COT Report Analysis - a thread on market sentiment

Hi rookie and others (Mike you also get now some chance to comment),

I see I have a bit to catch up so I start now.

First of all here is something to read about Russia/Ukraine:
Russia and Ukraine: Can we stomach more lies from the US media and more hubris from US foreign policy? | Forex Blog: Currency Currents

If it is too long, then just go to the forecast section on the very bottom how Jack the Pipper sees it in case the war stays.

Actually rookie, you already answered my strategy of trading in your own post. I will stay aside as well. Or as Mike would say: “I regroup myself.” :slight_smile:

The thing is that I only like to trade one direction: the direction of my fundamental, sentimental bias and the trend. I do think these three increases my edges a lot. And now I see some movement in USD strengthening at this very moment but I do not really know why. I also think that what peterma wrote about USD Index, and all of you expect, I do the same: some retracement. USD was/is very strong lately but some retracement comes usually. I wait a bit, look how it works out and when it was done I jump in again. Until now I learn today and use the occasion of not trading that much. I do have strong USD bias but there has to be some stop for a while. As Philip mentioned, different traders have different strategy.

I personally do not like trading against the main trend. I tell you an example, maybe you can understand it: we take the EUR/USD with the current market price: 1.3277 (Jesus what a decrease again, what a pity that I wasn’t in :slight_smile: ). I have a USD bias. So lets say I jump in now on market price. Trade goes against me and it is already trading at 1.3325 and then 1.3375. I am still not in a big hurry, because I look at the big picture and do not see any reason why it should not come back. I may even do everything against the rules and scale in to my losses with another short position. Of course this works ONLY WITH STRONG BIAS. So now we take the opposite direction. I anticipate that EUR/USD goes up but I still have my bearish overall view. I do feel now uncomfortable with the trade. Even if I expect retracement and some EUR strength. I jump into market again with EUR long this time. And lets say trade goes this time again against me, south now. The problem is: I do not have any idea if it comes back or not because I do have a bearish bias and a retracement comes but who knows when and how big it will be. So where should I stop my losses? Where is the trade invalig? As you see there are many questions which I did not have in the first case. Hopefully you understand what I mean. I tried to explain it clear. So even if I think there has to come movement across the board vs. USD I do not trade against it, I rather wait and see.

Another thing that works out quite well in the last 3-4 weeks: I do stick to my weekend discussions and plans! It is really cool and works good. I do try to be very disciplined and really follow my plans. Just to remind you what my main tasks were for this week:

  1. do not enter many new trades, rather monitor and manage the open trades from last week. Especially vs. JPY, where I do not want to open any new trades.
  2. manage the HUF trades.

Well, the first point works good. I did jump into some great setups, but not many and only short-term. I also closed all new positions. But managing the trades from last week goes good and I reduced my JPY trades from 4 to 1 which is also good. About the HUF I cannot do much as nothing happens. I just have to wait there.

There was nothing new in this point, but I wanted to emphasize how good discipline works the last time. Not only managing trades but not jumping into situations when I am not comfortable. I did it earlier and it worked out really bad sometimes. I do not want to be in stress when I don’t have to. I rather start reading the second book after finish answering all your posts :slight_smile:

Hi Mike,

I do like your new cross count method actually more! I do not start the mathematics now, so I do not know after 1 day if the result (+3) is accidently the same in both measurement or it will be different. We will see. If it is the same then it would not matter which way to use, if it is not the same (I would think this second option will happen) then I like the second. There is something though to keep in mind in the second measurement: a Major currency can only move between +3 and -3 and a comm currency can move between +5 and -5. So the extreme level is different and commodities are more likely to be on the very to or very bottom and majors have more chance to stick in the middle.

Hey FE.

I’m glad you looked at that.
But, let me tell you (as stated before), it all shakes out the same. The boiled down number will always be the same. I ran so many back tests. Got tired of seeing the same thing. But, we do need to work on the measuring stick, for the gauge.

I’ll get it.

Thanks!

