COT Report Analysis - a thread on market sentiment

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925

Hi Philip,

I agree the bias is the most important. That is why I trade GBP/JPY also with caution as it is vs my bias what I definitely don’t trade often. I just try here a short-term technical setup and it is also actually vs. my own bias which is quite bad, I have to admit. Your long GBP trades can make definitely some money. It would be great if the pair moves down to give me short-term win and then turn to give you a longer-term win :slight_smile:

I actually have to say Mike that Philip is right again. We really have to invest now the time to get our system working better and better and the thread is changing continuously, keeping the COT in the middle point. After time we will see what works and what not. We will I guess always do our COT analysis, define our bias, get maybe confirmation with COT Index and enter the trades. If COT index does not work then we get something else. Point is to get more efficient and with the time it goes faster and better.

Philip mentioned the new system vs. our own analysis. It is hard to compare in the beginning of the test but that is how I see it: with our analysis we might define the very big reversals better and faster. This “new” system should give us though great entry points along the way for during retracements and using the MA and the COT Index it is actually a quite strong mix for confirmation. I think it is not a bad idea to define what we expect from our analysis and what form this system. The two together can be extremely powerful. Just think about it: if we defined the turning point with EUR/USD with our analysis and made 4-5 scaling in during the trend with COT Index!!! Boys, that would have been something! It will be great to hear Peter on that. I do not know if he wants to read the whole discussion though. :slight_smile:

926

BTW Philip, how do you calculate COT index for crosses? If I remember right, Briese discussed that you can do it with taking net position of JPY (example) and net position of GBP and add the two. Then from these numbers you can make your own COT index for any pair you want. Now this is possible but a lot of work for every single cross to do! On the timingcharts.com website I can only use COT for the USD pairs, that is the reason why I mainly analysed these 7 pairs.

Guys, Jack the Pipper is always great with analysis, here is his article, which is really worth to read:
Hodgepodge: EU/Oil/Aussie/Cad/Manias

Poor flows, I think I scared him away :frowning:

927

Thanks for putting it out there FE! I almost bought the whole thing. I assumed you guys well flow and Philip were already entering trades based off of that site. I should have read between the lines :sweat_smile:.

I am ready to test it out. I actually find it very useful I’m willing to check if there’s any data error as well I can test it out with small units. I actually had an idea I’m running to gym now I’ll write it up later probably tomorrow morning evening for you FE.

928

Well FE as I said I noticed a bearish divergence my self on the pair so I’m giving you some confirmation for the trade as well :slight_smile:

You raise a really interesting point about the COT Index for crosses. I haven’t done it! But it’s a great idea and I have all the information to construct it. The favor I would ask you is you can quote the rules from Briese as I did not buy the book yet.

One bit of information, the charts we see on the COT index are technically not FX pairs, they are futures chart of the currency. In futures you do not trade in pair like we do in forex. I would love to start doing the index for pairs if you just help me with the exact rules from his book. I will give it a go though until you do that and will share my findings.

929

Hi guys.
I’ve been with you this morning. Woke up at 1:30am, and got to working on that stuff. So, I got a long morning out of it. "(man, I should wake up like that on the weekends…I can get some real work done then, huh?)"
Well, I appreciate all the kind words.
And just so you know, I ordered the book this morning, (from breise) so it will take a couple of days to get here. I’m very interested in joining you guys on that stuff. I have been!! I will get there soon enough guys.
I’m also itching to start running some kind of numbers in regards to the COT index that we want, crosses.
The wheels are turning, we’ll get there fellas.

I’m in touch here.

Mike

930

HI FE,

Lol, I’m still trying to understand the materials. I know you guys are at full throttle here, but I learn rather slowly :smiley: I’ll go through the site and post what I understand this weekend.

Cheers,

931

Hi Philip,

sorry, I am a bit confused. That is why I asked how you calculate crosses. On the post quoted you refer to GBPCAD and NZDCAD. I thought you made these conclusions why you already use the cross COT Index. But as I see not, so I write down later the rules but I think it had only to do with adding the net positions for the two currencies. I keep you updated.

Mike, great that you have soon the book and you can read it.

932

Hi flow,

as you see we are discussing all the rules for COT Index this week. If you read the posts and wrote down the rules (or remember it) then you know about as much as everyone else. This is the testing phase.

