Nasdaq Signals Gained 1,800%, While Market Fell 70%

My new trading setup for the Nasdaq-100 Index gained 1,800 percent since 1999, while the index itself lost 70 percent, according to my backtesting results using detrended price data. (Scroll down to the "Backtesting Results Table.")

And my new setup for the Nikkei went up 680 percent, while Japan's stock index fell 40 percent.

These are some of the new results I've posted for four new trading setups that give me signals based on the free weekly Commitments of Traders reports. These reports are issued by the U.S. Commodity Futures Trading Commission and reveal trillions of dollars of trader positioning in 150-odd markets - everything from gold to crude oil, the Canadian dollar and S&P 500 futures and options.

I've been developing my COTs Timer trading strategy based on the COT data for several years and using myself as a guinea pig to trade my signals in real time since 2007. I've just gone through a major updating process and have been improving my backtesting process based on my experiences.

I've posted the backtesting results for the Nasdaq-100 (which are based on the Nasdaq-100 mini COT data), the Nikkei, the benchmark BKX U.S. Bank Index (which are based on the three-month Eurodollar contract - the liquidity measure, not the currency) and the 30-year Treasury bond.

I've also just updated my latest signals table to include signals and data from all of these new setups. See my FAQs page for more details on my backtesting process.

Thanks for your suggestions for new markets to test using the COT data. I plan to work on silver and the Euro/USD cross next.

Your comments and suggestions are welcome. I'll also post a new sample spreadsheet for my S&P 500 setup soon on my DIY page. Thanks for your patience, support and kind words through this process.

Good luck the rest of the week, and see you back here after Friday's COT release.

Going Long Natural Gas... But Just for a Week!

New data now up on my latest signals table for my trading setups based on the weekly Commitments of Traders reports. One signal takes effect on Monday's open of trading: bullish for natural gas.

Gas aficionados know it's been collapsing straight through to the Earth's core for, what, years? The trader data, as reported in the CFTC's COT reports, suggests a chance of a bounce next week. Or at least that's how I see it. Gas has indeed been rallying in the past few days, but I didn't see a technical reason to jump in just yet.

How nice that the COT data gives me the excuse!

But hark, don't get too excited, you gas bulls. The long signal will last just one week. The following week, my gas trading setup says to go short.

See my signals table for more details on this and the other markets I follow using my COTs Timer trading strategy based on the COT reports. Check there to see my signals for the S&P 500, gold and crude oil. (The others are in cash for the coming week.)

In other news, I've just finished backtesting on the NASDAQ-100 mini COT data. It's the first time I've taken a look at the mini COT data in a few years, and I can tell you it's produced a very promising (knock on wood!) setup. I should start using those signals as of my next update.

Have a good weekend, and good luck next week.

Three New Signals: Bonds, Banks and Nikkei

I've just updated my latest signals table with the signals from my three latest new trading setups based on the weekly free Commitments of Traders reports: the 30-year Treasury bond (bullish), the BKX U.S. Bank Index (cash) and the Nikkei (cash).

I just finished backtesting these three new setups and think they had excellent results. We'll see how they work out in real-time trading.

That means all my trading setups have now been updated except for the one for natural gas, which I'm not in any special hurry to update because it's had such sweet results in actual trading (about a 100-percent profit in the two years I've traded it, while natural gas has collapsed in price).

I am still going to eventually update it, but I'm planning to introduce a few new setups first, starting with the Nasdaq 100 Index.

Here are the signals for my other setups: S&P 500 bullish, crude oil bearish, gold bullish and natural gas in cash. See my latest signals table for detailed information on trader positioning in these markets based on the COT data issued by the U.S. Commodity Futures Trading Commission.

I'll post the testing results soon on my backtesting results table for the three new signals.

Good luck this week.

New S&P 500 Signals Beat Market by 1,500%, Crude Signals by 12,000%

The results are in. My new trading setup for gold beat the market by 570%, while being in cash 40% of the time. My new copper setup beat the market by nearly 3,000%.

And my crude oil signals beat it by over 12,000%.

Signals Based on Free Weekly Data

Those are some of the backtesting results I've just posted for my four new trading setups based on the amazing Commitments of Traders reports issued for free each Friday afternoon by the U.S. Commodity Futures Trading Commission. See my backtesting results table (scroll down) for details.

You'll also see the parameter values for one of the new setups - S&P 500 (which, incidentally, beat the market by more than 1,500%). I'll post a sample spreadsheet for that setup soon on my DIY page.

Robustness, Not Just Profits

But I didn't just focus on profits when I was looking for new setups to trade using the COT data. In fact, that only had a small impact on which setups I chose. Far more important were measures of robustness (how reliable the signals would be in actual real-life trading), such as my very own invention - the walk-around test. See my FAQs page for more details on that.

To recap, I've been updating my setups based on the COT data because my existing setups were based on data up to Dec. 2007 - meaning it didn't include the crazy gyrations of the Great Recession.

The setups were in need of updating with the more recent COT and market data - not least because a properly backtested trading system is thought to provide robust signals for perhaps a quarter of the original backtesting period (in this case, about 13 years).

