COT Report Analysis - a thread on market sentiment - Page 11
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  1. #101
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    Quote Originally Posted by peterma View Post
    Williams is very much focussed on the commercials' activities rather than the large speculators.

    He also uses the small trader numbers at times as a contrarian indicator.

    The 'cot index' is the indicator, he and Briese emphasize that it is not a timing tool.

    Williams cites many examples of cot giving an early warning of a market turn up ahead, the one that hit home with me most was the S&P example - mainly because I was long on stocks 2000.

    Quote: (he is speaking of the commercials, the cot index and the S&P 1998 -2000)

    The lesson you just learned was that extremely high readings are bullish, and extremely low readings are bearish. With that in mind check out the chart and you will see what a brilliant record these guys had in showing us the buy points in the fall of 1998 and 1999 when their buying reached historically high levels, higher than seen in the prior 5 years.

    Boy these guys were big buyers.

    Their selling was equally fortuitous. Check out the massive amount of selling at the start of 2000 when the largest bear market in 70 years began.
    At that time the commercials had taken on the largest short position in the S&P 500 index in the history of the data. In 18 years they had never been this bearish.
    Stocks plummeted in response, and these insiders must have made hundreds of millions of dollars from correctly calling this critical market turning point.
    End Quote.
    Hi Peterma,

    Though I'm new to COT I can see how useful this can be to increase probability of our trades. Nothing quite compares to COT report /non commercials/. Thanks for pointing out the differences commercial and non commercial. I almost got lost in vast amount of information. It was overwhelming. All I know is as a spot fx trader we should be focusing on non commercials as they are in it just to speculate as for commercials /in futures/ they might stay in even if their positions are in negative zone.

    On GBPJPY dailies I zoomed out and between Jan 2014 - Feb 2014 there was a huge bearish move of about 1000 pips in a span of just about a month. Apparently COT JPY net position was at record high short -143,822 /4th Dec 2013/. Prior this downfall GBPJPY was in an uptrend / GBPJPY usually seems to be in an uptrend with JPY COT net position with - readings most of the time/. GBP COT net non commercials during this period had positive readings + . Now I don't have long and short figures. Not sure what to make of this. What do you think ?
    Last edited by rookie39; 07-15-2014 at 08:13 PM.

  2. #102
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    If you step back and look at a bigger picture it gives you more clarity. All these dots that we weren't able to connect up front just seems to make sense from afar. That's what trading COT is about. The more you realize what actually moves the market /large speculators/ all those fancy indicators all of a sudden feels like nothing more than a combination of false signal providers. I"m not bashing every other indicator out there but by now we all know most of them are nothing but a fallacy.

  3. #103
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    Yes rookie, the cot is useful only as a guide in FX imo.

    The commercials are the 'instigators' so to speak in that they need to hedge, with the specs taking up the risk. The picture is even blurred with the fact that dealers who facilitate the hedgers in their transactions can be in the commercial category, so you have, for example, Deutsche Bank making transactions on the commercial side.

    Like Williams says it's not a timing tool, if it was then everyone would be short GBP from months ago.

    BTW, didn't short GBP yesterday, I was lucky - the only thing that stopped me was the high imports last month reported, just caused that little nagging doubt, when in doubt always stay out

  4. #104
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    Quote Originally Posted by peterma View Post
    Yes rookie, the cot is useful only as a guide in FX imo.

    The commercials are the 'instigators' so to speak in that they need to hedge, with the specs taking up the risk. The picture is even blurred with the fact that dealers who facilitate the hedgers in their transactions can be in the commercial category, so you have, for example, Deutsche Bank making transactions on the commercial side.

    Like Williams says it's not a timing tool, if it was then everyone would be short GBP from months ago.

    BTW, didn't short GBP yesterday, I was lucky - the only thing that stopped me was the high imports last month reported, just caused that little nagging doubt, when in doubt always stay out
    Hi peterma,

    Hmmm I took 2 wins on the upside with GBP, then I short vs. JPY and NZD. For some reason JPY is ok and holds steady, the NZD was crashed yesterday and I got stopped out. What a sentiment change in a day!

    Today comes out way too many news again so I guess it is better to be careful.

    Have a great trading day everyone!

  5. #105
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    Quote Originally Posted by peterma View Post
    Yes rookie, the cot is useful only as a guide in FX imo.

