Check this page often for updated tables showing the latest signals for my trading setups based on the Commitments of Traders reports and my backtesting results. For more info on how all this works, visit my "Intro to COT" and "How It Works" pages.
Ed Bugos, a gold contact mentioned in the Agora Financial5 Minute Forecast sent out today, says the Commercials are usually wrong in their gold positions. He supplied a chart to back up his findings.
Thanks for your message. I'm glad you asked. You raise an important larger question that has long stumped folks when they look at the COTs data. Lots of people think that the mere fact that traders are net short is a bearish signal, while being net long is a bullish signal.
What's often misunderstood is that those traders may stay at net short or net long positions for many years. For example, the commercial gold traders have been net short since 2001, as the chart you mention suggests. Does this mean they've been wrong that whole time? Does it mean we should fade them every time they're net short?
I don't think so. A closer look at the COTs data, as I mention elsewhere on this blog, shows that we have to find the appropriate past time frame for comparing the traders' current position. In other words, it's important to see where the commercial traders or large specs stand in relation to the recent past. Are they relatively more net short than they've been recently?
Using such methods, we come up with the results in the table on this page for gold and the other setups I follow. I invite you to read more about how this works at the "How It Works" page. As well, you may easily create your own chart for the gold COTs data using the information I supply on this blog and see for yourself.
Another common approach for some analysts is to focus on the futures-only COTs data. (That's what the chart you mention is based on.) I've found it's almost always more effective to study the complete futures-and-options data.
One additional point about statistics: the chart you mention appears to have generated five long and short trades since 1986. I don't know how statistically valid a system like this would be with just five trades, if these were the sole signals for trades.
In my system, I need at least 10 trades to have even the theoretical potential of statistical validity, and usually at least 15 or 20 trades to have a decent confidence level.
I think wat is written says same thing twice for long and short. Could you please explain.
"It goes long when the large speculator net percentage-of-open-interest position is -1.2 standard deviations below its five-week moving average or above. It sells gold short when the net position is -1.2 or more standard deviations below its five-week moving average. "
i know how to obtain the COT Large Spec Net Position
But i do not know how to calculate that "net percentage-of-open-interest position is -1.2 standard deviations below its five-week moving average or above"
Most grateful if you could kindly explain to me how i could creat a Excel table to do that.
Or do you have already done that and which link i could open that.
Thanks for your message. The net percentage-of-open-interest position is the net position as a percentage of the total open interest for that week. The long percentage position for large specs is in column AW and the short percentage position is in column AX.
Subtract AX from AW to arrive at the net position, then use the formula in the spreadsheet on my DIY page for SPX to arrive at the Standard Deviation Value of the net percentage position for each week.
What software are you using to find/backtest your COT setups.
tradestation ? last I heard they dont accept account from canadians anymore and are charging to get access to the software. been trying to find an alternative.
Also what software are you using to view Demark setup/sequential count and TDST lines ? Im guessing you do not have a bloomberg terminal.
Backtesting is done partly with proprietary software and partly in Excel. For more on the procedure, check my FAQs page. I chart the DeMark indicators manually myself in StockCharts.
I would very much appreciate it if you could recommend what you feel is the most realistic book on Technical Analysis you have read up to date.
I am struggling to become profitable in the futures markets and I find that the most common indicators utilized, such as Stochastics, RSI, etc., don't seem to have much predictive value and produce a steady stream of losses.
I have recently become intrigued by COT analysis and am reading my second book on this subject. The first one by Larry Williams and the second by Stephen Briese.
After reviewing your blog I have come to the conclusion I have a long road ahead of me as I struggle to develop a profitable positive expectancy trading system.
The problem with basic technical indicators, in my opinion, is they do not work and are not backtested for the most part. David Aronson's book, Evidence-Based Technical Analysis, is a great read on this issue. He found virtually none of the thousands of indicators tested produced robust results. Some more advanced systems could work, but they seem to rely on combinations of indicators that are usually proprietary. I learned a lot from that book.
I also have learned an immense amount about technical analysis from Stephen Vita's paid site Alchemy of Trading (also available for free in truncated form). And any book about Tom DeMark's technical indicators is also very illuminating, including Rob Perl's recent DeMark Indicators. Of all the indicators, I find TDST support and resistance lines to be very useful - they're used extensively by Vita. Good luck!
It might also help you to check out my FAQs page for more info on the backtesting process I developed based on Aronson's book and other books cited there.
10 comments:
Ed Bugos, a gold contact mentioned in the Agora Financial5 Minute Forecast sent out today, says the Commercials are usually wrong in their gold positions. He supplied a chart to back up his findings.
