COT Report Analysis - a thread on market sentiment

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1485

[B]Rookie[/B] It is a very strong support level as you said Rookie. Correlations also favor a gold bounce with dollar weakness, a bounce in Euro and AUD. Personally though I’m on the sidelines for gold for now.

I do not understand however why do you say COT is days old. I have actually been talking about a bounce in Euro and Swiss since I joined the thread. If anything, its too early!!

[B]Mike[/B][B] If I were you I wouldn’t put in anymore trades this week. I would even take my profits on AUDJPY for now. For a simple reason; our bias is still dollar and Britain strength against the rest. Both of those currencies are now moving lower against all. We just want to stay in the market so we can make big bucks when Greenback and Pound move in our direction. Euro and New Zealand we also have a bearish view on them but at the moment they are bouncing, we will make big money on those when the time is right. That time is not now however. So its important to be patient. A final example is USDJPY, based on today there is 230 pips to gain at least on that pair alone. it might retrace even more so let’s be patient.

[B]BBlazs[/B] I like your conclusion on gold because it does reflect what is happening with the commodity; its at a sensitive area where it could collapse or bounce.

I do have some questions on your research however. First question is what are the currencies you cover? second question what was your most recent trades and how do you see the market generally. Thirdly I’d like you to talk us through WILLCO a little because I’m a bit confused. You said it is (CP/OI index), what does ‘CP’ stand for? I’m also confused because when WILLCO hits 80, that means a top is in place. You say that gold at the moment is at 75. That should mean that gold is at a top even though we are near the lows which doesn’t seem right. So could you please tell us how you interpret WILLCO?

1486

You’ve seen IMF global economic forecast. China forecast remained unchanged almost. Australian job market has been volatile. But they aren’t doing all that bad. With AAA fitch rating and reasonably high interest rate. Investors will want AUD.

Japan is struggling with deflation, declining exports and overall spending. Current account ‘saving grace’ is currently at deficit. With another consumption tax hike. We might see another contraction in GDP.

Looking at the bigger picture given dollar weakness I think it may be safe to keep your AUDJPY long Mike. But you want to be aware of banks buying and selling activity, they’re out there to get us. We have to play safe. And geopolitical risks. Ukraine conflict is said to be long term and I’m afraid same goes for demonstration in Hong Kong.

I suspect it might be a bumpy road up for AUDJPY, so holding the pair long term without locking in profits is probably not the best idea. I don’t want this to influence you in any way. It’s just my opinion.

1487

Hi guys,

Welcome BBalazs! Whoa, that’s a cool way of doing COT analysis! Is the chart an excel chart?

Sorry about the bad trades guys. I too got stopped out from my cable shorts on Monday. I’ll wait for the next COT report to open more trades. GBP seems like drifting to me. I think the recent upward move is just a correction, but I’m not sure either. Ah well, the more reasons for me not to trade.

PS: I kind of glad reading your recent comment on your losers, Rookie. You take responsibility, saying that it’s due to your rushing into trades, and not due to some banks tilting the market like the other week. That way you’ll have something to work on. Good luck to us all!

1488

Okay, I’ll answer the questions.

  1. I trade Futures mostly, although I keep an eye out for currencies as well (majors). My database includes:
  • Euro
    -Swiss Franc
    -British Pound
    -Japanese Yen
    -Canadian Dollar
    -Australian Dollar
    -New Zealand Dollar
    -Mexican Peso
  • Futures

  1. My two most recent trades was Silver short (from 18.70$) which was closed at 17.20$ and Palladium short (from 820$) closed at 750$ (TP got hit). I also got long on Gold which I closed for a small loss (premature entry).

  2. Willco is an indicator developed by Larry Williams. It’s an enhanced version of the CL & CS / OI chart. The formula is: Stochastic (Commercial Net / OI, vara (80 weeks)). It compares the most recent Commercial Net / OI value to the highest & lowest values of the last 1,5 years and displays them as %. The way I interpret it is simple.