Mike

Hi rookie and Mike,

wow slow down guys. For all these posts I try to answer in 1.

Aussie minutes: looks bearish to me.
BOE: rookie already analysed (you do quite a lot fundamentals lately!). I do see 2-0-9 result quite bullish as usually we only see 0-0-9. [I][B]peterma[/B][/I] is the expert of GBP so I highlight his name to express the waiting for his opinion what he thinks about GBP.

You guys write a lot about MG. Please send me the link. Want to see what he is doing. However, Mike you should I think pay attention. No matter how bullish we are on USD, you are long with it in long-term vs. most other currencies without a stop loss. That sounds dangerous.

And rookie, why do we do all this work? I can tell you easily: to get the right direction! That is all! :slight_smile: An EA will never tell you what is proper lot size, if news is coming, what should be a stop loss, risk/reward ratio. I do believe there are good systems as we use our own system as well. But I would not trust a computer to do trades for me. It makes once a mistake and my account is maybe away.

Good day guys. I do not plan to trade but read the thread.

Hey guys…FE.

Got caught up on the posts now.
Man…I know what your talking about! When it comes to deciding on whether to get in or wait for a retracement. I’ve spent countless hours thinking about that! It is such a dilemma! Just after I got home from work yesterday, I checked the charts. Yeah, sure, USD was tearing it all up. But, I realize that just as much as a chance that it will retrace is about the same chance that it will just continue to flow the way it does. So, I just went ahead and put in some more trades. That’s when I added on JPY, AUD, EUR to the portfolio. It didn’t feel good, but, I just didn’t want to be missing out on the action. So, this morning after I woke up, man, am I glad I did. This gives me more room to play with. USD is just continuing its march. And also I think that if I’m wrong, (this is how I rationalize this play) I will just hold on to it for a longer time period. That’s why I told Rookie that I will plan on holding USD for days to weeks. That mindset is what got me into these extra trades. And I’m pretty lucky that their going my way. And meanwhile this is all after the huge spanking the US did to everyone on Tues. It is gut renching! But I guess I would rather take the loss than miss out on a serious roll. “If it’s trending, I’m in it”. That to me outweighs the losing part of it. Now the USD is trending. I just so badly want to be in it. Also I have in mind (the bigger picture) the fact of how everyone was wanting the US to be boss this year. Slated to anyway. That WAS the sentiment at the beginning of the year. And up to this point it was not the case. But I feel now is the time for that.
Look…I’m nobody special. Not smart. Have no insight. But, given what you and our buddy Rookie have been saying about the retracement dilemma, I just had to throw in my thoughts on that. I know I can get burned at any time. But I guess my bottom line thinking is “If it’s trending, I’m in it”. I’m just glad that I have the guts (at this time anyway) to be in it.

It takes a stomach.

Mike

Hey FE!

Check out the thread. It’s a long one. That is fundamentally how I trade. But it is ONLY a methodology. Not a mechanical or signal strategy. You have to tailor it to your own liking.

http://forums.babypips.com/show-me-money-swing-trading/50672-forex-portfolio-how-gain-consistent-profits-staying-market-24-7-a-123.html

Start from the beginning FE. Page one. Sorry this is not the beginning, but will get you there to it.

Mike

PS…need to know what you think!

I know I’ve harped on a bit about the CRB index and the fact that it has been falling lately, well that little baby can have an overall effect on a day’s trading.

John J Murphy asserts that the CRB trends in the same direction as Foreign currencies and opposite to USDX.

The CRB tracks commodities, and as we know commodities are the raw material of business. The cheaper raw material gets - the cheaper the end prices become…and a fall in inflation.

Some analysts were saying that traders must have “had a sniff” of the UK inflation numbers before release, maybe they just were aware of the CRB fall.

Murphy in 2013: “John’s Tips: Commodity prices and foreign currencies trend in the same direction and in the opposite direction of the US dollar”.

A further quote “The inverse relationship between the dollar and commodity markets is one of the most consistent and reliable relationships in inter-market work”.

