COT Report Analysis - a thread on market sentiment

Trading Discussion News and Economy
221

On GBP, the commercials (banks) are continuing to dump their short positions in the futures market. My feeling is that these hedged positions represent their risk in the spot and therefore if exiting hedged shorts in futures then they must likewise have exited longs in spot.

Another clue was the slightly poorer manufacturing numbers and reaction of price. A few months ago we saw something similar, but the very next day the market shrugged off poorer mfctr numbers for UK as being unimportant (after all the UK is not a major player in world Manufacturing) - not so yesterday - there was zero GBP support (bank buying) for the pound, yet many expected it.

I know of one very successful trader (not me :)) who continued to buy GBP yesterday assuming that the usual bounce would occur, he was probably heartened to see the bounce in the correlated Fibre, Cable didnā€™t want to know.

Last weeks report was the reason I said that it was an outlook changer for me and probably the only reason that I too wasnā€™t on the buy the bounce trail.

Is it a complete reversal or a just a correction? - these days I seldom think in those terms, I have learned not to have a bias, I just have an outlook - I find for me that my bias would always get in the way - caused me to try and be right in accordance with my bias.

Now I just go with the flow :slight_smile:

222

Hey FE.

I just poked my head in now. Thanks for the report! Good stuff.
I just wanted to say one thingā€¦now.
Lots of interesting things, but, with the EUR your talking about. I think, like I said a little bit earlier, that the reason why they have been going up the last day was because of their relationship with the USD. I really believe thereā€™s a correlation going on. And itā€™s not just due to the USD going up, but also in respects to the comms weak and risk on/off factor also. We know it isnā€™t because of them by themselves. How about thisā€¦EUR/USD went down (data factor on fri.), meaning EUR went up and therefore affected all the other pairs similarly (EUR up).
Look, I donā€™t know. Really. BUT, I do think that due to the nature of 2 currencies being paired, that thereā€™s a correlating factor going on. And who knows exactly what ALL that entails.
I do agree with you that it should be short term only. (kind of reminds me of the JPY).

Well, this is another point to remember. I should start writing down these correlation truths. Cause we all know that history repeats itself. Also humans are creatures of habit. So, what will I write down? Maybe when the USD gets weak, how does the EUR react? UP.

So, I guess my whole point is what factors makes currencies move. Itā€™s not always strength or weakness (within the economy). But a correlating factor within everyone on the board, in itself. Cause we need to remember that it is sometimes the money movement, preferred pick, more than a purposeful aim (with their money). SOMETIMES.

Mike

223

Hey guys!

Hereā€™s the update of COT non commercials report as of 29 July 2014

[B]AUD[/B]

Net position: 39,606 (+813)
Open interest: 106,836 (-)

Buyers have added onto their longs last week as we see an increase of 813 to 39,606 from 38,703 while open interest has decreased slightly. Aussie dollar still looks strong with majority holding long.

[B]CAD[/B]

Net position: 22,691 (+2110)
Open interest: 122,619 (-)

Like I mentioned in my previous post buyers have been adding on to their longs progressively since 1 of July when CAD net position readings took a reversal from minus to positive readings. Last week buyers have added on their longs once again with some drop in open interest. While we have been seeing a nice steady increase in net position crude oil price is stuck between $97-105 trading range a major support area. US domestic oil production hit 25 year high in addition to that Iraq and Libyaā€™s oil production doubled pushing oil prices further down. On the other spectrum the dollar index is trading near major resistance that if it breaks out there might be a further decline in crude oil in turn will affect the value of CAD.

[B]NZD[/B]

Net position: 15,289 (+157)
Open interest: 30,531 (-)

There was a small increase in net position from 15,132 to 15,289 with decrease in open interest. The lowest net position reading was on 17 June 2014 at 3,733 since Sep 2014. Since then the kiwi has been climbing up higher at a steady rate. Compared to its other peers /comms/ NZD has been enjoying a positive readings for most of the weeks for the last year with only 4 weeks of negative readings. But with declining dairy price /demand/ and overproduction will NZD be able to hold up its value and enjoy net positive readings any longer against other currencies ?