Current Value ~ 50% -> Neutral
Current Value > 75% -> Bullish
Current Value < 25% -> Bearish

CL = Commercial Long
CS =Commercial Short
CP = Commercial Positions (Long & Short)

It works the same way as the COT Index. If the index rise above 90% (Commercial), then it is bullish. As you probably know, Hedgers are using the market to lock in future prices for the cash business. Therefore, they are buying into weakness and selling into strength. In other words, their NP negatively correlated to price. They usually hold their largest longs at market bottoms and vica versa.

CL & CS / OI gives us an idea of how much (in %) does the Commercial entities own of the overall OI.

Untitled.jpg700×324 16.4 KB

1489

If we were looking at the Willco of the Funds:

Willco ~ 50% -> Neutral
Willco > 75% -> Bearish
Willco < 25% -> Bullish

That is because the Funds’ NP follows the price. They hold their largest longs (shorts) at market tops (bottoms).

1491

Ok that clears it up. its good to know you follow metals as well apparently. Well done on the silver trade that one was a cracker.

Well we normally start discussing our COT reports on the weekends. So I look forward to hearing on interesting things from your report. We have been working on a mechanical ways to turn our reports to trading signals, we look forward to your feedback on that as well.

Are you currently in any trades based on COT report?

1492

Nope. I have my eyes on Gasoline, the Commercials are extremely long. The price approached a major Support zone (3 years low). Now it’s the time to apply Technicals. I’ll share the setup with you on the weekend :slight_smile:

1493

I meant COT net position , not index Philip. So now we’ve got a futures trader in our team. How convenient. We have been talking of expanding our horizon…

[B]Philip[/B] why would you not go long on gold at this major support ? are you being wary because of dollar strength and silver fall ?

Flows… you’re right I have been jumping onto trades early in the midst of correction lately. A lot to work on.

I’m not going to trade anymore this week. I’ve had enough to lose. But we’re learning. Let’s stay optimistic guys!

1494

Hey BB! I’ve got a question

Whats the difference between Wilco and COT index ? advantages and disadvantages ?
Do you only trade Wilco bullish/bearish extreme signals ?

1495

Simply because I have nothing noticeable in my COT report :slight_smile:
The other thing is VSA. Although I now do it the same way Wyckoff used to do it and not an interpretation. I can send you the ebook if your interested. His idea was if there was buying of gold, price should move to hit back 1190 area anyways. If it doesn’t then gold is still in weak hands.

I’m looking for it to go back and forth between 1235 and 1203 to confirm there was buying of gold. I want the green candles to have higher volume than the read ones. only then I can consider buying.

1496

Hi guys,

I stumbled upon this site. It’s Van Tharp’s trader test to measure your strengths and challenges as a trader. I know this is a fundamental thread and this is a psychological stuff, I just want to share (in case you haven’t tried it) :smiley:

The test identified me as an independent trader, who is able to trade in new ways, rapidly assess what’s working, and work through conceptual challenges. My challenges as an independent trader are the tendency to social isolation and ignoring feelings. And there’s also a suggestion for me to be more orderly in my work. The site also provides articles to help me working through the challenges. Try it out guys, and tell us your results.

Cheers,

PS: What’s best is that it’s free (I wouldn’t recommend it otherwise), and you can just unsubscribe once you receive your report if you don’t want its weekly newsletter.

PPS: I’ll continue my observation on the gold & silver ratio, Phillip. I’ll let you know how it goes.

1497

COT Index is the Stochastic of the last (x) Net Position values. It lets us see HOW bullish / bearish the entities in question are compared to the last (x) years.

Calculation: 100*(Current Net - Min Net (x)) / (Max Net (x)) - (Min Net(x))

In case of Gold, means that compared to the last 3 years (x), Commercial entities are 88% bullish. In other words, they have not reached their most bullish stance.

