Commitments of Traders: Strategies for Tracking the Market and Trading Profitably

By Floyd Upperman

Quick Summary

Floyd Upperman provides a comprehensive guide to using the Commitments of Traders (COT) report -- a weekly publication by the CFTC showing the positions of commercial hedgers, large speculators, and small traders in futures markets -- as a trading tool. The book develops specific trading strategies based on COT data analysis, including the IMPA (Integrated Market and Positional Analysis) setup trade and swing trading systems, with extensive backtesting results across multiple markets.

Detailed Summary

Understanding the COT Report

The COT report divides futures market participants into three categories: commercials (hedgers with genuine business exposure to the underlying commodity), non-commercial large traders (speculators with positions above reporting thresholds), and non-reportable positions (small traders). The book explains the reporting mechanics, the significance of each category's positioning, and how to construct useful indicators from the raw data.

Net-Commercial Data and UCL/LCL

Upperman's primary analytical tool is the net-commercial position (commercial longs minus commercial shorts) and the Upper Commercial Limit/Lower Commercial Limit (UCL/LCL) framework. When commercial hedgers reach extreme net-long or net-short positions relative to their historical range, it signals potential trend changes. The UCL/LCL serves as trigger lines: when net-commercial positions reach the upper limit, commercial buying is at an extreme (bullish signal); when they reach the lower limit, commercial selling is extreme (bearish signal).

The IMPA Setup Trade

The Integrated Market and Positional Analysis (IMPA) setup trade combines COT positional data with technical chart analysis and the 18-day moving average 2-day rule for entry timing. The complete system includes specific rules for entry (when COT triggers align with technical confirmation), the 10 percent risk-per-trade rule, and the 50 percent rule for profit-taking. The trade management framework covers trending market stops, the use of weekly charts for context, and the integration of COT data with technical charts for optimal timing.

Swing Trading with COT

A separate swing trading system uses COT data as a directional filter combined with shorter-term technical signals for entry and exit. The system includes specific rules for the 10 percent risk rule, entry timing, and the 50 percent profit-taking rule adapted for shorter holding periods.

Backtesting Results

The book provides extensive backtesting results across major commodity markets including 10-year notes, wheat, and other futures, demonstrating the historical profitability of COT-based strategies. The backtesting methodology, reporting level considerations, and limitations of the approach (including the weekly reporting frequency and the lag between data and publication) are honestly discussed.

Technical Analysis Integration

Chapters cover plunger patterns (washout bottoms and "W" bottom price patterns), trend phases, and how to use technical charts alongside COT data. The concept that COT data provides the directional bias while technical analysis provides the timing is the book's unifying framework.

Categories

• Futures & Commodities
• Technical Analysis
• Trading Systems

Key Takeaways

• The COT report reveals the positioning of informed commercial hedgers, providing a directional edge
• Extreme net-commercial positions historically precede major trend changes in futures markets
• The IMPA framework combines COT positional data with technical timing for complete trade setups
• The 10 percent risk rule and 50 percent profit-taking rule provide systematic position management
• COT data provides directional bias; technical analysis provides entry and exit timing