COT Report Analysis - a thread on market sentiment - Page 14
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  1. #131
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    That is a nice study Mike!!! As far as I see the first basic indicator would be: if commodities or majors are up 3 consecutive wins, then we can expect the fourth week will be won by the other party. I think the longest streak was three for one side.

    The only downside I see is what you mentioned yourself: I guess it would have been better not to count comm vs. comm and major vs major as they do not really fit into the analysis. More than that major vs. major get 5 points every day comm vs comm gets 3 point only every day. So actually the majors are getting 2 "present points" every single day! This is quite a difference and might lead to an overall commodity victory in the long term. Don't you want to change ithis from now on?

    End do not get fired from your job because of this thread :-)

  2. #132
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    Hi FE

    Looks like you did good with going with the flow on JPY short. I was surprised this morning when I woke up to find them correcting.
    I could be wrong, (for sure), but, it seems like you have a longer term sentiment in place with a shorter term trading strategy time frame. I do have lots to learn about the whole yielding of currencies. What exactly do you mean "higher yielding" currencies? Is it the commodity currencies? In my mind I would only think of that aspect if I was trading on the lonnnngggg term. But, if the players ARE thinking that, then I have so much learning to do.
    So my question is is that a major factor in determining a trade in the short term (within a week's time)?
    I guess if the big players are running to the JPY, then it must have some merit.

    Some of my thoughts.

    Mike

  3. #133
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    Good point.
    I'm gonna revise that. It only makes sense! Maybe just don't count the in house numbers.

    Off to work I go now. I'll check in (as I always do), during the day.

    Mike

  4. #134
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    Quote Originally Posted by Mike Wolski View Post
    Hi FE

    Looks like you did good with going with the flow on JPY short. I was surprised this morning when I woke up to find them correcting.
    I could be wrong, (for sure), but, it seems like you have a longer term sentiment in place with a shorter term trading strategy time frame. I do have lots to learn about the whole yielding of currencies. What exactly do you mean "higher yielding" currencies? Is it the commodity currencies? In my mind I would only think of that aspect if I was trading on the lonnnngggg term. But, if the players ARE thinking that, then I have so much learning to do.
    So my question is is that a major factor in determining a trade in the short term (within a week's time)?
    I guess if the big players are running to the JPY, then it must have some merit.

    Some of my thoughts.

    Mike
    Hi Mike,

    yes, I like to have a long term sentiment as "trend is my friend" but make many shorter term trades.

    Higher yielding currencies are mostly the commodity currencies at this moment but it can be any currency. In the forex world high yield currency pairs means the interest rate differential for the long side. JPY has about 0% so people go against JPY. NZD has the best and then comes AUD. This is an important factor as many traders plan on the carry trade which is extra revenue and they do not want to go short on high yielding currencies. If you read the blog from Pipcrawler he likes expecially setups where he can go long on higher yielding currencies. EUR and USD are very weak, CAD and GBP are a bit better.

    Hope this helps.

  5. #135
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    Ok guys. This is what I got. Probably all what we know already.
    As of the beginning of london: ( looking at the 8hr charts for this perspective analysis)
    USD, AUD, JPY all tied for the strongest.
    GBP comes in a close second.
    CHF third, really close to the next 2. Which are
    EUR and CAD, which are neck and neck.
    NZD bringing up the rear, by a lot.

    Notes: Biggest mover I would have to say is the AUD, and that would be on the up.
    JPY has dropped a lot.
    USD dropped some, but still considered strong.
    GBP dropped some, but still relatively strong, not as much though to the USD and AUD.

    I think a commodities will come back today and even out the score against the majors.
    It is take profit day though.

    Mike

  6. #136
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    Quote Originally Posted by ForExchange View Post
    Hi Mike,

    yes, I like to have a long term sentiment as "trend is my friend" but make many shorter term trades.

    Higher yielding currencies are mostly the commodity currencies at this moment but it can be any currency. In the forex world high yield currency pairs means the interest rate differential for the long side. JPY has about 0% so people go against JPY. NZD has the best and then comes AUD. This is an important factor as many traders plan on the carry trade which is extra revenue and they do not want to go short on high yielding currencies. If you read the blog from Pipcrawler he likes expecially setups where he can go long on higher yielding currencies. EUR and USD are very weak, CAD and GBP are a bit better.

    Hope this helps.
    Hi FE,

    Hows that interest rate is determined ? if it does fluctuate is there a way to find out ?

    When I opened JPY cross pairs such as USDJPY, NZDJPY and GBPJPY on higher frame charts , were all trending up with JPY - net positions almost always. And I was wondering why. Is it because of interest rate differential with JPY at 0% ?

  7. #137
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    Hi rookie and Mike,

    as I see we have to clear these interest rate differentials! Interest rates are one of the most deciding factors for currencies (if not the most!). If you guys read news or hear press releases, interest rate policy is the main question for every aconomy. Journalists always ask: „When can we expect rate hike?” Interest rate decisions are always tier 1 data!

    It is hard to say the story short, but if an economy goes good, then they hike rates to slow down inflation and make people deposit their money in banks. If an economy goes bad, they decrease rates to push money into the markets and push the economy, which means people will take out their money from banks.