On the other hand, Willco calculates with NP & OI. Open Interest (OI) is the interest in the current market to put it plainly. The indicator lets us peek into how much (in %) are Commercial entities own of the OI based on their NP relative to the last x years.

Calculation: Stochastic (NP / OI, vara [weeks])

Since futures are a zero-sum game, (unlike Equities) for every buyer, there has to be a seller. OI increase ONLY when a long is offset by a short or vica versa. Since Commercials are the single most powerful entities in the game, is it useful to monitor how much they hold of the OI (all contracts)? Oh yeah.

To summarize, both indicators are calculated using the Stochastic formula. They answer the HOW MUCH question.

COT Index: How bullish/bearish Commercials / Funds are relative to the last X years?
Willco: How much of the OI Hedgers own relative to the last X years?

I can’t really answer the advantages/disadvantages question since it’s quite subjective. It depends on the current market condition. The Index & Willco serves as a guide for me, showing me the time to be prepared for a correction / continuation / breakout / etc. But I don’t want to leave you hanging, so the weakness of the COT Index is that it usually flashing premature sell (buy) signals in an extended bullish (bearish) trend.

Question #3. I don’t necessarily trade them all for the reasons explained above. Although COT Index extreme is an entry criteria for me. But once again, I sold Silver for the LACK of extreme reading at a major support zone.

I guess that is why ppl say that trading is an art rather than science.

1498

I loved Tharp’s book, [I]Super Trader[/I], although he put way too much emphasis on automated trading. I took the quiz about a year ago. I can’t really remember which type of trader I was.

1499

Hi team,

what an activity out there! And great quality too!

[B]Rookie[/B],

I have been watching the USD, silver, gold and S&P 500 lately. There are some cool correlations and they really help trading currencies. I like your gold chart with the large support. I believe it is hard to break. Still, if I “had to” either go long or short with gold, I think I would be on the short side. Fundamentals and COT just did not line up until this point for turning. Technicals however would suggest a turnback I think. As for the USD, the retracement might be over. Of course it is not sure but there was some nice progress made. However this might be not true as I am long with USD which means I am emotionally involved in it. Rookie, I do not agree with one of your posts, almost not at all, I will answer for this reason in a separate post, which I do not do too often. With your view on JPY I strongly agree. I think JPY only has strength because of geopolitical risks and it is hard to say how long that takes to solve. I have one reason to argue though for not closing the position. I think I opened the AUDJPY long now on bargain price. So if it stays very long on the same level, then I still get carrytrade and earn money with it. For a swing or position trade this might be good to keep in mind. It is good to read Philips view on gold now in the thread. He basically says everything how I see it.

[B]flows[/B],

very nice chart with analysis. Did you check all the chart action for saying that it is good to short silver when its ration is over gold? Because if you checked the price action and it is like that then we have to write down and try it! You talked wise I think when you said it is early to say what happens, but I think rookie is right and I would say gold will follow silver. Yes, I believe you to have difficulty trading the cable now. Everything is hard these weeks but cable for sure. I think it is good to wait on the side. I also agree that we see only a correction. Pick the right spot to enter the market again! Here is the result of the test you provided the link:

“You tend to be practical, realistic, and decisive. You love facts and what you think is concrete. You are good at making sure that things run smoothly. As a result, you are good at organizing projects and people to get things done in the most efficient way possible.” – I will not register so it is a pity that I do not see my weaknesses.

[B]Mike[/B],

this NZD makes me crazy! You should do something that it just keeps losing but does not gain! Trick those statistics and banks somehow. I do believe AUD long is a good idea, even with carry trade. I think once the geopolitical risk gets better, then we will make good money. The problem is that it can escalate… I think you will make back your losts, don’t be fast with the entries. Stay calm.