Thanks for you involvement and we are waiting for your findings. Do not get disappointed if you do not see any signals, although on the AUD with Philip we have a feeling that a signal might show up :slight_smile:

933

Hi guys,

I have been thinking in the last two days something that Philip said.

It is about the not too many signals and commodity signal number vs. forex. Well, my conclusion is that we really have to expand the portfolio besides currencies. I do not want to work more as we already do a hell of a lot, but I think it would be good to discuss this issue.

The fact is, I remember in the two books, most of the examples were coming from commodities. These commodities we can also trade in our brokers. We do not have to open new accounts for gold, oil soybeans etc. I do not know if my statement is right because I have almost only traded currencies but as I look on charts, commodities have longer bull and bear markets. [I]This means, with the same kind of analysis what we do now, we have the chance to make money on the longer TF.[/I]

[I]At the same time as Philip already mentioned, there are very few signals/market. If we follow all markets, it is possible to get 1-2 signals altogether/month.[/I] This means if we only follow 7 currencies, this might be 1 valid signal in 2 months and as the currency bull/bear markets do not go so long, we reduce our chances to win.

My suggestions would be to follow the COT report like now and work with currencies, at the same time mastering the COT index. It does not make sense to open up a new issue until we get the index right. As soon as we get the index going we can talk about looking at all markets.

With flows we are already 5 working people (I do not count Peter as he is helping us out in everything). This is already quite a strong power where we can build our “company”. Soon we even need managers :slight_smile:

If we get to follow the markets another step would be to have a shared Google Drive or other solution. This would be essential in the long-term. I share with you without any problem all my non-spec number, open interest and net positions. These are all my own data gathering and important for the analysis. Philip talked about efficiency. It is crucial for me to start working with commercials numbers but it is just time again to calculate them too. So it would be a lot better to get from Philip or rookie who has it anyway. For the same reason, for you guys it is not useful to calculate open position, net position and specs, I do it anyway. This is a huge step in efficiency.

Just think about: I have a new idea now, if we had a shared document, I could just try it. I can’t do it as I do not have the data so I have to start here writing and discussing the idea on many pages instead of just getting it and try it.

The last thing: it would be great if everyone would follow Mike and read the books. My recaps are quite ok (sorry to say that :slight_smile: ), but looking the charts live is something different. I also understand why Peter read the book 3-4 times. The first time is slow and working it through. Your head is full with all different strategies. I see it from my experience. Now I am ready to work for a couple of months, then I will read it again with some experience behind me and I will see the points that I do not fulfill well. This will give me the possibility how to get better results and see the things in a different perspective.

Guys, I am proud of this team, who knows how long we can work together, our life is limited, lets just beat these markets as soon as we can and as long as we are all together.

934

I like the idea of sharing a Google drive a lot. Personally I think in a few weeks I will be doing far too much work calculating the COT index for the currencies then pairs and then looking at the MA on the chart and deciding which ones have the signal etc. Having the ability to share the info will help share the work load. Because (assuming it works) since we would be trading the same system it is better that everyone develops a specialty; One would do the COT index for currencies, one to do them for pairs, one would look at the MA for the charts, another would look for the opportunities technically and post them to us,…etc. This way we turn into a trading signal factory and can cover more work in less time. And who knows, may be we will turn out to be the new Turtle Traders :smiley:

935

[I]I finish now the 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]Charts[/B] - Part II.

[I]Fibonacci[/I] - continued

[B]Putting Theory to Work[/B]

When the relationship of open interest (OI) and commercial buying and selling stacks up in the same way, a way you can use to find markets that should have large moves in the direction we know they should.
Ideally, then and these do not appear every few weeks; they take time, but with 30 active markets to follow you will almost always have a potential trade, a market with OI at low levels while the commercials have been buying.
→ if open interest is low and COT commercial position high on a relative basis; it is a buy signal
→ if open interest is high and COT commercial position low on a relative basis; it is a sell signal
In the five years (in the example) there were only six time we had’em right where we wanted 'em, in a picture-perfect setup of the three strongest factors in the marketplace: trend, the superpowers (COT), and the usuallyt wrong public (OI).

