If you use Commitment of Traders data in your Emini trading you’ve got 5 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 large 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 position by the margin required to trade each different contract.
I have always believed that the combined data for all index contracts is superior, because it takes all instruments into account and results in smoother data. However, recent divergence between the Commitment of Traders data and market direction has been troubling me. The market has headed down while the combined data for all indices has been positive – i.e. Professionals have been net long.
Time for some back-testing. Using a simple system that goes long when the Professionals are net long and short when the Professionals are net short we can see which Commitment of Traders data is best – directionally at least. The results surprised me! Here’s the summary, trading 1 Emini contract between Sept. 1997 and Jan. 2008.
| 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: Which Data is Best?
First of all, the absolute worst data to use trading the Emini is the Emini Commitment of Traders 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.
So that appears to clear up some confusion. However, while the Commitment of Traders data has in the past been a very reliable direction signal (i.e. long when Professionals are net long and vice versa) since mid-2003 the directional reliability has deteriorated.
I’ll continue this article next week with testing of my Commitment of Traders Oscillator on the different data sources. In the meantime here’s the latest chart, showing the Oscillator has turned up.
Commitment of Traders: Oscillator -24
Remember, 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.