[B]EUR[/B]

Net position: -108,075 (+19,252)
Open interest: 356,865 (+)

EUR net shorts have increased quite a bit again from -88,823 to -108,075 as longs in % declines.

[B]GBP[/B]

Net position: 24,910 (-2587)
Open interest: 237,411 (-)

[B]JPY[/B]

Net position: -73,069 (+19,153)
Open interest: 172,210 (+)

JPY net longs in % has dropped down to 8.82% while net position has increased further more from -53,916 to -73,069. The highest net position readings was in Dec 2013 at -143,822. As I have mentioned JPY has always had a minus readings mostly within around 50,000-80,000 range.

[B]CHF[/B]

Net position: -11,764 (+4384)
Open interest: 44,022

Iā€™m looking to take long term trades with short EUR/AUD, EUR/JPY and EURGBP as they seem to be trending. I was also eyeing on CAD/CHF and EUR/CAD but the trend seems to have been broken my technicals tells me so and when I look at the charts. Both of my short term long/short trades have been closed SL triggered. So Iā€™ve crossed CAD/CHF and EUR/CAD out.

But Iā€™ll also be paying close attention to US dollar index as they are nearing key resistance. If thereā€™s a break out and an uptrend starts my outlook on commodity currencies might change to bearish that includes CAD as well. Until then Iā€™ll short EUR as they seem to be the weakest of all but only if my technicals align with my bias. Iā€™ll keep you guys updated!!

224

Hey Mike!

It will take some time to figure things out, the correlation. And like you said it should give an edge as you start to choose high probability trend trades.

Just for an idea correct me if Iā€™m wrong, weā€™ve all heard how USD is negatively correlated with plenty of commodities like gold, natural gas and oil while these commodity prices surge higher USD drops and vice versa. AUD, CAD and NZD are somewhat dependent on commodity prices as commodity exports constitute a significant part of their economies. If Iā€™m still on the right track then it makes sense that their moves are somewhat similar as they are dependent on commodity prices. I was trading AUDUSD and NZDUSD for a while and I can tell you that their moves have been pretty similar to each other against dollar at least.

Its all going back to the flow of things again. If its not the major it still is a contributing factor I think behind the flow of things major v comms.

PS: I just read an article that gold price rises on tensions in ukraine and gaza what will happen to USD then ?

225

Hi peterma!

Great to read your thinking. I always look what the top traders in Zulutrade do. Well, the number 1 has the same problem who has the same problem at the moment as your ā€œgood traderā€ friend. He was buying the whole time GBP/USD and the bounces just are not coming!

I do not know if you actaully read our posts or not, I wrote something similar a couple of days ago for the USD. My trade plan was for a weak NFP report to trade the bounce as I have a bullish bias. I traded it but until now it did not work. I am not worried until now, but I was suprised as the USD did not erase the losses within a couple of hours.

Regarding the GBP I think the same as you, also had some good GBP short trades. If you like, we can call it an outlook and not bias, so I have a bearish outlook for GBP at the moment. It is good to read you have the same because I read everywhere and see that people only think it is a correction but the reaction for the GBP news are not normal. So we will see probably in a couple of weeks if it is a reversal.

Which report do you mean exactly to be a game changer for you? And sorry for not understanding, but I do not know what you mean with ā€œFibreā€. What does that mean?

The Bible is great, I share my thoughts on it daily. Today I read exactly the part that you actually shared in the forum already. Do you read it again? Any other surprises in the new COT report for you?

226

Wow Mike,

this post made me crazy :slight_smile: It was complicated for me. Hmmm it is logical if USD is weak EUR goes up. However if you look at the reaction for the NFP report, USD was weakening the whole board, but it found a resistance level but vs. the EUR it was weakening further on!

If it was vs. JPY or CHF then I would say it is a safe haven thing in these days. But the EURā€¦ Just do not get it.

It is funny guys that all 4 of us are posting in the same time on a Saturday! :slight_smile:

227

Hi rookie,

great stuff with net positions. I am reading great examples in the book about net positions. It seems like that it will bring us more than my percentile comparison. Although our results and suggestions are the same, for historical comparison and finding the turning points it is better to use net positions vs. percentile comparison.