[I]Summary[/I]: it was the last part of the book. The Part II of the “Charts” chapter was nothing special, it was basically a big critic on Fibonacci analysis. Funny, I am also very critical on that issue, but I have never heard someone to talk about it that way. I felt somehow happy that someone has the same opinion as me. Still, I find an author should not critisize all other analysis method in a chapter. The last chapter (Putting Theory to Work) was just a great example how to use the COT findings. It made things for me even more confused. It used Open interest with commercial cot data net position. Well I think I have read about 5 different strategies. To follow all these at the same time is a hell of a work. Still, the example put things into perspective and showed that COT works the same way on the markets, no matter if we trade coffee or bonds.

[I]Summary of the book[/I]: it was good to read this book after Briese’s book. They had of course some parts common and some parts different. We had the chance to learn a lot about different strategies and analysis.
It makes sense to work with COT not and read the book at a later time to see what worked out good, what not and how can we make ourselves better.
Williams has a very long experience with COT so I am sure it is possible to learn a lot from his experience.

[I]Summary of the Williams and Briese books: [/I]
Maybe it is not the best these compare books, but I think it is useful. They were both informative with some different strategies and many common thinking. I suggest to read both books as they both have issues what the other does not have. What do I like in one book and what I liked in the other book? What did I not like in one and what did I not like in the other?
For the writing I like Briese as I understood his writing better, but Williams has the better charts, at least for me. It can be seen that they both know what they are talking about and they are doing it for a long time. I think Williams has more self-confidence, maybe even too much with too many critics on other issues. Briese seems to be a more quiet person but that is not a disadvantage as he discussed issues that wasn’t even mentioned by Williams (for example data problems and corrections in COT report, different contract sizes in COT report etc.). What I did not like in both book: I think the main topic of the books goes around only a couple of chapters. Then we need some examples and some history. This is alright. I have the feeling that they made the books as they were (Williams 204 pages, Briese 250 pages) because 150 pages would have looked too short). In my opinion 150 pages would have been enough in both books. Ohhh dear oh dear if we cut out all those historical and unuseful charts and tables from Briese’s book or the Charts chapter from Williams. These are just examples of topics which have nothing to do with the book. I mean if someone new to trading wants to read about technicals then he will not read the one chapter from Williams to see only critisizing everything. So what was the point of this chapter?

As they are the authors and I am a reader, everyone sees it different with different advantages and disadvantages.

[I]Thanks for reading the recaps and I wish good trading based on the new knowledge![/I]

936

Hi guys,

for the great work and progress and send you all a video and wish a happy weekend. Change the word “nation” to “team”:

FE

937

Hi guys,

we were talking about the currency cross COT index today. For those who have the Briese book, it is discussed on the end of page 131 and beginning of page 132. Briese finds it a good tool, but writes only 1 paragraph about it so do not expect to find too much about the topic (he attached though additional 10 historical currency cross COT Index + net positions charts).

There is not much information about how we make these indexes. So I write here what we can use:

“The futures markets for cross-rates - currency pairs that do not include the dollar - are not well enough establlished to provide a usable COT data base. So I simply combine the COT data for to futures contracts to create COT Cross Indexes. To get the correct combination, multiply the quote currency times -1 before adding. For the EUR/JPY, the yen is the quote currency.”

That is all guys what we can use. Important is to multiply the quote currency times -1. My interpretation is that we just take net position from EUR and add the -1x JPY net position to it. However you should also understand it as the description is not much and I think that is how we should interpret it but it is not 100%. After that it is the same as what we did with the USD pairs to make the COT Index. Hope it could help some.

FE

938

It doesn’t seem to work at all with the -1 idea FE. The index results with numbers higher than 100 the majority of time. Its working fine without the *-1 so I will just test it that way and see if its of any use.

939

Well, based on my chart and my numbers, buy signals were triggered for GBP (carrying over from last week) and NZD (also carrying over from last week. CAD (which produced a sell signal last week) is now out of the extreme zone. The AUD sell signal we discussed earlier in the week was not conclusive; the MA value this week is equal to the value of 2 weeks ago on my chart. It could be different on the charts you use so make sure you check. (aside: funny how we all went from buy AUD in the beginning of September to must sell AUD two weeks later, shows the incredible amount of progress we are making.)
Based on the crosses system I’ve developed inspired by FE’s idea, we have a buy signal for GBPCHF, GBPJPY, GBPNZD, GBPUSD, NZDUSD and NZDCHF.
How easy and fast was that analysis?

