COT WEEKLY TRADING STRATEGY by John Tsai 04-21-06

 
I form a new trading strategy by using COT weekly report.

This strategy develops for the reason that the full time workers who cannot wait for the setup at right time, right moment. As the result, the strategy
only open the position once a week which is at every Sunday.

Through couple tests on 2006's COT report, I realize that there is potential return by using this strategy.
 
I decide to write this idea into an eBook, and I use historical COT report as an example.

Basic information:

1. COT report comes out every Friday, but it issued at Tuesday.

2. Original site: http://www.cftc.gov/files/dea/cotarchives/
You can find current report or historical report at this page.
3. I only use the report that issue by “Chicago Mercantile Exchange”, and pick the report that include both futures and options.

Qualification of setup:

You can find the info of British Pound I post at this site: http://www.cftc.gov/files/dea/cotarchives/2006/options/deacmelof050906.htm

1. This is an example at British Pound Sterling. You can find more currency pairs in the report beside this.
2. One of the qualification is “Open Interest” must be >10,000 (****Always look for positive amount****)
This amount indicates the strength of the trend for following week.
 In this British Pound report, the total amount is 13,609. It’s qualifies for the setup.
3. In the “Non-Commercial” column, Non-Commercial Trader add 6,279 contracts into Long position.
This mean we will look for the opposite direction for entry which is short setup. (Non-Commercial trader always going opposite direction
with the market)
4. The amount that add into this position, 6,279, prefers >1,000 contracts better.

If you want to see other date of 2006 for more back test, simply change the number at the end of the link into any other Tuesday.
(For Example: Changing 050906 to 053006)

Open the Position:

1. This is the GBP/USD 1 hour chart for 5-15-06 0:00 GMT (Following Sunday). We apply the qualification from COT data for the short setup.
We identified that Non-Commercial put their money into British Pound and added the contract for Long position.
As the result, we will need to open the position for short at 5-15-06 0:00 GMT or earlier, but make sure open the position as earlier as possible at
Sunday.
2. In the picture, I attached Fibonacci ratio from the previous swing high to low and from the previous swing low to the current swing high.
Totally two sets of ratio.
3. We will need to setup the stop loss and target price at the time we open the position.
In this example, I setup the stop loss at Fibonacci extension of 127.2 on the top, and the target price at other extension of 127.2 on the bottom.
This comes out risk and profit ratio = 78 : 108 = 1 : 1.38

Conditions
1. If the range of swing high or swing low <50, switch the time frame to 4H chart and find the higher/lower swing high and swing low.
2. The perfect setup of stop loss is Fibonacci 78.6 ratio. If there is no 78.6 available for stop loss setup, try to setup the stop loss to the extension
or simply add stop loss from 50~100pips depends on the risk and profit ratio that you can accept.
3. Do not risk more then 2~3% from total capital as money management suggestion. (***very important***)
4. This is open to personal acceptance. If risk and profit ratio is less then 1 : 1, please reconsider the risk of acceptance before open the position.
(For example: risk : profit = 200 : 50 = 4 : 1)

Basically, this is the COT WEEKLY TRADING STRATEGY idea.

If there is any feedback, improvement, and further back test result, please feel free to post on the forum or email direct to me at
hungchih@hotmail.com with subject of “COT WEEKLY TRADING STRATEGY”.

THE END