Improved Results Table

Apart from updated data for my new setups, you'll also notice I've removed from my table the backtesting results for my three existing setups that I haven't yet updated using data between 2007 and 2011.

I've made a few small changes to improve that table and give more useful results - so rather than updating those results for the old setups that I'm planning on replacing soon anyway, I've just taken off that data.

Thanks!

Thanks for your patience during my updating process. I'm hopeful my improved backtesting procedures and updated setups will adequately capture the power that appears to exist in the COT data - waiting to be unleashed!

Existing Signals All Still Good

No new signals for the coming week in my COTs Timer trading strategy based on the weekly Commitments of Traders reports.

This is the free data that the U.S. Commodity Futures Trading Commission puts out to tell us the weekly positioning of major trading firms in about 150 markets. Everything from the U.S. dollar to crude oil, gold, soybeans, S&P 500 futures and natural gas is covered.

See my latest signals table for details on how my trading setups are interpreting the COT data.

My existing signals all remain in effect next week: bullish for the S&P 500 (the sixth week on this signal), third week in cash for the benchmark BKX U.S. Bank Index (a basket of the major U.S. financials), second week bearish for crude oil, second week long for gold, ninth week bullish for Nikkei, eighth week in cash for natural gas, fifth week in cash for the 30-year Treasury bond and sixth week in cash for copper.

Have a good weekend, and good luck next week.

Announcing: New Trading Signals!

Just updated my latest signals table with the signals from my four brand spanking new trading setups (S&P 500, gold, copper and crude oil) based on the weekly Commitments of Traders data issued by the CFTC.

Two signals take effect on the open of next week: bearish for my new crude oil setup, and bullish for gold. Also note that my new copper setup is in cash.

And my new SPX setup remains bullish based on strong bullish positioning by the commercial hedgers.

Also see my signals table for new parameter values for those new setups. I'll update my backtesting results table soon with more details.

I'll be on the road for a few days next week going back to Canada after a beautiful three-month stay in Costa Rica's Nicoya peninsula (highly recommended!)

But after we get settled back in, I'll get back to work updating my other existing setups, which shouldn't take too long now that I've improved the automation of a bunch of my backtesting.

And I'll be aiming to add new setups in markets I'm not trading now. Your suggestions for which ones to cover are welcome. Good luck next week.

Banks Back to Cash

All fairly calm in the mysterious world of the Commitments of Traders reports this week. The single changed signal is in my BKX U.S. Bank Index trading setup, which goes from bearish to cash as of Monday's open of trading.

See my latest signals table for more details on this and the other markets I'm following using the free weekly COT reports issued by the U.S. Commodity Futures Trading Commission.

New Setups: Gold, Copper and SPX

In other news, I've developed new setups for gold and copper this week using some improved and more highly automated backtesting procedures I've been working on. I'm pretty excited (knock on wood) to start using those signals because I think my new testing procedures are showing some very interesting results.

Also, I've used those to go back and take a fresh look at the S&P 500 data, and I have a slightly modified setup to announce for that data too.

Like the new setup I started using a couple of weeks ago, this one also uses just one group of traders: the commercial hedgers.

Announcing: New SPX Setup Parameter Values

It uses a 12-week moving average/standard deviation period and goes long when the COT position is 0.2 standard deviations or more above the moving average, while it goes short when the COT position is 1.2 standard deviations or more below the moving average.

Undetrended Data!

The major difference I've integrated into my backtesting in the past few weeks is that I'm now including results from undetrended (that's a mouthful!) price data from my confidence interval testing for whether the setup beat the market historically after trade commissions were deducted.

While I normally use detrended data for backtesting, I noticed some high-performing setups scored poorly in the confidence interval results when I looked at the raw undetrended data. Those setups could have a higher chance of underperforming in real-life trading, so I've been including those results in my testing.

I'll post the new gold and copper setup info shortly. Next up after all this: a new setup for crude oil.

Good luck this week.

Bank Setup Short While SPX Stays Long

U.S. financials could be headed down, according to my trading setup for the benchmark BKX U.S. Bank Index. My setup goes bearish on Monday's open of trading.

This is based on bearish positioning in the 3-month Eurodollar contract, as shown in the weekly Commitments of Traders reports issued by the U.S. Commodity Futures Trading Commission.

Meanwhile, my brand new S&P 500 setup goes into its third week of being bullish. How can one market say to go long while the other says to go short? How very strange, you say?

It could be that the BKX setup says the coming week will see a short-term decline in a broader overall rally that the SPX setup is trying to capture.

But this is also the kind of weirdness we see all the time in this very peculiar data. It's one of the reasons analysts and traders haven't been able to make heads or tails of the COT data for decades. Seemingly more often than not, the data just doesn't agree with itself.

See my latest signals table for more details on these and other markets I'm following with my COTs Timer strategy. Good luck this week.