[I]NB[/I] I’m not posting this as trading ideas or recommendations based on COT report (in fact I’m still very skeptical about the crosses system we are trying to come up with.) I’m rather posting this as part of testing the system and enable everyone to participate in rating the system by watching these pairs (and the currencies mentioned as well).

If you all followed my posts you would see that I did a back test of the system for last week and said that based on only we would have taken a long trade for GBPCAD and NZDCAD. Those trades would have yielded 460 and -6 pips.

[B]Exit Strategy[/B]

I’ve found are two types of exit signal that Williams uses (out of a total five); The first is a dollar exit. It basically mean I will risk 1% of my account and get 2% as my reward. Williams says he absolutely hates that method, but admitted it was the most effective You would pay no consideration what so ever to putting the stop below support for example and scaling your account accordingly. It is important to note that this method has a different way of money management; the trade calculates (based on his account size and the risk he is willing to take) the total amount of lot size he can trade with. This is done by using the Kelley formula, but since I think almost all of us don’t know the most amount of drawdown the system allow, there is another formula. [B](account size*0.05)/largest loss you suffered[/B] The result will be the maximum lot size you can trade. You will be surprised how small it is. Of course I’m sure Mike will have something to say about this method since he relies more on basket trading. So my response is if you do basket trading, don’t use a dollar stop :slight_smile:

The second system is the three bar reversal. After taking the trade You move to the daily chart and look at the highest-high on the daily since you took the trade and consider that BAR1, move back two bars (They must be lower lows, if they are inside days move to the next bar.) Your stop would be two ticks below the low of bar no.3. You would then move your stop higher with every new high. You would take your profit once your stop is hit. Williams says its the best exit strategy he developed. You will notice that this strategy means you have to hold the trade for at least three days prior to determining your stop. This suggests that you should the money management formula listed above. Williams relied on a turtle trading entry technique which held a position for at least 10 days before placing their stops. Since we mentioned them, turtle traders used ATR stops. So let’s say you would risk only 1% on a trade and decided to buy GBPCAD; a turtle trade would scale his 1% rule to the value of pips of 2*ATR value of GBPCAD.

I thought it will be useful to have a talk over the weekend over possible exit strategies for the system since we don’t have one yet, and since everyone will finish their analysis early :slight_smile:

940

Hey guys.

You are really on to something. I do need to catch up on your thinking about a good indicator for trades.

But, I’m gonna show you what happened this week now. So very interesting.

I want to start with what happened on Friday.
Total///////////////Against rival team
CHF: +7 -0 0 ///+3 -0 0
EUR: +5 -1 0 ///+3 -0 0
GBP: +4 -1 2 ///+3 -0 0
USD: +4 -2 1 ///+3 -0 0
JPY : +3 -4 0 ///+3 -0 0
CAD: +2 -5 0 ///+0 -5 0
NZD: +1 -6 0 ///+0 -5 0
AUD: +0 -7 0 ///+0 -5 0

This weeks results: (total sum of pips are the weekly candle open to close against every other currency)
(against rival is how many pips against the other side,example if M then against the other 3 Comms added up)

Total pips/////Against rival team///Against their own team
GBP: +1970///+1460///+510
EUR: +1328///+1055///+273
USD: +895///+719///+176
CHF: +697///+595///+102
CAD: -719///-961///+242
JPY : -883///+178///-1061
NZD: -961///-1107///+146
AUD: -2327///-1939///-388

So the second and third columns added up will equal the first column (which is the total pips).
It’s interesting to see strength within the camps. Like this…who’s the strongest Comm this week…that would be CAD (+242 pips against NZD and AUD). And among the 3 CAD was only down 961 pips against Majors, which is the least of them. And look at JPY. Weakest Major. Up 178 pips against the Comms, but down 1061 pips against their own team. Ok and who’s stronger, the weakest Major or the strongest Comm? (JPY or CAD)
CAD. ----And you can see the difference between EUR and CHF. The EUR is twice as strong.

Majors took the entire week. Every day it was all Major.
Monday: M+8
Tuesday: M+12
Wednesday: M+3
Thursday: M+14
Friday: M+15

Notes:
Biggest mover this week goes to the AUD. 2,327 pips LOWER now than they were at this time last weekend.
GBP was the strongest.

Ok guys.
I’ll be in touch.
Now I can concentrate more on what you are up to.
I’m with ya.