Can you make an extel table about it? It would be great to have an excel table where we have the non-commercial net change and the price action to it. That helps a lot. You know what? I will check it on the net. I have saved alread some links. This might be good: Forex COT | Commitments of Traders Report | COT FX | OANDA fxTrade Canada

The correlations are also great, especially good that you are looking for Oil prices for Canada. You made me a bit uncertain about CAD.

Regarding to NZD I am very bearish now.

For your trade setups. I do not want to influence you, only my thoughts:
EUR/AUD: I dont know
EUR/JPY: agree
EUR/GBP: I think they are both bearish. Maybe I am even more bearish on GBP. The only setup that I find dangerous.
CAD/CHF and EUR/CAD: sad story, especially because exactly the same happened to me :slight_smile:

According to short bias, I am very bearish on NZD and GBP at the moment and EUR has bronze medal only :slight_smile: Read also what peterma wrote, might be helpful before you take the trade.

228

[I]I continue now a new series here, I write here down my own thoughts about my first 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. 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]

This review has many information what peterma already mentioned in comment number 139: 301 Moved Permanently

[B]Fading Small Speculators and Other Half-Baked Schemes[/B]:

[I]Tip: Always follow commercials.[/I]
For most of us, better results will accrue from buying at the moment commercials quit buying (or moving short just as commercials stop selling). It is rare to see commercials stop buying before prices find a bottom, or to see them quit selling ahead of a top. I use the term ā€œcommercial capitulationā€ to describe these rare events, which are the only occasion when it is safe to buy while commercials are still buying.

[I]Tip: Net long is bullish, net short bearish.[/I]
Large speculators: their market activities are purely profit motivated, so if they are holding more short than long positions in net, you could say that as a group, the funds are bearish.

[I]Tip: Always fade the small speculators.[/I]
The includes small commercial hedgers as well as small speculators - a critical, frequently overlooked nuance. The presence of commercial hedgers makes categorizing problematic.

[I]Tip: It is only logical to compare hedging to the seasonal average.[/I]
I grant you that it may be logical to assume that commercial producers and users, at least in agricultural markets, have hedging requirements that might change with the seasons. Seasoned charts are easily assembled from weekly COT data; just sum the net positions by week and divide by the number of years.

[I]Tip: the COT is old news by the time it is related.[/I]
You will come to appreciate that analyzing COT data in anticipation of gaining a trading edge is an attainable goal, but one that requires paying due attention to the details, and particularly to the nuances.

[B]Net Positions [/B]
The Commitments of Traders reports are devoted exclusively to the domain of open interest. There is no price or volume data contained in the COT reports.

[I]Open interest:[/I] open interest is the total number of open contracts at the close of trading.
The most common format used to visualize the Commitments data for analysis is a net position chart. Important are the comparative levels and patterns visible, particularly hen net trader positions are compared to price actions.

[I]Large speculator patterns[/I]: the weakness in the fundsā€™ approach is that they typically are caught holding their largest position - in the wrong direction - at market turns.
The large speculator group reveals a strong pattern of trend-following trading style. This is the group that fuels trending moves.

[I]Commercial patterns:[/I] unlike funds, commercials are usually positioned to profit at a trend change. It is rare to detect commercials running out of buying (or selling) capacity, no matter how far prices may move against them.
Funds buying and selling fuels uptrends and downtrends, respectively, while commercials buying halts downtrends and commercial selling caps price rallies.

[I]Small trader patterns:[/I] the variability in trading patterns makes the small trader category the least reliable in terms of market timing.
In general, the small size of their market share and the unevenness in trading patterns keep them from being reliable trend indicator (or consistent counter-trend indicator, for that matter).

[I]Summary[/I]: this was the most interesting part of the book until now, and Mr. Briese writes that the chapter on Net positions is the most important. Much more I cannot write about it as there are many graphs and examples. Only because this one chapter I think it already worth it to read this book. What is interesting for me though that I do not always find that the ā€œ5 Tipsā€ Briese wrote, he really follows it too. For example he wrote to follow the commercials but it is not really the case what he does as I read the book. Or probably it is the case but it does not make that impression. ā€œNet long bullish, net long bearish.ā€ - well this might be true as well, but net long who and net short who? :slight_smile: Quite important to know of course.

