COT Report Analysis - a thread on market sentiment

[Nebula9]

On what the SNB did yesterday and the manner of how it did it, I remain convinced that I can never know where the market will go. Trading to me is an art of playing the possibility; you restrict the risk and try to magnify the profit.

I think also the lesson we can learn from this is that we should never be arrogant with what we know. We analyze like the geniuses we are, but we trade like the helpless nobody’s we could be if central banks decide to pull the plug.

Well said ! Philip. I can only hope that this isn’t the end of retail fx. There’s much pessimism regarding yesterdays event on FF and elsewhere. I’m with Oanda, whats been coming out of them the past day has been nothing but reassuring statements. But I wonder - if thats really the case. I’m sure they must have - everyone must have suffered some losses. I’ve got a small account. So nothing major to worry about but I was thinking of stepping it up - now I’m in doubt.

On a positive note it was good to hear that this kind of thing had happened in the past and retail fx still exists. And with good money management you get out of this mess okay. Thanks for sharing Philip ! My biggest lesson after exercising sensible risk & money management , is to always leave room for doubt. You can never be too sure trading the market.

On EURCHF 1.20 floor, if one had done enough research with forthcoming ECB QE and SNBs widening balance sheet might have signaled some warnings. But then again we’re only human. We can’t be keeping up with everything. And its always easier in hindsight.

China has been doing the same thing with USDCNY, I wonder if they’ll call it off like SNB one day ? What would happen to USD, and USDCNY in that scenario ?

[peterma]

Was just reading this story only 2 days ago, written 10yrs ago, immediately thought of it yesterday morning.

The TA analyst, brilliant reputation, came to work with a large prop trading firm - the chairman is old school, doesn’t know much TA.

“Sit with me and show me” said the chairman, trading live on a comm. Price had bounced from the day before which was a support level, it was slowly going back down. “Look said the TA guy, if price reaches down to that level then that will be the low of the day”.

The chairman looked in amazement at the screen, “are you sure?”, “yep” said TA, “that’s how this game works.”

Slowly price went down to the level, TA looked on with a smug smile, he could see a price reaction. The chairman slowly lifted the phone, placed a large sell order and they both looked at the screen.

Price dropped down through support within a minute.

“Now”, said the chairman, “if I could do that then anyone could do that, remember, in trading always expect the unexpected”.

[peterma]

Just the first, it was an extremely bad day for most brokers and many traders:

Alpari UK Ltd Enters Insolvency:

Important announcement

[ForExchange]

Philip, you can’t recieve pm’s.

[PhilipPirrip]

Just the first, it was an extremely bad day for most brokers and many traders:

Alpari UK Ltd Enters Insolvency:

Important announcement

Thanks for the head’s up, I had them for my demo account and was thinking of using them!

FE I cleared my inbox.

[PhilipPirrip]

“When everything goes against you, focus on survival.”

I’m taking all my money from all my live accounts. I’ll protect my money first and put it back when things cool down. I’ll still follow the market, contribute here and trade on demo accounts. But for now…

I’m focusing on survival.

[peterma]

Some good up to date info here on brokers and accounts.

SNB fall out news repository | ForexLive

Confirmed that yesterday’s move was the largest ever in the fx market, well so says Saxo, I don’t remember anything like it.

[peterma]

And to give an idea of how widespread the fall out has been - “Global Brokers NZ Ltd. said losses from the franc’s surge are forcing it to shut down.”

Casualties From Swiss Shock Spread From New York to New Zealand - Bloomberg

[BBalazs]

Thank God, I just received a mail from my broker informing that everything is business as usual.

[PhilipPirrip]

Thank God, I just received a mail from my broker informing that everything is business as usual.

Well in that case I’d appreciate you sharing the name of your broker. If you remember a while back I told you guys that I had to change my broker because it was shutting down. Since then my mind was made on Alpari but now they went into insolvency.

So I do need all the help I can get in my search, thanks.

My next post I will share a very important risk management technique that will help you avoid losing your money to events like black Thursday.

[Nebula9]

From what I read on FF, its the Market Makers that got out with considerably less to no loss whereas ECN brokers were the ones that got hit the hardest. I’m assuming Alpari UK and FXCM were ECN brokers, Oanda and LMAX etc were Market Makers.

Here’s a list of brokers that are still business in as usual and the ones that are suspended. Hopefully you’ll find this helpful. Some have lowered maximum leverage down to 50:1.

Is Your Broker Weathering the CHF Storm?

Check if your broker is on the list guys!