Mike

941

So, let’s see what the COT Report tells us this week. Very important that the percentile factors and net positions will always show the non-commercial speculators vs. data from the previous week:

[B]AUD[/B]: 69.55% vs. 73.34% previous. Net position: 41 229 vs. 49 047 previous.

[B]CAD[/B]: 60.54% vs. 57.47%. Net position: 11 630 vs. 9 191. There is a divergence, speculators got more bullish but price was bearish.

[B]CHF[/B]: 29.38% vs. 29.09%. Net position: -13 825 vs. -13 167. Open interest: 77 317 vs. 60 436. This is a huge difference, we should interpret what this means. That is why I posted it.

[B]GBP[/B]: 59.83% vs. 53.76%. Net position: 26 727 vs. 9 448. Also interesting, speculators got very bullish but price was very bearish.

[B]NZD[/B]: 74.77% vs. 74.13%. Net position: 9 522 vs. 10 172.

[B]EUR[/B]: 21.49% vs. 21.23%. Net position: -157 505 vs. -161 423. As in many other currencies, non-commercials got more bullish but price was altogether bearish.

[B]JPY[/B]: 12.77% vs. 10.44%. Net position: -100 673 vs. -117 308. There is also a divergence, non-commercials are not as bearish as earlier, but price was still going vs. JPY.

[B]USD[/B]: the USD index got stronger and shows exactly how stronger the USD became the last times. It is basically on an extreme position looking at the last year’s non-commercial positioning.

[B]Summary[/B]: I was surprised for the increasing open interest in many currencies. What I think a possible explanation might be is the increasing liquidity and volatility from the autumn. Also interesting that for many currencies the chart movement was not in line with the net position change. This happens usually maximum wtih one currency in the analysis, now it happened to many.

942

Hi FE,

Just a quick look to check my understanding. This should be a valid sell signal too right?

9-13-2014 10-47-44 PM.jpg700×563 68.9 KB

Cheers,

943

FE there is a part I don’t understand…you said “GBP: 59.83% vs. 53.76%. Net position: 26 727 vs. 9 448. Also interesting, speculators got very bullish but price was very bearish.”

But price wasn’t bearish, it was the third strongest currency last week, it even gained against USD. Euro was the second strongest currency as well, so how come you say price was bearish?

Flows, SMA has to be lower than previous two weeks. We have no rule on price’s movement (yet)

944

Hi guys,

so, I try to react for all the missing posts and answer separately as I think the answers will be long.

Philip,

unfortunately now I cannot say anything about the *-1 problem with the cross index. That is how Briese wrote it. During the week we can try to figure it out together. If it works without the minus signal, ok then lets test it like that. I am open to any possibility.

I have a question, what is your bias on NZD? I do not find so comfortable with NZD to go long. The same with AUD. On GBP I actually share your idea but do not trade it until the vote is finished. Please write down your test results, do not do it with real money at this stage. I do not want you to lose money on the first tests! I still do not get it, did you make the cross indexes? It would have been very many hours of work? Or do you know a short cut for it? How did you use it? Your backtest results are great. That is why I would like to know how exactly you got the results as it was only used for USD pairs. I can start right away with the same tests! Mike has also some time now. We could do it great together!

Thanks a lot for the exit strategies. I liked them a lot! The decision is also easy for which one I vote: the second choice. I do not like exit strategies based on % or pips. They have nothing to do with price. I do not even understand how that could have been the most effective for Williams. However candlesticks, bars etc. they tell the real story. I like a lot your second idea. I have never traded it so it might be good if once you can post 1 chart with a picture and such an explanation.

Last but not least your question about my analysis on GBP. Thanks for the quotation, if I read something it makes me happy because I know someone went through it and was thinking about what I wrote. It is a quite simple answer why I wrote price was bearish. Keep in mind the COT report shows us the Tuesday night results. This means for all my COT analysis when I look at chart movement I take a look from last week Wednesday morning open price until the next week Tuesday night close price. Looking at the chart open price 1.6466, closing price 1.6121 which is -345 pips, very bearish price movement. Of course we know, in the last 3 days price was bullish but this will be reflected only in the next COT report. If you don’t do your analysis like this, I would recommend to think about changing your method as price action analysis should be for the same time period as the time period for the COT report.

I need some time now but definitely want to answer for Mike and flows tonight too!