[I]I start now a new series here, I write here down my own thoughts about my second COT book as I read it. I write down anyway always for myself what I think is important to look it back later, so I decided why not to post it here too? Important: I write down the own words of the author, in the right order as it comes in the book. However I will not structure the different thoughts and do not write down which pages they were. I just want to mention the sentences which I find important for myself. This is not the same value for you as reading the book (hopefully you will all read it when you have the time for it), however it is better than nothing. I also make my own summary in the end of each post.[/I]

[B]Introduction[/B]

This is a rigged business. The exchanges, the brokerage firms, and the large funds have set the table for themselves, created for themselves that are different from the rules for the smaller players in the game. There is one set of rules for hat they can do and another for the average trader or adviser.

Frankly, I have no problem with that. It is their game, and they have the marbles. But we need to know of those differences to not get sucked into their game. To win at this game you need not only know the rules but not be trapped into the fallacies.

To that end let me expose a few of them:

[I]First fallacy[/I]: "These guys know something". Experts have been correct in predicting the future less than 22% of the time. (Wall Street Journal survey evaluation)

    [I]Second fallacy[/I]: "If they knew something, the'd tell you". Finally, I got it; they (brokerage firms) are in business to make money and despite hat they say or do, brokers that generate huge commissions get huge rewards. The incentive is all about commission, not customers.

   [I] My wake-up call[/I]. What I learned is that we are very much in this game on our own. There is one thing you have been told, though, that is true; there are people who know more about the markets than you. Lots more. You've searched high and low for these people, and thought brokers or the media would dredge up their advice. Wake up, Charley, that's not the way the game works.

    [I]The superpowers[/I]. What you are about to learn is that there are true superpowers of the marketplace, so critical to market structure they are required, by federal law, to report their massive buying and selling once every week. If they don't report they will be hit with massive fines and/or go to jail. I suspect only one investor or trader out of 10 000 is aware of this vital information, posted, for free, on the Internet every week. Most investors are looking at charts instead of the buying and selling of these people who move the charts.

85% of mutual funds don’t do as well for you as if you had just bought the laggard Dow Jones Industrial Average stocks.
When most people think of investing, they think of stocks and bonds. That’s traditional thinking. What they are not aware of is that each day about five times more dollars change hands in the commodity markets.

[B]Meet Your New Investment Partner and Adviser [/B]

The mission of the CFTC is to protect amrket users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and options markets.

Futures contracts for agricultural commodities have been traded in the United States for more than 150 years and have been under federal regulation since the 1920s. In recent years, trading in futures contracts has expanded rapidly beyond traditional physical and agricultural commodities into a vast array of financial instruments, including foreign currencies, U.S. and foreign government securities, and U.S. and foreign stock indexes.

Large hedgers that are users want to buy at low prices, hereas large producers want to sell at high prices.

We were somewhat surprised to find that the Large Hedgers were consistently superior to the Large Speculators.

[I]Summary[/I]: well, it was some usual thoughts, I thought to grab out this time a bit of history too about CFTC. The first imporessions are good from the author, I am looking forward to start the real work!

Hi Mike,

Do you manually measure these correlations or do you use indicators for it? I found this indicator a while back and I think it does pretty much like what you do here. Correlations and sentiment analysis are pretty much new to me, so I haven’t used this indicator much. Maybe you can find it useful (if you haven’t used it already).

Cheers,


Erh… how to upload .ex4 or .mq4 files on this site? :smiley:

Hi flows,

it’s already interesting that you could attach something as I thought you need 20 post for that. Well, the indicator is interesting. What is the name of it? I cannot read it on the picture. But hopefully it is not the same as Mikes. Don’t destroy him. Once he will sell it for $$$$!

Well if you look for sentiment and correlations then you pretty much landed on the right spot… But you have already posted here on 04.08.2014 so I guess you know what it is about.

Good learning

Hi FE,

Ah, lol ok. It’s called Currency Slope Strength. I found it in stevehopwoodforex.com.

