The Commitment of Traders Report (COT) provides valuable information about pending changes in long-term trends. The report is only useful if you know how to understand the data it provides and how to apply it using triggers. This lesson shows you three triggers that can work very effectively with the COT commercials data.
Remember that the method described here is not a fully automatic trading system but rather a methodology. Not only does this method require some degree of judgment, but it requires patience since it attempts to capture large moves. My experience with the COT data is that it works best on all markets other than the financials (i.e., currencies, interest rate futures, and stock index markets)
As you will recall from your previous lessons, the moving average channel (MAC) is a very effective way to catch the start of a new trend. Since the COT data are issued weekly, the best time frame to use for timing triggers with the COT is weekly. Accordingly, I suggest using a weekly MAC as one of the trigger methods for the COT. How does this work? Here is a summary of the methodology
When the COT commercial’s net positions rise above the zero level, begin monitoring the weekly MAC for the given market. When the MA
C gives a buy signal on the weekly chart, you can be a buyer.
When you study charts with COT and the MAC, you will see that this combination does not catch all of the moves. Accordingly, you may want to use the accumulation/distribution moving average (ADMA) as your timing trigger. The ADMA is a simple indicator that consists of the Williams accumulation/distribution (Williams AD) with a 28-period moving average (MA) of the indicator. Note that there are several indicators called accumulation/distribution.
The one I use is the Williams AD. The timing trigger is simple. When AD goes above its MA a buy is triggered, and vice versa for a sell trigger. shows an example of the ADMA with the COT commercials data. As you can readily observe from my notations, ADMA can be used with the COT as a timing trigger.
Please take a few minutes to answer the questions below. Note that this lesson’s quiz requires more attention than some of the previous quizzes due to the fact that a degree of judgment is required when answering the questions that involve chart interpretation. Please take your time.
The popularity of day trading in stocks and futures has been a blessing for many traders, but a curse to most. I say this because day trading is a difficult road to take as a means of making profits in stocks and futures. Previously in this course, I taught you the gap trade as a possible day-trading method. This method requires very little attention. Most day-trading methods, however, require considerable attention.
Although I advise you that day trading is both time-consuming as well as difficult, there are ways in which to harness the profit potential of day trading. The 30-minute breakout method taught in this lesson will help you get the edge on day trading, but it will require the following.