A Cautionary Note For Nonprofessional Trader

By Daniel at 15 November, 2009, 3:04 pm

Friday night, my COT (Commitment of Traders) system gave a “SELL” signal. The system is still in its infancy and I’d like to have more data to gain a bit more confidence with it. Also, no refinements such as “stop losses” or “trailing stops” have been made as yet. So I guess you could say it’s in a “raw state”. This is a weekly system, primarily because the COT data only gets published once a week. The data gets published around 4:00 on Friday. Mind you, the data is a little “stale” by the time it’s published. The most recent report, for example, came out on Friday the 13th but the positions reported are as of Tuesday the 9th. If a buy or sell (short) signal is generated, you open the trade before the close in the futures market at 4:15 and you close it out 1 week later (again…no “stops” yet) unless the same signal is generated, in which case you continue holding that same trade open. With almost 3 years worth of data now (going back to January 2007), it has a pretty impressive track record. Some of the stats are below.

28 Total trades
22 Wins
6 Losses
78.6% Win/Loss ratio
584.0 Points net profit (S&P Futures)
Average win is 33.85 points
Average loss is 26.79 points.

The last two trade signals were put on the boards here…in real time…..not after the fact. The “sell” signal on 10/23 generated a 44 point profit in the S&P futures. The “buy” signal on 11/6 was closed out Friday night for a 25 point profit. I also put a timely “sell” signal out there back in June based on the COT data (some may remember….WARNING! WARNING!)

I throw this out to everyone not as a suggestion for a trade…but more as a cautionary note. The system has a decent track record so far and it’s flashing a “SELL” signal on the S&P futures (and the market follows the futures). So it may not be the best time to start adding to your long positions and you may want to tighten up your stops on existing positions, but then again, maybe not. You may want to short the market…but then again, maybe not.

The COT system is an anticipatory system based on the underlying volume activity of the “big boys” in the futures market. Price action is not a factor in the COT trade signals (until you open a trade….then it’s a major factor