[PhilipPirrip]

First let’s start by defining leverage and margin so we can get to the technique we can use to protect our money. It is the amount of money you can borrow from the forex broker to trade with. It is often expressed in ratio. So when we trade in forex, we are actually using our cash as collateral, but trading with the broker/bank’s money (this is very important.)

As we said it is expressed in ratio. If your leverage is 50:1 it means you can borrow $5 for each $1 you put in your trading account.

The ratio gives us another peace of information, the margin requirement; if the leverage ratio is 50:1, then the margin requirement is (1/50)*100= 2%. If the ratio is 100:1, then the margin required is (1/100)*100=1% and so on.

[B]How we make the trading decision[/B]
Here I’m reviewing the way we usually trade and how it is exposing us to black Thursday risks. After that I will share how we can avoid that risk.

Usually after we have done some testing with the demo, we say “I have $10,000 so I’ll transfer them to my broker and start trading.” And you usually choose a leverage of 500:1.

This is a reckless mistake…

[B]How to Protect Your Money Using High Leverage[/B]

Now let’s apply what we have learned to the example I posted above. If I have $10,000 in my trading account and my leverage is 500:1, then I can borrow (10,000*500=) $5000000! That means I can trade 500 lots at the same time! So now I’m trading may be 5 or even 10 trades simultaneously when the SNB decide to lift the cap and I lose all my money. The question is now, how could I have used leverage to avoid such a loss?

[B]1) After deciding how much you will invest, decide how much will you risk on each trade[/B] So in our example I said I will invest $10,000 and I will only risk 1%, which is $100.

[B]2) Decide the MAXIMUM amount of lots you will trade simultaneously BEFORE YOU OPEN THE ACCOUNT[/B]

Now you don’t choose a random number of lots, there is a method to find your maximum number of lots. Based on your demo trading you need to know the following about your trading system: A) On average, how many pips do you risk per trade? B) How many trades do you open simultaneously?

So for me, I find it very difficult to keep track of my trades once I open more than three positions. To you it could be five or six, it doesn’t matter how many trades…what matter is that you know the maximum number and for me it happened to be 3.

I also found that I risk an average of 100 pips per trade. So when I equated that to my 1% risk rule I was actually trading an average of 0.1 lots.

So my maximum amount of lots (3*0.1) is 0.3. What does this mean? it means that I only need to borrow a total of $30,000 from my broker. It will get clearer as we move on.

[B]Now you know how much you want to borrow from your broker, look at your broker for their leverage
nd margin requirements[/B]

So now we’ve established in my example that I want to borrow $30,000 from my broker. The question becomes; how much of the $10,000 I have do I need to transfer to borrow from my broker?

The answer is simple, I choose a 50:1 leverage. Now I transfer only $1000, which allows me to borrow $50,000 which is more than what I need! The remaining $9,000 is in my bank account. This number of course changing depending on your system.

The idea here is you will still be trading as if there were $10,000 in your trading account. It is your better knowledge of leverage that allowed to keep the $9,000 safe in your bank account. Whenever (if it happens) you get a margin call, you transfer more of the $9,000 to the account.

In this example (and I’m choosing OANDA here), the margin call hits when your equity falls below 2% of the amount you’ve borrowed. Since we have established I’m borrowing $30,000. Then 30,000*2%= $600. So whenever my equity falls below $600 dollars I’ll get the call.

And since we established that I risk a 100 pips on 0.1 lots, then I risk a $100 per trade. So I have to lose more than four in a row to get the margin call.

[B]Black Thursday[/B]
So unfortunately for me, I open a CHF trade on black Thursday and I end up losing 1200 pips. My account is now -$200.

Now its up to the broker to satisfy me by filling me at the right stops. And only when I’m fully satisfied do I pay the $200. If I’m not satisfied I just changed the broker as I still have the $9,000 in my account. Now its up to the old broker to chase their money.

Even worse, imagine if I didn’t open any CHF trades but my broker became insolvent. I would still only lose $1000 and the remaining $9,000 are in my bank account. That is much better than losing the $10,000 all together.

I hope this was an easy read, but let me know if you need any help. But do let me know if you have any questions because I feel this is a very important idea for us to learn after the SNB events.

I’m also more than happy to repeat the example with different numbers, risks and trading systems to give you a better chance to see how this technique would protect your capital.

Tough week for all of us, but I have faith in this group. Enjoy your weekend.

[peterma]

A number of specs, including hedge funds, are very much under pressure as a result - they were very short CHF.

As usual, the commercials have come out smelling of roses, they have been increasing their CHF longs rapidly since Dec 14, not only shifting sides but with more contracts.