229

Hey FE!

How about this, Iā€™ll analyze the commercials and youā€™ll keep doing what youā€™ve been doing that is to analyze the non commercials but add net position , open interest and price action on top of percentage changes.

I think it makes sense to shift things this way as we were working on pretty much same the thing instead if we look at things from non commercials and commercials point of view we might be able to better understand their relation. Thus hopefully gain some edge over the market. Like Mike mentioned in his earlier post I agree that both are important and we shouldnā€™t neglect one or the other.

I was reading your post ā€˜the bibleā€™ and I came across this tip : always follow the commercials. That got me thinking look at NZD non commercials net position for past two weeks and % changes and CAD as well. If we were to purely establish our bias based on non commercials that doesnā€™t seem to be working all too well.

And then thereā€™s correlation Mikeā€™s part , I thought about adding commodity prices. I have been reading and looking at charts and there seems to be correlation. Though it canā€™t be perfectly correlated all the time it should give us some edge. AUD and NZD moves are positively correlated at least against the dollar from what Iā€™ve observed. China being their biggest trade partner and Australia for New Zealand might be one reason. And both CAD, AUD and NZD is vulnerable to changes in energy commodity prices especially CAD and AUD.

On the other hand USD is inversely correlated with energy commodities and gold. Thatā€™s all Iā€™ve gathered and I thought putting all this in should help us understand the flow of things better. I have no idea where EUR and GBP other majors stand in this.

USD is running high and EUR has strengthened and Iā€™m unsure to go long with AUD or any other commodity currencies as both energy and agriculture commodity prices are down. But regardless I have my fibs on EURAUD EURJPY and EURGBP charts. So far theyā€™re all heading up no sign to be coming back to fibs retracements areas. So Iā€™ve still got time to think.

Hopefully weā€™ll get this!

230

COT commercials data as of 29 July 2014

[B]AUD[/B]

Net position: -45,930 decreased from -47,080 by 1150
Open interest: 106,836

Long & Short in %
Long: 13.78 from 10.98
Short: 86.22 from 89

[B]CAD[/B]

Net position: -26,875 increased from -26,406 by 406
Open interest: 122,619

Long & Shorts in %
Long: 35.71 from 35.74
Short: 64.29 from 64.36

[B]NZD[/B]

Net position: -16,555 increased from -15,877 by 678
Open interest: 30,531

Long & Shorts %
Long: 12.91 from 12.26
Short: 87.09 from 87.74

[B]EUR[/B]

Net position: 155,583 increased from 130,995 by 24,588
Open interest: 356,865

Long & Shorts in %
Long: 71.94 from 68.77
Short: 28.09 from 31.23

[B]GBP[/B]

Net position: -37,541 decreased from -44,886 by 7345
Open interest: 237,411

Long & Short in %
Long: 43.37 from 42.58
Short: 56.53 from 57.42

[B]JPY[/B]

Net position: 98,799 increased from 73,136 by 25,663
Open interest: 172,210

Long & Shorts in %
Long: 76.03 from 70.22
Short: 23.97 from 29.78

[B]CHF[/B]

Net position: 22,874 increased from 15,450 by 7424
Open interest: 44,022

Long & Shorts in %
Long: 90.33 from 87.31
Short: 9.67 from 12.69

What a contrast! Majority of commercials are short on AUD, CAD and NZD and long on EUR,CHF and JPY while there seems to be some indecision on GBP. Iā€™ve also wanted to see how much % does commercials net position take up in total open interest. Thought that would give more accurate data than long and shorts %. But I think Iā€™m calculating it wrong. Any ideas ? maybe we can compare net positions held by commercials v non commercials. That would show who holds more power over the other and we can sail to that direction. What do you think guys ?

231

Hi rookie,

ok lets do that with new reporting distribution!