[B]Balazs[/B],

I hope you read this post, if not I post it later for you especially. Usually I do not write thousands of answers but I post for everyone. I like your work and charts. It seems like you know what you are talking about and you have experience. Yes, we know the two books, they were also discussed in this thread. Great that you also read them. Your attached charts were a bit too small, I could not make it out exactly what it is, but maybe you just wanted to show how they look like. It does look like you can be a great help to us! We only have our reports and stats form May this year, so your charts can tell us a lot more extremes and signals. I really like the segments you observe. We are testing at this moment the COT Movement Index. Maybe you could share with us some of your experience how it worked out for you. What you wrote about Willco is also interesting as non of us used it until this point. So there my knowledge is not too much to understand all the analysis you made. In these two weeks I am busy but then I will catch up and learn Willco too. After your analysis you definitely qualified to be part of the team! You will see, this is a very nice group with great people. We are in the beginning of the road but very motivated. You should definitely keep in mind what rookie wrote in post 1477. Only mistake is that I am not a captain. The fact is that in this time (except the two running weeks) I have the most time for the thread and the market and I write down all ideas and try to define the goals and way to go. As rookie said I have some ideas where we could use your expertise. We are always looking members to cover more and more markets. Our goal is to see the valid signals in any market and jump in when a good opportunity comes. We have experience only with Forex, we analysed mainly the USD vs. the 7 main currencies. In the last weeks we started to learn about gold, silver and S&P 500. Looking at your analysis it seems like you have experience with gold. I would suggest that you analyse every weekend the metal industry for us + crude oil. It does not mean at all that you cannot post in any other subject but you would be the expert who makes the weekly analysis in these markets. As I wrote earlier you seem to be also the expert in Willco and the Movement Index but I do not want to scare you away now so how about sticking with metals and crude oil on a weekly basis? It is also important that we do have a work to do only what we like to do. If it does not suit to you, just say what you find interesting and we find a solution. The point is only that it is not efficient to do the same work for everyone, that is why we distribute the work. I am reading at this moment your later post. Your metals trading just perfectly line up what I have written above.

[B]Philip[/B],

I agree with you on gold and what you wrote to rookie. Still, I would not buy gold until I think USD turns. At this moment I only think USD has a retracement and then follows to get stronger again. If this is true, then gold will weaken further and I would definitely not buy it. On a technical view it is a buy. And I can be wrong at any time and if it would be a reversal then you are right it is good to buy. As long as I do not see more confirmation I will definitely not jump in to buy. And at this point I do not see a confirmation. I have just read your post number 1482 in this moment. I could basically delete half of the things I wrote above because you mentioned many subjects. It was just a perfect post addressed to the right persons. What you said to rookie is important, I write another post on it for rookie.

I answer to rookies post soon!

FE

1500

Hi Rookie,

I find it important to answer this post in a separate answer. Firstly, I do agree with Philip. The COT gives usually early signals, not late. Check my post some days ago about the babypips.com school. There is a great chart about that!

Rookie, I cannot say that I am wrong or right now, I only say how I see the things you wrote, we talked about something similar once, but it is usually the argument which brings us further on, not the confirmation.

I think lately you try to find reason what exactly the banks are doing every day. I also agree flows that it is good that you take responsibility for your actions. On the other side, do not make bitter it for yourself. Who cares if banks, commercials, hedgers, retails traders etc. moved the market and you lost? Do not try to understand every single move. Trade your own system, if you get stopped out then concentrate on the next step what is to do. Learn from it, but do not look for everything to find a reason. I think that we will never see all reasons. Noone does. And even if we would, it would not help us anything about the future.

If you try to follow every announcement and news, I believe you will get lost in the small things and you lose controlling the important stuff out there. You just give yourself way too much work. Try to pick the important news.

For example you worry about the Fed. You should see it another way: 1. Are you bullish or bearish on USD?, 2. Is USD now better/worse than the others?, 3. Did you have an edge yesterday in the Fed statement trade?, 4. Did the statement change something in the big picture?

If you answer questions like this I think it brings you a lot further on than analysing what the report has in it actually. My view on it: I actually also did not close my trades and took the hit. I added today to it and these are running good. The others are almost breakeven. I do not care if Fed worries about strong USD. If you look at other central banks they are all concerned about strong currencies. And the others have more reason to worry and take action more likely if their values get too strong. This is how I answer the above questions, you have to answer for yourself. But the pairs did retrace like I thought so.

