Follow the Smart Money / COT Analysis

This is a discussion on Follow the Smart Money / COT Analysis within the Futures & Options forums, part of the Markets category; Originally Posted by MacroStyle The information within the report is relevant but because its used by the majority of major ...

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Old Aug 9, 2012, 12:02pm   #33
Joined May 2012
Re: Follow the Smart Money / COT Analysis

Quote:
Originally Posted by MacroStyle View Post
The information within the report is relevant but because its used by the majority of major market particiants i have never found it that useful in terms of actual trading.

I have previously used the data in the following way:

(Large spec longs - large spec shorts) / open interest then normalised over a 5 year period using a percentile method. The idea being to call tops and bottoms when specs are max long or short.

I made a spreadsheet a few years that feeds all the data in from bloomberg and does the calcs for all the contracts.
Hi Macrostyle,
Would be kind enough to post a screen shot of your excel sheet for me to get a better understanding.
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Old Aug 9, 2012, 12:11pm   #34
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Re: Follow the Smart Money / COT Analysis

A second thought if you are interested in market positioning and sentiment I do find EPFR fund flow data and the Daily Sentiment Index survey data quite useful although you do have to pay for both of these.

Fund Flow data because EPFR cover the majority of retail investment funds and provide daily subscription and redemption data and monthly sector allocation data. I have found this alot more useful when trying to work out what 'real money' is doing.

The Daily Sentiment Index is a daily survey of locals on the exchange and it covers most futures in the US and on European exchanges. I find it a good approximation of 'fast money' and because it is a daily survey indicates sentiment more quickly and accutately than the COT report.

I work for a Hedge Fund so have subscriptions to both services, not sure how much its cost. Probably too much for retail guys unforunately...
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Old Aug 9, 2012, 1:42pm   #35
Joined Nov 2010
Re: Follow the Smart Money / COT Analysis

Couldn't find the original sheet so I have attached an example for S&P E-mini. It uses a Bloomberg feed so if you don't have a terminal its not gonna update.
Attached Files
File Type: xlsx COT Example.xlsx (33.3 KB, 356 views)
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Old Aug 9, 2012, 1:53pm   #36
Joined Oct 2003
Re: Follow the Smart Money / COT Analysis

Thanks for your posts regarding this topic.

I have follwed the COT in the past but due to the nature and delay of receiving this information it is still difficult to obtain any specific type of edge.

My take on it was that if the non coms (speculators) were trading at extremes the theory would be that they would have to sell if they were at long extremes (and vice versa) . I was looking at ratios of around 3:1 on a weekly basis.

The main problem with this is that you would need to have pretty wide stops in order to try and develop an effective trading plan.

Could you give an indication what your TP targets and stops are?

Thanks

Mick
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Old Aug 9, 2012, 3:00pm   #37
Joined Jul 2012
Re: Follow the Smart Money / COT Analysis

Dunstan started this thread Hi MacroStyle,

Thank you for the more detailed explanation on why you find the report not as useful.

The tools I’m using are provided by a service that I’ve been using for over 8 month now. I haven’t found anything similar elsewhere yet and unfortunately I do not have the capabilities or experience to prepare such a system on my own, so I was really glad to find it. Before, I just looked at the COT charts, but with the Analysis table at COTbase I can easily find great signals.

You said that you basically used only the COT data of the Large Speculators, but I think that in this way you were “covering an eye”. I believe that looking at also Small Speculators and Commercial participants would show you the full picture.

The Daily Sentiment Index that you mentioned sounds interesting but as I see it, it concentrates on Large Speculators, while the COT report shows you the positions of all “players”. It would be nice to know how this Sentiment Index is prepared, what input data is required.


Hi mik1973,

The COT report comes out weekly now, but it used to come out only every two weeks and before that only on a monthly basis. I hope that this trend will continue and maybe one day we shall have daily COT reports.

It is true, that the COT report serves much better those traders, who trade on a longer time-horizon, for more active traders who might trade intraday the report might not have such a value.

In general you are right, that purely on COT report based trades one might have to use wider stops. I think this is the case at extremes, for example in the Wheat market that I mentioned earlier. Although we are at close to All Time Extreme levels, the COT charts could easily widen more for a few weeks, so it isn’t that easy. For the Cocoa example, where it was the COT change size that was significant you could take a closer stop, since the signal should take effect sooner.

I would rather not go into more detail now, how I would enter/exit a trade, use stops etc… cause than I would be narrowing down the usage of COT analysis to a specific strategy that I use. As I have said it a couple of times before, I urge anyone interested in the report to try to implement it in their own system and see whether it would produce better results overall.

I know it might be a disappointment to some of you seeking system recommendations from me that I don’t provide any, but my goal with the thread was purely to introduce the report and some analysis tools on it to those who have never heard about it before (read post #10). Of course anyone who wishes to share their system using the COT report is free to do so and I’m willing to discuss any specific trading opportunities one brings, of course from the perspective of the COT report.

I hope you won’t lose interest in my thread just because I’m not giving live calls and I hope that the examples I’m bringing should “ring the bell” when seeing them… It should be quite obvious that my two last examples from the recent COT report could be considered valuable signals that one might see as an opportunity to trade…
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Old Aug 9, 2012, 4:52pm   #38
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Re: Follow the Smart Money / COT Analysis

Thanks for the reply- will be following this thread with interest.


Mick
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Old Aug 9, 2012, 6:11pm   #39
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Re: Follow the Smart Money / COT Analysis

Dunstan started this thread Great news Mick!

See you around,
Dunstan
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Old Aug 9, 2012, 9:53pm   #40
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Re: Follow the Smart Money / COT Analysis

Dunstan

The DSI can be found on Jake Bernstein on Futures, the site doesn't look very professional but the data is pretty widely used (I was put on to it by a Merrill Lynch research report).

I focused on the large speculators because the other two groups (small spec and commercial) usually just have the opposite position. Which makes sense because by definition the overall position across all three groups has to be flat.
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