[BBalazs]

First let’s start by defining leverage and margin so we can get to the technique we can use to protect our money. It is the amount of money you can borrow from the forex broker to trade with. It is often expressed in ratio. So when we trade in forex, we are actually using our cash as collateral, but trading with the broker/bank’s money (this is very important.)

As we said it is expressed in ratio. If your leverage is 50:1 it means you can borrow $5 for each $1 you put in your trading account.

The ratio gives us another peace of information, the margin requirement; if the leverage ratio is 50:1, then the margin requirement is (1/50)*100= 2%. If the ratio is 100:1, then the margin required is (1/100)*100=1% and so on.

[B]How we make the trading decision[/B]
Here I’m reviewing the way we usually trade and how it is exposing us to black Thursday risks. After that I will share how we can avoid that risk.

Usually after we have done some testing with the demo, we say “I have $10,000 so I’ll transfer them to my broker and start trading.” And you usually choose a leverage of 500:1.

This is a reckless mistake…

[B]How to Protect Your Money Using High Leverage[/B]

Now let’s apply what we have learned to the example I posted above. If I have $10,000 in my trading account and my leverage is 500:1, then I can borrow (10,000*500=) $5000000! That means I can trade 500 lots at the same time! So now I’m trading may be 5 or even 10 trades simultaneously when the SNB decide to lift the cap and I lose all my money. The question is now, how could I have used leverage to avoid such a loss?

[B]1) After deciding how much you will invest, decide how much will you risk on each trade[/B] So in our example I said I will invest $10,000 and I will only risk 1%, which is $100.

[B]2) Decide the MAXIMUM amount of lots you will trade simultaneously BEFORE YOU OPEN THE ACCOUNT[/B]

Now you don’t choose a random number of lots, there is a method to find your maximum number of lots. Based on your demo trading you need to know the following about your trading system: A) On average, how many pips do you risk per trade? B) How many trades do you open simultaneously?

So for me, I find it very difficult to keep track of my trades once I open more than three positions. To you it could be five or six, it doesn’t matter how many trades…what matter is that you know the maximum number and for me it happened to be 3.

I also found that I risk an average of 100 pips per trade. So when I equated that to my 1% risk rule I was actually trading an average of 0.1 lots.

So my maximum amount of lots (3*0.1) is 0.3. What does this mean? it means that I only need to borrow a total of $30,000 from my broker. It will get clearer as we move on.

[B]Now you know how much you want to borrow from your broker, look at your broker for their leverage
nd margin requirements[/B]

So now we’ve established in my example that I want to borrow $30,000 from my broker. The question becomes; how much of the $10,000 I have do I need to transfer to borrow from my broker?

The answer is simple, I choose a 50:1 leverage. Now I transfer only $1000, which allows me to borrow $50,000 which is more than what I need! The remaining $9,000 is in my bank account. This number of course changing depending on your system.

The idea here is you will still be trading as if there were $10,000 in your trading account. It is your better knowledge of leverage that allowed to keep the $9,000 safe in your bank account. Whenever (if it happens) you get a margin call, you transfer more of the $9,000 to the account.

In this example (and I’m choosing OANDA here), the margin call hits when your equity falls below 2% of the amount you’ve borrowed. Since we have established I’m borrowing $30,000. Then 30,000*2%= $600. So whenever my equity falls below $600 dollars I’ll get the call.

And since we established that I risk a 100 pips on 0.1 lots, then I risk a $100 per trade. So I have to lose more than four in a row to get the margin call.

[B]Black Thursday[/B]
So unfortunately for me, I open a CHF trade on black Thursday and I end up losing 1200 pips. My account is now -$200.

Now its up to the broker to satisfy me by filling me at the right stops. And only when I’m fully satisfied do I pay the $200. If I’m not satisfied I just changed the broker as I still have the $9,000 in my account. Now its up to the old broker to chase their money.

Even worse, imagine if I didn’t open any CHF trades but my broker became insolvent. I would still only lose $1000 and the remaining $9,000 are in my bank account. That is much better than losing the $10,000 all together.

I hope this was an easy read, but let me know if you need any help. But do let me know if you have any questions because I feel this is a very important idea for us to learn after the SNB events.

I’m also more than happy to repeat the example with different numbers, risks and trading systems to give you a better chance to see how this technique would protect your capital.

Tough week for all of us, but I have faith in this group. Enjoy your weekend.

