I plan to research few trading strategies based on Commitments of Traders data. Any beliefs (positive or negative) about these concepts? Did anyone try to systematize it?

Bill Rafter writes:

Many have researched the Commitments of Traders Reports. If you really want to pursue this I suggest you go into B-school libraries and review titles of unpublished theses for tips. There is little of value to be found in the "popular" literature.

When researching be mindful that you relate the positions both to the market tradedate-wise to test for significance, as well as relating them to the market releasedate-wise for your profitability. One guy who sells CoT data gets this distinction horribly wrong. Collect your own data.

Most researchers tend to focus on identifying the winners by group, and following them. I would posit that the winners vary by group and are less consistent than you would like. Instead, I suggest that you identify losers by group. You will find much greater consistency with regard to losers.

Anecdote: I used to study the CoT for non-obvious trading opportunities. Once I found a situation where the Large Specs had gone from short to long over one reporting period, while the non-reporters (i.e. small traders) had gone from long to short at the same time. [N.B. little guys tend to do poorly on the short side.] This was in the Oats market, which I generally ignored. The Large Hedgers had not changed significantly. Also, from the reporting date to the release date there had been no market movement. I then called everyone I knew with grain knowledge but learned nothing. (It's important to look for orthogonal information.) Sadly I did not know Jeff at the time. What the hell, I bought a lot of Oats and put on even more Oat spreads (long the near). Within the next month Oats and their spreads moved significantly, giving me a great year, new car, etc. And I never learned the reason for the market's move.


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