Any comments?
Alan
Hi Alan,
Thanks for your message. I'm glad you asked. You raise an important larger question that has long stumped folks when they look at the COTs data. Lots of people think that the mere fact that traders are net short is a bearish signal, while being net long is a bullish signal.
What's often misunderstood is that those traders may stay at net short or net long positions for many years. For example, the commercial gold traders have been net short since 2001, as the chart you mention suggests. Does this mean they've been wrong that whole time? Does it mean we should fade them every time they're net short?
I don't think so. A closer look at the COTs data, as I mention elsewhere on this blog, shows that we have to find the appropriate past time frame for comparing the traders' current position. In other words, it's important to see where the commercial traders or large specs stand in relation to the recent past. Are they relatively more net short than they've been recently?
Using such methods, we come up with the results in the table on this page for gold and the other setups I follow. I invite you to read more about how this works at the "How It Works" page. As well, you may easily create your own chart for the gold COTs data using the information I supply on this blog and see for yourself.
Another common approach for some analysts is to focus on the futures-only COTs data. (That's what the chart you mention is based on.) I've found it's almost always more effective to study the complete futures-and-options data.
One additional point about statistics: the chart you mention appears to have generated five long and short trades since 1986. I don't know how statistically valid a system like this would be with just five trades, if these were the sole signals for trades.
In my system, I need at least 10 trades to have even the theoretical potential of statistical validity, and usually at least 15 or 20 trades to have a decent confidence level.
Regards,
Alex
I think wat is written says same thing twice for long and short. Could you please explain.
"It goes long when the large speculator net percentage-of-open-interest position is -1.2 standard deviations below its five-week moving average or above. It sells gold short when the net position is -1.2 or more standard deviations below its five-week moving average. "
ur COT method is just wonderful.
i know how to obtain the COT Large Spec Net Position
But i do not know how to calculate
that "net percentage-of-open-interest position is -1.2 standard deviations below its five-week moving average or above"
Most grateful if you could kindly
explain to me how i could creat
a Excel table to do that.
Or do you have already done that
and which link i could open that.
Million thx!
Hi Profit With Options,
Thanks for your message. The net percentage-of-open-interest position is the net position as a percentage of the total open interest for that week. The long percentage position for large specs is in column AW and the short percentage position is in column AX.
Subtract AX from AW to arrive at the net position, then use the formula in the spreadsheet on my DIY page for SPX to arrive at the Standard Deviation Value of the net percentage position for each week.
Regards,
Alex
Hi
Thanks for the blog.
What software are you using to find/backtest your COT setups.
tradestation ? last I heard they dont accept account from canadians anymore and are charging to get access to the software. been trying to find an alternative.
Also what software are you using to view Demark setup/sequential count and TDST lines ? Im guessing you do not have a bloomberg terminal.
Thanks for the info.
Hi QEW,
Backtesting is done partly with proprietary software and partly in Excel. For more on the procedure, check my FAQs page. I chart the DeMark indicators manually myself in StockCharts.
Regards,
Alex
I would very much appreciate it if you could recommend what you feel is the most realistic book on Technical Analysis you have read up to date.
I am struggling to become profitable in the futures markets and I find that the most common indicators utilized, such as Stochastics, RSI, etc., don't seem to have much predictive value and produce a steady stream of losses.
I have recently become intrigued by COT analysis and am reading my second book on this subject. The first one by Larry Williams and the second by Stephen Briese.
After reviewing your blog I have come to the conclusion I have a long road ahead of me as I struggle to develop a profitable positive expectancy trading system.
I would appreciate any comments you might have.
Florentino
Hi Florentino,
The problem with basic technical indicators, in my opinion, is they do not work and are not backtested for the most part. David Aronson's book, Evidence-Based Technical Analysis, is a great read on this issue. He found virtually none of the thousands of indicators tested produced robust results. Some more advanced systems could work, but they seem to rely on combinations of indicators that are usually proprietary. I learned a lot from that book.
I also have learned an immense amount about technical analysis from Stephen Vita's paid site Alchemy of Trading (also available for free in truncated form). And any book about Tom DeMark's technical indicators is also very illuminating, including Rob Perl's recent DeMark Indicators. Of all the indicators, I find TDST support and resistance lines to be very useful - they're used extensively by Vita. Good luck!
Regards,
Alex
Hi again Florentino,
It might also help you to check out my FAQs page for more info on the backtesting process I developed based on Aronson's book and other books cited there.
Regards,
Alex
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