High-Conviction Trading

In the TASC September issue, Alfred Tagher presented a new indicator based on the Commitment Of Traders (COT) report. This report is available on the NASDAQ website. It is released weekly by the Commodities Futures Trading Commission and reflects the activities of various groups of commercial and noncommercial traders. Evaluating this report allows trading systems to automatically follow the “smart money”.

The Zorro platform offers indicators for evaluating the COT report, under the names COT_CommercialIndex and COT_CommercialPos. This makes the conversion of the author’s EasyLanguage code very simple, since not much needs to be converted. A small test script for the COT based indicators:

void run()
{
   StartDate = 2020;
   EndDate = 2023;
   BarPeriod = 1440;
   PlotHeight2 = PlotHeight1;
   set(PLOTNOW);

   assetAdd("GOLD","YAHOO:GC=F");
   asset("GOLD");
   string COT_Code = "088691"; // gold COT report
   var ComNet = COT_CommercialPos(1,COT_Code);
   plot("Net Commercial",ComNet,NEW,RED);
   var COTCI = COT_CommercialIndex(1,COT_Code,26);
   plot("COT Index",COTCI,NEW,BLUE);
}

This script uses the net positions of commercial traders – in the COT report, that’s the fields “Producer/Merchant/Processor/User” and “Money Manager” – and applies a normalization filter. The indicators access the COT report from NASDAQ.

The resulting chart with GOLD futures:

The red line is the net value hold by commercial market participants, the blue line is the net positions normalized in a 26-week period to the 0..100 range. It can be used for a trading system that enters a long or short position when the line exceeds an upper or lower threshold. I will leave this as an exercise to the reader. The above script can be downloaded from the 2023 script repository.