About NZD. I am actually bearish on NZD exactly based on what I read in the Bible. I hope I understand the thing good. I looked at the NZD chart at Forex COT | Commitments of Traders Report | COT FX | OANDA fxTrade Canada and it tells me that Non-commercials hold their amount of long positions (actually even raised it a bit) but price was still falling. In my interpretation this means that they are not able to hold the price up. Of course there net position is not an extreme level (that would be about 20 000) but price still decreased without decreasing the net positions.

The CAD is the same story. However I did not find that out about the CAD. Great indicator! I might close the remaining CAD positions!

Correlations can give a huge edge I agree. China is something we have to look for. Oil price too. However if I add always new correlations then I am afraid to finish in chaos and will not understand anything. I think we progress fast (which is good) but maybe too fast (which might be bad). I try to be a master what we do now and later on add new stuff to it, like more correlation. I say that despite the fact that I am reading every day hours of fundamental news.

I cannot answer for example to your gold question. In times of fear gold should go up I think however as USD is also a safe haven, the question is good.

I also do not go long with any commodities next week. Important point from you. I am still worried about your EUR/GBP short but I wish good luck to you with it.

I think the last weeks I made the mistake that I wanted to understand too many things and paired many possible cross currencies. I should have chosen a lot less and would have been able to manage my trades better. I try to have a lot less pairs next week and see what it brings if I fully concentrate on those couple of pairs. Until night I think about the setups and post it so we can compare them.

232

Hi rookie,

I am not sure if comparing that commercials and non-commercials net position brings something for us. At the end they have to be a zero sum with the small speculators. I did not read until now anything anywhere about that. I only see that analysts concentrate on the amount of net positions and what their chart pattern shows. We have not looked at chart patterns at all, I do it from now on. For that reason is important to understand net positions. But comparisonā€¦ hmmm I do not know about that one.

I think your calculation were right!

233

Hey guys.

Iā€™ll paint what I know.

Weekly shake out. USD: strongest
EUR:
CHF:
JPY :
NZD:
CAD:
GBP:
AUD: weakest

Majors took it : +20
Thatā€™s 2 weeks in a row. Momentum gaining.

Well, there has definitely been some trend changes this week. (not good for me)
Iā€™ll give you a before and after, for the week.
LONG TERM: (strength by trending, over a longer period, months out)
Beginning-------------Ending
1. CAD----------------USD 1.
2. GBP----------------AUD 2.
3. AUD----------------CAD 3.
4. JPY-----------------GBP 4.
5. USD----------------JPY 5.
6. NZD----------------NZD 6.
7. CHF----------------EUR 7.
8. EUR----------------CHF 8.

SHORT TERM: (strength by trending, over a shorter period, weeks out)

          1. JPY-----------------USD 1.
          2. AUD----------------JPY   2.
          3. USD----------------AUD  3.
          4. GBP----------------EUR   4.
          5. CAD----------------CHF   5.
          6. CHF-----------------GBP  6. 
          7. EUR-----------------NZD  7.
          8. NZD----------------CAD   8.

So, what happened last week. (l means tied) (similarā€™s match)
Monday:

         AUD l 
         CAD l  
         EUR ll             
         CHF ll                
         GBP              
         USD                
         NZD                  
         JPY

Tuesday:

            USD 
            EUR  l 
            GBP  l 
            AUD  ll 
            JPY   ll  
            CHF 
            NZD lll 
            CAD lll

Wednesday:

            USD 
            EUR 
             GBP 
             NZD l 
             CHF  l 
             CAD 
             AUD 
             JPY

Thursday:

             NZD 
             JPY 
             CAD l 
             USD l 
             CHF l 
             EUR 
             GBP 
             AUD

Friday:

        JPY l 
        CHF l 
        EUR 
        AUD 
        USD ll  
        CAD ll 
        NZD ll
        GBP

So, we got 2 of the 3 comms taking the first day. Then the USD started its roll on up, beginning on tues early. They ended strong through wed. They then corrected on thurs., which then the NZD came on back. Actually look at their progress, up to that point. Also to note is the AUD. Look at their progress. Was the opposite of NZD. Ok, then came friday, and everyone knows what news came out. But did anyone know who took it? Interesting how the JPY and CHF tied it up for the strongest that day. Well, I guess if you canā€™t run to the USD, then thereā€™s your next best thing. Safe haven. Also to note is how the EUR was up on the heals to the USD, as we have been mentioning.