Nice post Philip! It took me a while back then to come up with risk management rules. Then, I have read Dr. [I]Alexander Elder[/I]'s classic, [I]Come into my trading room[/I]. It is a great book, one of the best I stumbled upon researching TA. Anyway, Dr. Elder shared a great and simple method to keep you risk on a tight leash (depending on your risk appetite). Since we are retail traders, we don’t have the luxury of an experienced money manager watching over our trading activity. So the duty falls on us to determine how much is ‘enough’.

First of all, you have to decide you maximum drawdown you are willing to accept in any given month. That would be 6% for me. It means that I simply cannot lose more than 6% of my equity, otherwise I suspend trading for the month. Next, you determine how much risk (in %) you want to take / trade. It’s 3% in my case. It is simple as that. I am allowed to take MAXIMUM 2 trades / month. Of course, once I move my SL to BE, that eliminates the risk from the trade, so I freed another 3% to trade with.

I update my Equity Curve Excel sheet the first day of each month.

About the broker, I have a live account with DFMarkets for about 1,5 years now.

[BBalazs]

[B]COT Analysis[/B]

I have nothing to report. The situation is pretty much the same as was a week ago. If I was to go long Copper, I’d do that on Monday.

[MikeWolski]

Hey guys.

Wow. Good stuff. Thanks Philip…BB. I must ponder that.

Anyway. Want to know the numbers?
It’s crazy.
But, I think we can all just compare all of the others against the CHF to see who is better than another.

[B]CHF[/B]: +11,885
[B]AUD[/B]: -718
[B]JPY[/B]: -787
[B]USD[/B]: -1069
[B]NZD[/B]: -1199
[B]CAD[/B]: -1791
[B]GBP[/B]: -2383
[B]EUR[/B]: -3938

Majors had +3708 pips over the Comms.

Well, as I have been calculating these, I’ve been thinking. What now?
This is a game changer. And I think it kind of makes it easier now to determine what’s going on, intercurrency related. Because pretty much everything has been wiped clean. See, I have no choice but to be marking down on my CHF table that they are trending high, against everyone, both long term, medium term, and short term.

Ok…I’m back. Look. This should put some perspective on what happened. (talking about how the other currencies faired against each other)
[B]Black Thursday[/B]
High to Low total pips that day. This is the order of the weakest AT THAT MOMENT.
EUR: -4576
GBP: -3766
USD: -3058
JPY : -2590
AUD: -2382
NZD: -1560
CAD: -1460

Open to Close pips that day. This is the order of the weakest AT THE END OF THE DAY.
GBP: -2564
EUR: -2073
JPY : -2066
USD: -1651
CAD: -1394
AUD: -1277
NZD: -1174

[B]Analysis[/B]
EUR took the biggest hit, at that moment.
Majors were targeted more than the Comms. (Comms stronger)
GBP is the most weakest, at the end of the day.
USD the strongest Major, at the end of the day.
NZD is the strongest Comm (well, against all of them) at the end of the day.

So, from here it will be interesting to see the progression. And it should be easier and clearer to determine what the relationships are to each other. Surely we will be able to see where the CHF will end up fitting in, in their place in the market. We know it won’t be a follower of the EUR anymore.

BTW…this coming week will be interesting. (I think we all know that this event was a precursor to what’s coming for the EUR)
I’m seriously thinking of going short the EUR across the board. I think the odds of coming out on top is greater, than not.

Mike

[PhilipPirrip]

[B]COT Analysis[/B]

I have nothing to report. The situation is pretty much the same as was a week ago. If I was to go long Copper, I’d do that on Monday.

Spot on, I mentioned last week or so that Larry Williams’ cycle had a buy signal on January 15. I’m very close to buying Copper as well.

[MikeWolski]

Hey guys.

Speaking of Copper…I don’t know if you know (probably do, but I just don’t see you guys mentioning it here)
But Copper is big with AUD. It does have an affect on their currency. But I think moreso when it (copper) goes up. Because the AUD wasn’t taking a bit hit when it was going down recently.

So…anyway…I just wanted to mention that. I still think the AUD is still climbing on up. And that would help their cause, (if your right about the direction of Copper).

Haven’t made any plans about any AUD trades…just yet.
There’s bigger matters going on in the market, I think.

Mike

[PhilipPirrip]

Hey guys.

Speaking of Copper…I don’t know if you know (probably do, but I just don’t see you guys mentioning it here)
But Copper is big with AUD. It does have an affect on their currency. But I think moreso when it (copper) goes up. Because the AUD wasn’t taking a bit hit when it was going down recently.

So…anyway…I just wanted to mention that. I still think the AUD is still climbing on up. And that would help their cause, (if your right about the direction of Copper).

Haven’t made any plans about any AUD trades…just yet.
There’s bigger matters going on in the market, I think.