SPX Bullish According to New Signal

It's taken a while, I know, but I've finally finished my new round of backtesting for my COTs Timer trading strategy based on the Commitments of Traders reports. My first new trading setup is for the S&P 500. And the signal went bullish last week. It continues in the bullish column this week.

See my latest signals table for details on trader positioning in this and other markets. Other signals taking effect on Monday's open: gold and the 30-year Treasury bond both go to cash.

My new S&P 500 setup is unusual for a couple of reasons. First, unlike all my other setups, it is based on a single group of traders - the commercial hedgers, sometimes known as the "smart money." My other setups use two (and in one case, three) groups of traders to arrive at signals. If all the traders don't agree, those setups remain in cash.

In contrast, my new S&P 500 setup is always either long or short. It turned out that after looking at a few million potential setups, the most statistically robust one was based on the commercial hedgers alone. (My previous SPX setup relied on both the commercial hedgers and the small traders.)

Second, my new S&P 500 setup has no trade delay, meaning the signals based on Friday's COT report get executed on the following week's open of trading. Most of my other setups include at least one component signal with a trade delay of one or more weeks. For example, my previous SPX setup used a three-week trade delay.

But after trading my COTs Timer strategy for nearly five years, I recently discovered that there was a moderate and statistically significant negative correlation between the real-time profits of a setup and how many weeks of trade delay it was based on.

I can't find anything in the data that would explain this. It's actually kind of strange. The fact is setups with longer trade delays are often the most statistically reliable in backtesting. But this is why it's important to take a mechanical trading system out for a spin on the road and see what happens. In my new round of backtesting, I am limiting my setups to those with zero to two weeks of trade delays.

I picked two weeks as my max because of my natural gas trading setup, which has achieved a 106-percent profit since I started trading it in mid-2009 while gas prices exploded and then collapsed in the same period. My gas setup uses signals with one- and two-week trade delays. You can't argue with that kind of success.

Special thanks go to Dave, a highly gifted and very generous reader who developed an amazing app that I used to do my first round of analysis of several million potential setups.

I then use a few Excel spreadsheets I've laboriously developed over the years to re-analyze the best of those, check other setups I come up with through other processes and run tests of robustness, such as Monte Carlo testing and one of my favourite testing procedures, walk-around testing, which compares how the setup performs against "neighbouring" setups with slightly varied parameter values.

See my FAQs page for more details on my backtesting process.

I'll post details on my new setup on my backtesting results table soon and a sample spreadsheet for downloading. Stand by for new setups soon for copper, gold and U.S. financials. Good luck this week.

Cash for SPX, Crude; Copper Bullish

A few signals take effect on Monday's open of trading: cash for my trading setup for the S&P 500 and crude oil and bullish for copper. See more details on trader positioning that caused these signal changes and positioning in other markets on my newly updated latest signals table.

Hope you had a good weekend. I sure did. The waves were big and powerful at Santa Teresa, Costa Rica, and we had lots of fun surfing with friends after the Reef Classic 2012 surf competition. Good luck this week.

All Quiet in COT Land

All quiet from the Commitments of Traders reports. My COTs Timer trading strategy has no signals that take effect on next week's open of trading. Existing signals all remain intact:

- bearish for one more week for the S&P 500
- cash for the BKX U.S. Bank Index, natural gas and copper
- bearish for the 30-year U.S. Treasury bond and crude oil
- bullish for gold and the Nikkei

See more details on the latest trader positioning in these markets on my latest signals table. Hope you fared well this week, and good luck next week.

Banks, Gas in Cash; SPX Rally Done?

Three signals take effect on Monday's open of trading in my COTs Timer trading strategy: cash for the BKX U.S. Bank Index and natural gas, and bearish for my setup for the S&P 500. See my newly updated latest signals table for more details on these markets and the others I follow using the weekly Commitments of Traders reports from the CFTC, God love em. Good luck next week.

Shine on Nikkei

My trading setup for the Nikkei goes bullish on this week's open of trading based on the signals from my COTs Timer trading strategy. See my newly updated latest signals table for more details on this and the other markets I'm trading using the weekly Commitments of Traders data from the U.S. Commodity Futures Trading Commission.

In other markets, my bullish signal for natural gas goes on for one more week, then goes to cash the week of Feb. 27. Also, my setup for the S&P 500 goes bearish on the open the week of Feb. 27. My bullish signals for the BKX U.S. Bank Index and gold remain bullish again this week. Good luck this week.

S&P 500 to Cash

No new trading signals in this weeks COTs Timer update, except for in my S&P 500 trading setup, which goes to cash on this week's open of trading. I've just updated my latest signals table based on Friday's Commitments of Traders report. Good luck this week.

Bearish for SPX and Treasury

Two signals take effect this week based on recent trader positioning as reported in the Commitments of Traders reports: bearish for the S&P 500 and bearish for the 30-year Treasury bond. My other signals remain the same: bullish for my trading setups for the BKX U.S. Bank Index, gold and natural gas and bearish for crude oil and the Nikkei. Copper is in cash.

See my latest signals table for more details on how COT trader positioning has shaped up lately. Good luck this week. Pura vida.