COTs Timer

Ever wonder what the smart money is doing in the markets? You don’t need to pay big bucks to find out. Just read the Commodity Futures Trading Commission’s free weekly Commitments of Traders report. The CFTC’s COT data is a Holy Grail of market info, listing trillions of dollars in positions in 200+ markets – gold, crude oil, natural gas, silver, forex, equity indexes and lots more. My trading system, which I posted about here for seven years, gave weekly trading signals based on the COT data.

Monday, 10 March 2008

Thinking About Robert Pardo's New Book

Not long ago I got a copy of The Evaluation and Optimization of Trading Strategies, Robert Pardo's revised version of his classic 1991 book on trading system development, Design, Testing and Optimization of Trading Systems. It's giving me lots of ideas on how to optimize my trading system based on the Commitments of Traders reports. I've already implemented a couple of basic concepts, like limiting testing to setups with at least 25 trades and excluding setups that use a moving average period of more than 35 to 45 weeks. (The latter is because a setup won't be reliable if it uses more than 10 percent of the available degrees of freedom based on the total weeks in the dataset.) But my main goal is to develop some walk-forward testing for my system based on Pardo's ideas. Stay tuned. Highly recommended book!

11 comments:

Anonymous said...: You should really implement an Amazon link to your book recommendations within the article. It helps me checking for more infos about the book one click away and it helps you making some cash from your site traffic. I would honestly grant you some cash for all your work.; 10 March 2008 at 14:05
Alex Roslin said...: Good idea - thanks. I'll look into it.

Regards,
Alex; 10 March 2008 at 15:25
Anonymous said...: Alex - have read some of Pardo & Art Collin's work.

Imagine they would be nervous about the widely different moving average and standard deviations you are using for the different instruments you trade.

Even if you use fixed paramter values for Comercials, another for Small Traders etc that would reduce the chance that you are just [unwittingly] backfitting / data mining.

Paul; 11 March 2008 at 19:45
Alex Roslin said...: Hi Paul,

I'm not sure. Haven't seen anything in the book so far on that score, but I'm still far from finished. The WFA seems like an excellent method for testing the robustness of the overall strategy, but my guess - based on how well the COTs data gives signals for prices - is that the walk-forward efficiency will vary for various markets. I will have to give it more thought as I go forward.

Regards,
Alex; 12 March 2008 at 09:45
Anonymous said...: Alex, here is Art Collin's system
http://www.tigersharktrading.com/articles/11539/1/The-Odds-Czar-Index-Futures-Biases-for-March-13/Page1.html
Note he uses the same MA for all indexes and currencies.
[He used to use an optimised one for each and got creamed]

Here is his book [foreword by Pardo]
http://www.amazon.com/gp/product/0470038659?ie=UTF8&tag=tigersharktra-
The whole story of the system developement is in there.

He also welcomes email contact, especially from other system developers

Paul; 12 March 2008 at 19:49
Alex Roslin said...: Hi Paul,

Thanks. Without being familiar with what he did originally and in the new system, I can't comment on his getting creamed, but I will certainly check it out. However, my understanding of WFA thus far suggests to me it tests the overall robustness of the trading strategy, not any specific parameter values.

Thus, it leaves open the possibility of changing parameter values as the system is reoptimized regularly every so often, but presumably also different parameter values in an entirely different market.

In other words, the question would be, Why couldn't you optimize parameter values for a different market if you can do so for a new timeframe in the same market that reflects new market conditions?

Curtis Faith's excellent book Way of the Turtle cautions against doing so only because optimizing for each market may not leave enough trades to satisfy statistical robustness conditions. But the COTs datasets seem to provide more than enough trades (100+ in most of my recently revised setups).

However, I'm no stats expert, so clarifications are welcome.

Regards,
Alex; 13 March 2008 at 10:24
Anonymous said...: You know a LOT more about stats than me Alex.

My contribution is soley to point you twoards Art Collins work cause he is a colleague of Pardoe's.

And his story [regarding moving average use] is intersting, especially as that is a big part of your work.

He can barely use Excel, so he is really not into stats. He uses system developer software.

Paulkij; 15 March 2008 at 03:45
Alex Roslin said...: Hi Paul,

I appreciate your bringing his work to my attention. It does look quite interesting. Hope to study it more closely.

Best regards,
Alex; 17 March 2008 at 10:15
Anonymous said...: Hi Alex - me again :o)

Trying to reproduce your Gold setup in Excel, without success.

Am using CMX Gold, Non-Comercials [Columns AW, AX] Futures & Options, ma=5, sd = -1.2

My s/s gives a Buy on 22 Jan [data date], and stays there to date [previous signal was a one-week Sell]

Any ideas what I am doing wrong ?

Paul; 18 March 2008 at 20:07
Anonymous said...: Think I got it Alex

Format I was using was 2 weeks behind.

Will keep an eye on your Gold signals to check

Paul; 18 March 2008 at 20:34
Alex Roslin said...: Hi again,

In response to Paul's earlier comment (not sure if that's the same Paul as you) up above about using different parameter values for each market, I just found a passage in Robert Pardo's latest book that talks about this very issue. He says he advises doing just this. I'll put up a blog post on this important subject with more details. Thanks for raising it.

Best regards,
Alex; 19 March 2008 at 09:18

About This Site

I am an active trader and award-winning investigative journalist based in Lac Brome in Quebec's Eastern Townships, just outside Montreal. I have written about investing and business for The Montreal Gazette, Investor's Digest of Canada, Technical Analysis of Stocks & Commodities, Futures & Options Trader, The Financial Post and others. I am not a certified financial advisor and am still refining my COTs Timer system. Please see more disclaimer information below. See my complete profile at the "Intro to COT" link above.

DISCLAIMER

I created this blog to record my personal, subjective observations about the markets, solely for my entertainment and that of interested readers and to foster research. Nothing on this blog should be construed as financial advice or an offer or recommendation to purchase or sell any security. I encourage anyone interested in the markets to do your own homework and/or consult a professional advisor. I am not a certified financial advisor and am still refining my trading system. I reserve the right to modify or stop publishing aspects of my system at any time or to delay updating my tables for whatever reason, or I may not do so in a timely manner. My system has resulted in very large drawdowns in some trades. Past backtested and real-time results are no guarantee of future performance. I will not be liable for any losses or damages of any kind that result from the content of this site. Although I consider the data, calculations and information on this blog to be reliable, I can't make any guarantees and won't be held liable or responsible for anything erroneous on this website. You are solely responsible for implementing safeguards of your data and system when you use this site and its content and links. It is up to the user of this site and content to protect yourself from worms, trojan horses, viruses and the like. I may hold positions in some of the securities mentioned in this blog.