Mike

I didn’t know that, that’s a great tip because I do think Copper will rally…so AUD could follow and may be now gold and silver…really interesting.

[ForExchange]

First let’s start by defining leverage and margin so we can get to the technique we can use to protect our money. It is the amount of money you can borrow from the forex broker to trade with. It is often expressed in ratio. So when we trade in forex, we are actually using our cash as collateral, but trading with the broker/bank’s money (this is very important.)

As we said it is expressed in ratio. If your leverage is 50:1 it means you can borrow $5 for each $1 you put in your trading account.

The ratio gives us another peace of information, the margin requirement; if the leverage ratio is 50:1, then the margin requirement is (1/50)*100= 2%. If the ratio is 100:1, then the margin required is (1/100)*100=1% and so on.

[B]How we make the trading decision[/B]
Here I’m reviewing the way we usually trade and how it is exposing us to black Thursday risks. After that I will share how we can avoid that risk.

Usually after we have done some testing with the demo, we say “I have $10,000 so I’ll transfer them to my broker and start trading.” And you usually choose a leverage of 500:1.

This is a reckless mistake…

[B]How to Protect Your Money Using High Leverage[/B]

Now let’s apply what we have learned to the example I posted above. If I have $10,000 in my trading account and my leverage is 500:1, then I can borrow (10,000*500=) $5000000! That means I can trade 500 lots at the same time! So now I’m trading may be 5 or even 10 trades simultaneously when the SNB decide to lift the cap and I lose all my money. The question is now, how could I have used leverage to avoid such a loss?

[B]1) After deciding how much you will invest, decide how much will you risk on each trade[/B] So in our example I said I will invest $10,000 and I will only risk 1%, which is $100.

[B]2) Decide the MAXIMUM amount of lots you will trade simultaneously BEFORE YOU OPEN THE ACCOUNT[/B]

Now you don’t choose a random number of lots, there is a method to find your maximum number of lots. Based on your demo trading you need to know the following about your trading system: A) On average, how many pips do you risk per trade? B) How many trades do you open simultaneously?

So for me, I find it very difficult to keep track of my trades once I open more than three positions. To you it could be five or six, it doesn’t matter how many trades…what matter is that you know the maximum number and for me it happened to be 3.

I also found that I risk an average of 100 pips per trade. So when I equated that to my 1% risk rule I was actually trading an average of 0.1 lots.

So my maximum amount of lots (3*0.1) is 0.3. What does this mean? it means that I only need to borrow a total of $30,000 from my broker. It will get clearer as we move on.

[B]Now you know how much you want to borrow from your broker, look at your broker for their leverage
nd margin requirements[/B]

So now we’ve established in my example that I want to borrow $30,000 from my broker. The question becomes; how much of the $10,000 I have do I need to transfer to borrow from my broker?

The answer is simple, I choose a 50:1 leverage. Now I transfer only $1000, which allows me to borrow $50,000 which is more than what I need! The remaining $9,000 is in my bank account. This number of course changing depending on your system.

The idea here is you will still be trading as if there were $10,000 in your trading account. It is your better knowledge of leverage that allowed to keep the $9,000 safe in your bank account. Whenever (if it happens) you get a margin call, you transfer more of the $9,000 to the account.

In this example (and I’m choosing OANDA here), the margin call hits when your equity falls below 2% of the amount you’ve borrowed. Since we have established I’m borrowing $30,000. Then 30,000*2%= $600. So whenever my equity falls below $600 dollars I’ll get the call.

And since we established that I risk a 100 pips on 0.1 lots, then I risk a $100 per trade. So I have to lose more than four in a row to get the margin call.

[B]Black Thursday[/B]
So unfortunately for me, I open a CHF trade on black Thursday and I end up losing 1200 pips. My account is now -$200.

Now its up to the broker to satisfy me by filling me at the right stops. And only when I’m fully satisfied do I pay the $200. If I’m not satisfied I just changed the broker as I still have the $9,000 in my account. Now its up to the old broker to chase their money.

Even worse, imagine if I didn’t open any CHF trades but my broker became insolvent. I would still only lose $1000 and the remaining $9,000 are in my bank account. That is much better than losing the $10,000 all together.

I hope this was an easy read, but let me know if you need any help. But do let me know if you have any questions because I feel this is a very important idea for us to learn after the SNB events.

I’m also more than happy to repeat the example with different numbers, risks and trading systems to give you a better chance to see how this technique would protect your capital.

Tough week for all of us, but I have faith in this group. Enjoy your weekend.

With that post you derseved to become a Senior Member