So this week. After just now looking at whatā€™s on the docket, looks like much news coming out for the comms. Wow. Just had to take another look. This is gonna get interesting. The comm dolls are going to be in the spot light. For all 3 of them! So, this is what we have. Majors taking over the market lately and seemingly gaining traction. But, with a let down on fri. (sentimentally speaking), I just wonder if the market is going to turn itā€™s head back towards the comm dolls. Look, you have to agree with me on the point that the market was setting up for something big to happen to the USD on fri. Even 2 weeks out! But, it just didnā€™t come to fruition. So, now what? Whoā€™s gonna be the target for their money? Majorsā€¦Commsā€¦Safe Havenā€¦Iā€™m thinking it will go back to the comm dolls. They have had a good trend (broadly speaking) going this year so far. A few corrections, sure. Has to happen, but nothing lasting, so far. And on the other side of it is the USD strong enough for money to be parked there, for awhile? There was a lot of excitement coming for USD, but it seems like they lost their sailā€¦from what was expected anyway.

Well, I personally have to make some adjustments on my trading plan. I do know that Iā€™m not going to trade on the short term of things. And Iā€™m not going to keep track of the 8hr trending figures. Itā€™s just too much work. And on the long term side of it things have changed! You know, at the start of the week there was 11 pairs trending long term (in my estimations). And now there is only 2. EUR/USD and USD/CHF. GBP dropped 3 pairs trending long term.
AUD dropped 2 pairs.
EUR and CHF strengthened much and took out 8 pairs. (overlap)
JPY weakened (what can I say, they trended against EUR, CHF)
So, yep, I got burnt this week. Hey, at least I can say, ā€œif itā€™s trending Iā€™m in itā€. With the 2 going still anyway.
Sorry I donā€™t have much of an analysis this week. I will be leaning on your guysā€™ info. And what good stuff from both of you!!

Mike

234

FE, this was my thinking at the beginning of last week after reading July 25 report - on GBP cot postions.

This past weekā€™s GBP report continues the most recent trend of hedgers exiting their short positions

The fibre or fiber thing is a market nickname for Eur/Usd just as cable is for Gbp/Usd, the clear break of correlation confirms lack of pound buying by the market movers in spot.

In the olden days they laid a cable across the Atlantic to transmit data, not sure whether they laid a Fibre Optic mind you.

I enjoy all the post this thread - anything that provokes thought is always worth reading. :slight_smile:

235

Hi all 3 of you,

I was waiting for Mikes analysis before making the decision. I first looked at my own analysis, looked at the net positions from rookie, read the advice from peterma and looked the trends from Mike.

Hmmm by Mike I found something surprising. Although the clear momentum favors the Majors, Mike is still on the side of the Commodities! Interesting. Especially since Majors were winning. Good observation that at the moment it is not only Majors vs Commodities but the Safe Haven comes in which is a boost again for the Majors. So the question is this Safe Haven ā€œthingā€ how long it will last.

I agree very much with Mike. I was thinking today a lot on the long term trend and I do not think it is the right point for that kind of trade for me too. There is much uncertainity. I think if someone has very good analytic and fundamental understanding, then he can make now huge money. It is because this kind of person knows if there are trend changing or big corrections. I do not think that any of us can say something like that at this point for sure. With GBP I am more on trend changing but it is of course my view. The point is, next week I will do daytrading or scaling, just like Mike.

Here comes the important part. Looking at all the information, I have to say it is the first week when I think we are a bit devided. It does not mean that one is better than the other. God, at this point it would be brave to write something like that. However our view of the market is different. rookie is on one side peterma and me are on the other and Mike is uncertain. The most difference and discussion comes because of GBP. I am interested what happens.