    The commercials are the 'instigators' so to speak in that they need to hedge, with the specs taking up the risk. The picture is even blurred with the fact that dealers who facilitate the hedgers in their transactions can be in the commercial category, so you have, for example, Deutsche Bank making transactions on the commercial side.

    Like Williams says it's not a timing tool, if it was then everyone would be short GBP from months ago.

    BTW, didn't short GBP yesterday, I was lucky - the only thing that stopped me was the high imports last month reported, just caused that little nagging doubt, when in doubt always stay out
    I thought banks were supposed to be on the non commercials side if their sole purpose was to speculate. But being a dealer might enable them to impose charges to hedgers regardless of price fluctuation safe guarding themselves from possible losses due to price fluctuations. So at the end of the day whatever the market condition is they make money as a facilitator.

    Not exactly sure how all these work in reality. But banks can play different roles I guess as long as they stay out of taking too much risk or loss opportunity is an opportunity. They have an upper hand when it comes to these kind of deals anyways. Or should we look at both ? The more you delve into something the more complicated it gets especially with fx. Oh wells

  6. #106
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    Good to hear your trades have been right Forexchange!

    If you look at JPY crosses for instance USDJPY and GBPJPY and zoom out to weeklies. These JPY crosses have been in somewhat steady uptrend since the beginning of time no I mean the chart JPY non commercial positions with - readings most of the time while GBP and USD with + readings. So COT net commercial positions definately tells something , the general atmosphere or like Mike says the big picture.

    But like peterma mentioned net non commercial positions doesn't tell you exactly when to get in and ride on those big moves the big guys have started. But if COT net position just serves you as a guide we might just as well trade with fundamentals /general economic conditions and key news releases/ don't you think ?

    Well we can always look at COT report and look out for short and long positions the previous week and decide then. And look for signals with technicals. But is there a way to know a big move prior with COT ? I thought perhaps by looking at historic net non commercials and comparing them might give a clue to if big move was coming but like I said in my earlier post that isn't seem to be the case. JPY net non commercials were at record high short -143,000 while GBP had + readings but few days later GBP had lost almost 1000 pips in a span of just about a month. againts JPY on dailies.

    Hopefully we'll get around this sometime
    Last edited by rookie39; 07-16-2014 at 03:42 AM.

  7. #107
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    Hi rookie,

    yes, it gets more and more complicated! Hopefully I get more depth knowledge after reading the two books.

    Well I guess there is always a way to know the big move. It depends who you are. If you are a good friend of Yellen or Draghi it might be useful :-) Besides that there are probably many technical analysis to know the big move as well. For me it is probably the fastest to learn the COT report though. But looking at the net non-commercials is probably not the solution. I agree with you. Until we get there I prepair myself for the GBP news now and see how it turn out.

    Have a nice day!

  8. #108
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    Hi guys!

    Well, a lot has changed since yesterday. So, this morning, going into the US session now, I'll give you the strong/weak line up, from the 8hr time frame.
    USD and GBP are strongest. Even.
    JPY next.
    EUR and AUD tied for third.
    CHF
    NZD and CAD bringing up the rear.

    Notes: CAD coming back up from dead last.
    NZD fell from grace.
    USD moving up!
    GBP strong!
    EUR moved up slightly.
    CHF dropped slightly.
    JPY dropped slightly.
    AUD really no change.

    Im with you guys.

    Mike

  9. #109
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    Most of the banks are registered with the CFTC as swap dealers:

    JPMorgan Among 65 to Register as Swap Dealers Under Dodd-Frank - Bloomberg

    Here is some useful info on COT:

    Looking inside markets: The COT report | Managed Futures Today Magazine

  10. #110
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    Thanks a lot for the articles peterma!

    Of course it is a pitty that banks are registered as swap dealers and not non-commercials (or managed money). I do not really get it why is like this as this way it only makes me harder to interpret the numbers.

    The second article is very true, basically all information can be found on the COT website as well.

    I just want to emphasize the last paragraph of the article:

    "Furthermore, COT readings are not timing signals by any means. Professional futures traders or money managers will tell you that creating a strategy based on COT data without considering price patterns and other market information is, essentially, foolhardy. COT analysis more typically function as a filter for taking trades in one direction or another, or as a supporting factor in a longer-term trend system. Nonetheless, the data is widely watched and provides information not found in other sources."

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