I do think that we are more than half already there, the other half is however harder and slower.

FE

1501

Hey Captain!
Good stuff! Thanks for all the input you gave us all. Your (I think) spot on! All of that is appreciated.

Well, you know what, I’m learning. …NZD…I just don’t know. I gave up on that. And to make matters worse, I lost 30 more pips on the AUD/JPY trade. I know Philip, I should have just stopped trading. Well, I’m not in the market now. And we will have one more day this week to go. I just have so many pips to make up till the end of the month. (I don’t want to talk about pips anymore)
I need a plan for next week. But, I still think that the AUD is gonna make a come back though.

Anyway, I just wanted to say that I’m very excited about our group and our new additions.
I do need to find my place in our group. To be honest with you all, what I do is more technical. I find the strength and weakness of all the players. Really all I do is find what has happened at the end of the day. And also I have data out the butt with all who’s trending against one another. I don’t know, maybe I should stick to what I do, but add on some indices. Like looking at market correlations. That seems to be what we are wanting more of. Cause I feel like what I’m giving you guys is what has happened already, and is what we’re aware of already. So, I’m gonna start throwing in some of the indices and make some correlations.

Ok guys…I’m off for home now, and will see you with the totals for the day a little later on.

Mike

1502

Alright, I’ll do that [B]Captain/B. I also like to trade the Volatility Index (VIX), so I might throw out some ideas when they present themselves. It’s kinda late so I’ll be back tomorrow.

1503

Hi Mike,

I think what you give us is not technical. More than that it fits perfect because it tells us the current sentiment. Your new chart is also great as it shows us with the 4H chart how the last 4 hours were compared to the whole day. It is a good starting point. We all look at that information when we are looking for the current sentiment in our trades. Of course if you have energy to get involved with indices then why not? But first read your COT book:-) Or are you done? Do not take too much task at the same time.

1504

Hi Balazs,

do not call me captain please. The others call me FE. It is fine, they are just joking with captain. We are all waiting for your ideas if some trade setups presents itself! Especially because you mentioned gold and silver and we are observing them both to find the possible turning point. Volatility Index? Wow you have a lot going on. Awesome!

It is also late where I am so good night everyone we will meet tomorrow!

FE

1505

Hey guys.

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

Majors took this one by much. +15

Well this one looks like a risk off scenario. And definitely Majors against Comms.
Comms did not have an up day against any Major.

How about a recap of the week.

Monday///////////Tuesday////////Wednesday/////Thursday
NZD: +7 -0 0//JPY : +7 -0 0//NZD: +7 -0 0//JPY : +7 -0 0
AUD: +6 -1 0//AUD: +6 -1 0//EUR: +4 -1 2//USD: +6 -1 0
EUR: +4 -2 1//CHF: +5 -2 0//CHF: +4 -1 2//GBP: +4 -2 1
CAD: +3 -3 1//EUR: +4 -3 0//CAD: +3 -2 2//CHF: +4 -2 1
CHF: +3 -4 0//GBP: +3 -4 0//GBP: +3 -2 2//EUR: +3 -4 0
JPY : +2 -5 0//USD: +1 -5 1//AUD: +2 -5 0//NZD: +2 -5 0
GBP: +1 -6 0//NZD: +0 -5 2//USD: +0 -6 1//CAD: +1 -6 0
USD: +0 -7 0//CAD: +0 -6 1//JPY : +0 -6 1//AUD: +0 -7 0

And a shot of 00 GMT.

2014-10-09_2000.jpg700×317 19.5 KB

Also a shot of some Gold, Silver, USdollar index, Gold/Silver ratio. It’s a one hr chart this entire day.

2014-10-09_1845.jpg700×315 28.1 KB

Ok guys, see you soon.

Mike