My [B][I]long-term trades[/I][/B] that are still running:

[B]GBP/JPY[/B] and [B]EUR/JPY shorts[/B]: I still believe in these setups but not 100% sure. The first is green, the second red at this point.
[B]EUR/HUF and USD/HUF shorts[/B]: I have very very very many short positions which gives me headache at this point. Friday night the trend changed finally but it is still way up compared to my medium entry point. I am quite sure they will go down but it might take a long time and that takes quite a lot of margin away for me. Carry trade gives me a bit of money. But I do not think anyone is trading these setups so I leave the further analysis.

[B][I]Short-term trades:[/I][/B]
Here is very important, I think I had way too many setups and pair and currency crosses and that was seen on my results and poor trade management even when the setups were good. I will reduce the next week the number of setups and only look for long USD trades. I beleive at the moment for USD strength and bounces from negative reports. Like I say I do not plan long trades during the whole week but short opportunities to ride. These are the pairs where I look the opportunities:

Most important:
[B]GBP/USD short
NZD/USD short[/B]

I am also looking to:
[B]USD/JPY long
EUR/USD short[/B]

Like Mike said, commodities losing some value but with AUD and CAD I do not yet see such a clear picture so I do not want to get involved at this point. I rather want to make pips where I feel myself more comfortable.

I wish us good setups and many pips!

236

Hey FE,

Well we might have had different opinions but our setups are once again about the same. I pulled in my charts looks like NZDUSD is having a reversal to the downside Iā€™m short once my signal triggers and short with EURUSD as well.

Like Mike said on the long term things have changed a lot. AUD , GBP and CAD is no longer trending with most of its peers. I was eyeing on them. But I think I was too late.

I haveā€™t placed a single trade last week guys. Iā€™m planning to trade on the longer term now. Like Mike going by the philosophy when thereā€™s a trend Iā€™m in it. Well I didnā€™t realize it takes a lot of patience to wait for the right opportunity to jump in. I was looking at my fibs key retracement areas the whole week with few AUD and CAD set ups oh boy they didnā€™t come back but instead shot even higher away from key retracement areas. I was disappointed. But weā€™ll see what happens :slight_smile:

And by the way I like how you integrated price action as part of COT data analysis, was it in the bible ? I agree that it is crucial to look at the price not only net position changes. Iā€™m bearish on NZD as well and this is how I came to that conclusion. We can clearly see non commercials have been holding onto their longs for a while now with not much change /drop/ and longs in % have been above 70%. And like you said even though theyā€™ve been sticking with their longs by adding some they still havenā€™t managed to push the price higher. Now if we look at commercials last weeks data net position came out at -16,555 and they have added on their shorts +678 with shorts at 87%. They way I see it is that non commercials have been buying when price was running high hoping that it would shoot higher while on the other hand commercials have been eyeing for a good price higher to sell. I looked at my daily charts NZDUSD and it looks like reversal is taking place i already see two legs down. Since commercials hold a bigger portion of the pie when they start selling there will be a turnaround. And commercials knew that NZD couldnā€™t jump higher than what it already had at least for now. There comes market sentiment the fundamentals havenā€™t been too good for NZD as well for it to jump higher. Thats how I wanted to incorporate commercials into this for us to be able to get a better understanding and accurate bias by looking at price from two dimension not just one.

Good luck guys!

237

Hi rookie,

Yes, I read about the importance of the correlation between net position and price level change in the bible. It is a great tip as I never thought of it and actually without the price level it is hard to understand the story. We do not only have to look what happens with positions but how price reacts on it. For this purpose, if I post the net open positions for non-commercials, I guess you do not have to post it for the commercials as they are basically the same in the opposite direction. It is important though that you look how people reacted to the new commercials moves. That might be a bit different then non-commercials and it could help us!

Your last paragraph is the point. I think you made a mistake thought. You wrote: ā€œSince commercials hold a bigger portion of the pie when they [B][I]start selling[/I][/B] there will be a turnaround. And commercials knew that NZD couldnā€™t jump higher than what it already had at least forā€¦ā€ Did you meant to say when they [I][B]start buying[/B][/I]? I mean commercials were selling the whole uptrend so they have to start buying now.