Hey flow…FE…

All that I do is original. Just every day I have stats on the currencies, mainly who’s up and down against who. That will be the top 8 economies. Total of 56 pairs. 28 separate ones. Also I keep track of each pair about trending. Either it will be trending high, low, or ranging.
So, it’s all just my thing. I’m sure there are those out there who have figured out an easier method, and the likes of what you have there.
FE…your funny! “destroy me”

Stick around flows, you can definitely learn something in here. We all seem to have our heads on right. And I feel real good about my comrades. Lots of smarts…determination…fortitude.

We’re serious.

We WILL get there.

Mike

Hi Mike,

I see. Yep, I’ll definitely stick around. I’ve learned how useful COT analysis can be during my relatively short stay here. It helps me to see the sentiment change in cable and trade accordingly. Best of luck to all you guys.

Cheers,

Well, I took myself out of the three trades I took after Fed minutes for a loss of 200 pips. A for effort though lol.
Why is AUD so strong? even USD can’t really take it down.

you need 20 posts to send private e-mails, which is what I was trying to send Rookie. I’m don’t know how you post photos actually

Here is a good article about GBP from Cyclopip:

Going Long GBP/CHF for Long-Term | Forex Blog: Currency Cross-Eyed

I do suggest it to read for some reason (it is not the trade setup why I like it):

  • he does mention that GBP is losing ground now, but it is still one of the best performing economies so when the rate hike disappointment is over then GBP can gain against some of the currencies again. I am not saying to go long with GBP/USD but we can maybe find some currencies (for example NZD) where there might be waiting some good setups for us!

  • the article shows again that we have to think on the currencies itself and find the right counterparts. GBP is not that easy to find countercurrencies as it is not the weakest but not the strongest so we really have to find the right currency to match it with (with USD no one could have made a mistake in the last days)

So, good reading and be flexible forex traders. Think about the possibilities that GBP might give to us after such a pullback!

PS: Philip, sorry for the losses. If it helps a bit, you deserve the question of the award with asking why AUD is strong. Actually Comms are running not so good and in the RBA it was mentioned that AUD too strong is and they tried to jawbone it down. Hmmm… that is the only USD pair that I could not close with a nice profit until this time.

Hi guys!

Here we go. Interesting!

USD: +6 -0 1
AUD: +5 -0 2
GBP: +5 -1 1
CAD: +3 -4 0
CHF: +2 -3 2
EUR: +2 -4 1
NZD: +1 -5 1
JPY: 0 -7 0

Well guys…look at that up there. We have an even score. 0. Majors = +15 and -15. Comms = +9 and -9.

Here is the new method. I need to call it something. FE…come up with something.:45:

USD: +2 -0 1
AUD: +3 -0 2
GBP: +2 -0 1
CAD: +2 -3 0
CHF: +1 -1 0
EUR: +1 -2 0
NZD: +1 -3 1
JPY: +0 -3 0

So, if we add these up we have: Majors = +6 and -6 equals 0. Comms = +6 and -6 equals 0.
It is a wash.

As it looks, USD is dominating the Majors. AUD is dominating the Comms. JPY was taken advantage by everyone today. NZD was same thing, but up against JPY and even against CHF. So, I guess all we need to do is look at the pair AUD/USD. That should tell the tale. Actually the USD was higher only by 9 pips, open to close at 00GMT candles. Ok, the edge goes to Majors technically.

Well, guys, I’m having quite a week. I have 6 pairs open for USD. Only one I don’t have open is against GBP. I’m scared of that one. And the only other pair in the portfolio I do have going is the GBP/CAD. Loosing some, yes, but, that’s for the long haul. (till it gets up to the top).
I hate to say it but I’m at +250 pips now. BUT…only small position sizes on them. All of them is 1k lots, except with NZD, I added yesterday and have 4k on them. I’ll start putting up some stop losses in place, take profits it should be. (FE…believe me I realize what no stop losses means…protecting the account, the most important rule)

Ok guys, we’ll talk in the a.m. Except for Rookie. I’ll talk to him in the evening time. :44:

Mike

Morning guys!

