT) report is released every Friday afternoon by the CFTC (Commodity Futures Trading Commission). It breaks down open interest into long and short positions by type of player for all traded futures. The people to follow most closely are the large, professional traders or 'Commercials'. The data requires some manipulation but the nice folks at the Commission provide text files and spreadsheets with all the raw data.

Commitment of Traders Raw Data and Adjustments

The different formats available of the Commitment of Trader reports are here. I use the 'Historical Futures Only' report in Excel format here. Once you've downloaded and unzipped, it looks like this:

Commitment Traders Download Image

If you've read any of my other posts, you'll know that the raw data is never good enough for me! I need to do several manipulations to turn it into a useful Emini indicator. This is what I do:

  1. Delete all columns except market, report date, open interest, commercial long and commercial short
  2. Delete all markets except Dow, Dow Emini, S&P500, S&P500 Emini, NASDAQ, NASDAQ Emini, Russell, Russell Emini, S&P400 and S&P400 Emini
  3. Calculate a comparable dollar value of open interest, long and short positions for each stock index using the margin required to trade each contract
  4. Add together the total open interest in dollar terms, the long positions in dollar terms and the short positions in dollar terms
  5. Calculate the net long position (i.e. long minus short) and express this as a percentage of open interest

Here's a snapshot of the spreadsheet or you can download the Excel spreadsheet here.

Commitment Traders Spreadsheet Image

TradeStation EasyLanguage Code and Indicators

To transfer the data into TradeStation to create indicators or test trading systems, I have added a column to the spreadsheet that creates a line of EasyLanguage code ('If date >= …'). This can then be copied into an EasyLanguage function as shown in the snapshot below:

Commitment Traders Function Image

Every week I copy the raw CFTC data onto an extra line in the spreadsheet and then copy the EasyLanguage code created in the spreadsheet to the bottom of the TradeStation function. It takes a couple of minutes. This EasyLanguage function (_COTALL) can then be called in an indicator or system as shown below:

Commitment Traders Indicator Image

Here's the Commitment of Traders indicator plotted on a weekly chart of the Emini. As of the week ending Friday 1 December 2006 the Commercials were net short -9.33% of total open interest across all stock indices. As you can see, at the beginning of August the Commercials were net long by the largest amount since November 2005. Since then a great 140 point rally has developed. Download the Commitment of Traders TradeStation function and indicator here.

Commitment Traders Chart Image

In testing I have found that including all 10 stock index futures (Dow, S&P, NASDAQ, Russell and S&P400 with both the big and Emini versions) smoothes out the data stream and shows turning points earlier. The chart below shows the two versions - all indices in blue, just the S&P500 in red. Not totally convincing in this chart, but there is a difference - test it! The spreadsheet above includes both versions if you're interested.

Commitment Traders Compare Image

Commitment of Traders Oscillator

In using the Commitment of Traders data to trade I have found the most useful signals come from:

  • Watching out for large weekly jumps in the Commercials activity, or
  • Comparing the Emini trend direction with the Commercials trend direction

The chart below shows an indicator I've developed using this second technique. It's labeled COT Oscillator and tracks market swings nicely. The blue and red dots on the weekly bars are superimposed after the oscillator crosses the zero line at the high or low of each swing.

Commitment Traders Oscillator Image

You now have all the tools to keep track of the Commercials yourself - just download the Excel spreadsheet plus TradeStation code and visit the CFTC website each week to update the raw data.

Alternatively, I will publish just the updated charts of the Commercial net position and COT Oscillator on this website each week. So if you want to follow the 'Smart Money' subscribe for free here.

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