Good luck!

238

Hey rookie!

Wow. I am really impressed. You didnā€™t even place a trade last week! YOU got some patience.
So, Iā€™m here wondering what to do. And I have to remember what I said. If the market is trending, Iā€™m in it. Also, if itā€™s not, then Iā€™m NOT. Now I just wait for the levels to hit, for the trends to occur. I looked at the NZD/USD and see that there is a level coming soon, to turn to trending, down. I am in on only 2 now. EUR/USD and USD/CHF. I have stop losses in place and itā€™s coming pretty close to them now. So, weā€™ll see.

Longer term trading it is. Iā€™ll keep you guys up on my trades.

Thanks for an encouraging post.

Mike

239

hey guys,

interesting and useful discussion going on here. thanks for sharing your ideas. i will subscribe to the thread and maybe pop a question or two occasionally. iā€™ve just started paper trading for 2 months (and currently in the freshman year at babypips), so expect some newbies questions. keep up the good work, guys.

cheers.

240

I continue now a new series here, I write here down my own thoughts about my first 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. 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.

The COT Index

The COT Index formula is identical to George Laneā€™s %K stochastics indicator, substituting net positions for price. Net position patterns vary by trader type, by market, by trend, and by time period. The COT Indexes convert net positions to a 0% to 100% bullish scale. This number reflects where the current net position ranks as a percentage of its range over the recent past. The most common look-back period used for historical comparison is still the original three years.

The COT Index tells you at a glance whether large commercial traders are positioned bullishly (close to 100% COT) or bearishly (nearer 0% COT).

Many traders follow the proprietary look-backs used in indexes freely available at www.CommitmentsOfTraders.ORG

Even though the COT Index has its drawbacks it is a great normalizer, which can simplify a weekly scan for significant COT changes.

Interpreting the COT Index
The commercial COT Index is probably the most popular Commoitments indicator.
A 90% COT reading suggests a commercial buying climax; a 5% reading implies commercial selling climax.
For a buy signal, that the current commercial net position is within 10% of the most bullish net position over the look-back period (usually 3 years).
For a market top signal, I usually like to see the commercial net position within 5% of the bottom of the historic look-back range.
Downtrends: are the time to pay attention to COT sell signals. Bear markets ignore COT buy signals, and consequently the failure of the COT buy signal to hold support served as convincing evidence of a developing bear trend.
Uptrends: There is a simple rule for uptrends: COT sell signals are usually premature, sometimes by a lot. In bull markets, we watch for commercials to point out buying opportunities, but their proclivity for scale-up selling makes them too expensive to imitate as sellers.

COT Movement Index
The rate of change, or COT Movement Index is simply the difference between the COT Index and its reading of on or several weeks prior. I use six. The scale is double the COT Indexā€™s 0% to 100% because the maximum COT movements are from 0% to 100% (+100 points) or 100% to 0% (-100 points).
Dotted lines are drawn at Ā±40 points surge in the COT Index within a six-week period frequently marks the end of a counter-trend price reaction. Anyone who watches the COT Index for extreme readings, but does not monitor its rate of change - the Movement Index - gives up a potentially valuable trading edge.

Summary: these two chapters of the book covered the two indexes: the COT Index and the COT Movement Index. As far as I remember rookie was already writing about the importance of the first index. I never heard the second one. Important to keep in mind that both of the above mentioned indexes are tracking the Commercials. Also do not forget: as I read the examples in the book, these indexes are not as easy to interpret as a simple stochastic or RSI! They are useful but trciky!

It is also easy to get lost with these indexes. The author also says that everyone can make his own index and add more and more but it might be better to stick to the main indexes. As he also wrote it is confusing, I did not write down here the Fund Movement Index, which is also only 1 page in the book.

I have an important question to you guys: do you have these two important indexes in your charting program? I do only have the Commodity Channel Index which is probably not the same. Or are you guys looking at it on a website? Please tell me the source, because I want to be better in it but without the oscillator I cannot give better forecast!

Have a great week to all of you and keep us updated what works and what not! It takes some effort to beat this market!