    To calculate in the forex market with an example: NZD has 3% interest rate, JPY has 0% or 0.1% and every night you pay/recieve the interest rate differential for open position at 5PM Eastern time zone. So if you are long NZD/JPY you become money, if you are short you pay. This is a key importance in long-term strategy as everyone wants to recieve extra money. If your trade goes the right direction you earn extra money with NZD/JPY long. If you are long on NZD/JPY but it goes the wrong direction, you still recieve your interest rate revenue, therefor your loss is not so great. With NZD/JPY it is the opposite. So most people want to be long on NZD/JPY, AUD/JPY, CAD/JPY and JPY/GBP.

    Interest rates are often a good indicator how an economy is doing. Please ready all the following articles:

    Interest Rates 101 | Fundamental Analysis | High School
    What is Carry Trade? | Carry Trade | Freshman Year | Undergraduate
    How Do Carry Trades Work for Forex? | Carry Trade | Freshman Year | Undergraduate
    To Carry or Not to Carry | Carry Trade | Freshman Year | Undergraduate
    Carry Trade Criteria and Risk | Carry Trade | Freshman Year | Undergraduate
    Summary: Carry Trade | Carry Trade | Freshman Year | Undergraduate

    This is necessary knowledge! Good luck!

  8. #138
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    Hi rookie and peterma,

    peterma has read the books, and rookie was learning from that very informative forum thread so I have a question. You two both mentioned the net positions. My question is if it was important for the commercial or for the non-commercial sector? What did you guys read? Which segment do you have to look at for the net position change?

    Thanks,
    ForExchange

  9. #139
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    Hi FE,

    Williams comes down heavily on the commercial sector, his general reasoning is that they are the experts or the 'smart money' in their chosen commodity. He also lists the many times that the small trader is wrong, Briese takes a more balanced view -

    "When I started trading in the early 70's there was not much trader info available. Today there is too much. And to make matters worse, it is filed together with misinformation and disinformation. As a reader of this book your are entitled to be disabused of the worst of these half-baked ideas. Here is a run down in no particular order."

    He then lists those ideas:

    Tip - Always follow the commercials

    Tip - Net long is bullish, net short is bearish

    Tip - Always fade the small speculator

    Tip - It is only logical to compare hedging to the seasonal average

    Tip - The COT is old news by the time it is released.

    Under each heading he details reasons that these ideas are mis-informed.

    An example, fading the small speculators.

    "This has to be a gimme, right?. ...every market book is unequivocal in stating that small speculators are net losers. I cannot argue with this premise. My only reservation is your ability is to find out what small speculators are buying or selling, or how much. The CFTC does NOT release this information...
    Now who's pulling whose leg I can hear you say, are we reading the same report?"

    He goes on to note the actual make up of the 'non reportables' and that "the small speculator may be 'dumb money' but he is not stupid enough to come out from hiding among the commercials in the small trader category".

  10. #140
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    Quote Originally Posted by peterma View Post
    Hi FE,

    Williams comes down heavily on the commercial sector, his general reasoning is that they are the experts or the 'smart money' in their chosen commodity. He also lists the many times that the small trader is wrong, Briese takes a more balanced view -

    "When I started trading in the early 70's there was not much trader info available. Today there is too much. And to make matters worse, it is filed together with misinformation and disinformation. As a reader of this book your are entitled to be disabused of the worst of these half-baked ideas. Here is a run down in no particular order."

    He then lists those ideas:

    Tip - Always follow the commercials

    Tip - Net long is bullish, net short is bearish

    Tip - Always fade the small speculator

    Tip - It is only logical to compare hedging to the seasonal average

    Tip - The COT is old news by the time it is released.

    Under each heading he details reasons that these ideas are mis-informed.

    An example, fading the small speculators.

    "This has to be a gimme, right?. ...every market book is unequivocal in stating that small speculators are net losers. I cannot argue with this premise. My only reservation is your ability is to find out what small speculators are buying or selling, or how much. The CFTC does NOT release this information...
    Now who's pulling whose leg I can hear you say, are we reading the same report?"

    He goes on to note the actual make up of the 'non reportables' and that "the small speculator may be 'dumb money' but he is not stupid enough to come out from hiding among the commercials in the small trader category".
    Hi peterma,

    first of all, thanks for your answer. I remember you were already writing to me earlier to follow the commercials. You read of course the book so you know then the reason why is it like this, but it still does not make sense to me. So maybe you can tell me short.

    That is how I see the situation with my logic:
    Commercials are there for hedging reasons and not to make money. Non-commercials (speculators) are the winners and there to make money. So it look logical to follow the non-commercial category. Small speculators: they have no idea.

    If I understand right your second and third tip, this means follow commercials based on net long or short and never follow small speculators. Based on this, I checked the two bullish currencies for the last months, the GBP and NZD. During the bullish phase commercials were net short and small speculators were net long. So as it makes sense, commercials lost and this time even small speculators made money. Based on the advice in what you wrote, I would have done the opposite and lost a lot of money.

    Can you explain this? Thanks

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