[B]FE… [/B]I actually came across the article on Russia/Ukraine yesterday but couldn’t really read it through as it was pretty long. But I will later today.

I know exactly what you mean by that now that you only pull the trigger if the fundamental aligns with sentiment or else you would much prefer to sit aside.

I think I’m finally reaching a point where I’m able to see the bigger picture by combining it all together fundamentals and market sentiment along with Mike’s stats. I’m sure you already are there. But I was late to this trading with market sentiment. So you’ll see me posting more on fundamentals from now on as I realize the importance of this. It was tough for me to get a hang on this but I am getting there slowly. Thats partly your contribution FE thanks! Learning much lately.

I’m planning on writing up a report on majors and commdolls , looking at their invidual economies rather than focusing on a pair. That was a great point FE! We’ve had much this week RBA , FOMC minutes , Jackson hole from this thursday through Saturday, BOE minutes and so on. One thing that I’ve realized at this point is that at the end it’s all about interest rate to simplify. Thats what specs are after. Bottom line. The economic indicators that create volatility are part of the measures if Central banks of each of theirs decide if they should raise cut or keep the interest rate unchanged. Now I realize we can get a clue from key indicators how each currency’s doing and thus will hint if there’s going to be a rate or cut in the future. While interest rate cut translates to economy slowing down interest rate increase signals the opposite. Plus investors shift their assets where there’s a high yield - a currency that offers a higher interest rate.

On top of that we’ve got correlation going on. CRB and Dollar Index Peterma posted a great post earlier. How they are inversely correlated. Risk aversion. By knowing all this. Having the bigger picture and using COT specs data as a guide if everything aligns together thats an edge , an unbeatable edge I think.

I’m learning to see the bigger picture. Now I realize why most of the biggest names in this industry focus on fundamental rather than technical aspects.

It’s good to sit aside , observe and think it through when things seems uncertain FE especially if your fundamental and sentiment don’t align. Learning not to trade is harder than placing many trades actually. Like I said I would much rather sit aside this week as there will be jackson hole until through Saturday - I read its held once a year so whatever that they may discuss at jackson hole must be taken seriously. Thus I’m cautious to make any moves this week anymore.

By applying all this as time goes on as I get better at this, I should be able to hold trades longer. Feel at ease. Obviously I need to constanly monitor my trades. As we’re putting all this work into this I wanted to aim higher FE… you see there’s bunch out here on these forums looking for systems that will produce 2o pips a day or 100 pips a week. And I think these systems exist. These guys arent doing much but still able to profit about the same or much more pips than I do. That was my point. Then whats the use for doing all this , i should aim higher - hold trades longer.

[B]Mike…[/B] I applaud your confidence. I wouldn’t have been able to hold my trades through FOMC minutes and jacksons hole summit and BOE, RBA minutes. So much to pick up from you guys. I’m thinking of going long term lately. And if you read what I wrote above a response to FE I think this should give us an edge to hold trades in a longer term. Combining it all together and monitoring any changes on a weekly to daily basis with stop losses in place obviously. You just never know. But as I am slowing realizing the importance of fundamental and sentiment we might just be able to predict further ahead. We can play an analyst/economist of our own. We keep doing what we’re doing now and I think we will get there.

Look out for AUD and JPY Mike. Both had just published positive data. I will go in that later during the weekend on my report.

See you guys around !

I do think you should put some stop losses (or just cover your position and keep them running). 250 pips is a good return, well done.
On your Comms vs Majors meter I was wondering if you could also start compiling the data for the longer run (I’m willing to help if its too much work). You already do the sentiment for the day and the week. But how about compiling the weekly ones you do and make a monthly sentiment and then a quarterly sentiment.

My thinking behind this is that your sentiment should, at some point, be very similar to the strength of the currencies in the COT report. If that is the case then we can use it for confirmation of our set-ups, finding longer-term opportunities, and trying to confirm potential reversals if we find divergences in your report and the CFTC. Am I making any sense?