COT Report Analysis - a thread on market sentiment

Trading Discussion News and Economy
301

Hey guys…

Wow ! so much has been posted while I was enjoying my 7 hours sleep. Looks like I’m always either late or early to post due to time differences. Gotta catch up now !

You’re right FE! We’ve came quite far since we first started and it has been only about a month or so. We’re going at full speed and sometimes its gets a little tricky to keep up with this pace with a job on the side. But you’ll always find a time for something you enjoy doing regardless of your circumstances. I just can’t wait for that day to go full time.

Enough the rant. Lets get to the point…

You asked and here’s my opinion FE about your setups for next week. I have no idea how these pairs work nor I have seen the charts in my short trading journey. So really I have no clue when it comes to exotic pairs. But I have heard people trading EURTRY and they were quite fascinated about the volatility that it offered hundreds of pips move. Your resonance behind going short against USD with these exotic mostly eastern european currencies makes sense and sounds logical. I will look through the charts myself though I may not place any trades with these this time around. You know what FE, if it makes sense go with your guts of course you want to follow the news and look at price action for confluence. If you see an opportunity go with it. Thats all its about. Trading with market sentiment. You go where the opportunity is. Bottom line. I really like your approach to trading FE. And hopefully in couple of months of time I myself will be able to adapt that. Trading with the sentiment on top of what I already am trying to refine to go with the trend.

I think its good to be versatile and flexible in your trading rather than following a rigid plan. I also would like to learn to trade the news soon once I’m comfortable with my trending methotology.

I agree with you that now AUD,CAD and NZD the comms are are neutral or bearish there’s really not much to trade with them at least for a while until we see a sentiment change especially for mid and long term. But I’m sure there’s opportunity to go short with these with a stronger currency that again I can’t point any for now. I’ve copied the COT commercials and non commercials data on excel sheet yesterday only price level is missing which I will complete shortly along with my interpretation shortly soon today. Like I said according to the COT data comparing the both I really didn’t see much to pair at least in terms of strong v weak in both comms or majors or within. But I haven’t went through my charts yet. Then I might be able to come up with something. I think there isn’t much pairs trending now so for next week I might place short term trades its time to hone my range trading skills now :57:. Again the market requires you to be flexible and versalite as its always changing. Again FE if it seems logical and makes sense i say go ahead with it! let me know how it goes. And sometime if you’ve got spare time I would like you to share your strategy about trading the news!

Good luck with your trades! Theres always a risk but there’s no way we’ll be able to eliminate the risk in this game. Just make sure to follow the news closely for any change in sentiment and look at price action!

302

Hey Philip!

Any constructive criticism is always welcome we’re trying to improve ourselves here as regards to interpreting COT data and market sentiment. Can’t always be right.

There have been some good points in your post Philip. But if you go back few pages back and read my posts I have actually come to realize that commercials are hedgers /you’ve referred them as producers/ and non commercials are speculators. I refer to them as hedgers but the concept remains the same. Pretty much what you described about commercials and how we should interpret COT commercials I agree.

Peterma has also posted a valueable info about the commercials few days or a week ago if you go back you’ll find his post. Commercials are hedgers and banks constitute up to a large portion of commercials in futures same goes for spot forex. Why would banks be on the both side specifically on futures as well ? He’s explained that banks take on the opposite side of the trades they take on spot forex on futures to hedge their risk in spot forex.

You mentioned about how you use COT commercials data to determine the tops, bottoms and reversals. Are you referring to COT index ? I would like to see your spreadsheet , i have been thinking of calculating COT index for a while now but for non commercials but have not yet have the time to sit down and write down the numbers. I was reading on another forum that you could include up to 52 weeks worth of data or some goes beyond 52 weeks thats going to be a bit of work even though the input is max minimum and max maximum net positions especially for commercials as I have to go back and retrieve past datas to calculate the net position of commercials for 52 weeks back. But for non commercials there’s oanda cot report which shows non commercials net position on a nice graph easy to read so there’s no need to calculate the net positions manually as its already there.

I would however like to see your spreadsheet! I’m sure we can work something out how long have you been following COT commercials though ?

You’ve had one excellent point that got me thinking about the weak currencies especially the comms. My bias towards the comms are bearish very bearish in fact. Comms have had negative readings last week and this week if we look at commercials. Now I like to look at commercials as hedgers like peterma /banks and institutions not necessarily producers but the concept remains the same/ if they have been adding on their shorts in futures they must be adding on their longs in spot forex as well. That goes in line with what you said ‘negative net position for commercials means currency is bullish’ and vice versa.

My bias towards CAD, AUD and NZD the comms maybe bearish not only within the context of COT data interpretation but as a whole, market sentiment for now. But your post got me thinking it may be a good idea to buy. The classic investing approach buy low sell high sure applies to currency trading I guess. But when should we buy ? that’s a tough one to give a clear answer. If we don’t find the right timing to go long we will be wiped out pretty quickly as it would require one to have a deep pocket to follow along with commercials. But you’ve had another great point there that I had to copy and paste and that just seems to be the answer.

[B]Once the buying reaches an extreme we wait for them to buy LESS (since they are buying less, it means that the price is going up and they don’t see it as a bargain as before). When they start buying less we wait for a technical buy signal and now we are in tune with the commercials.[/B] - WITHOUT HARMING OUR POCKETS

FE the thread starter has been posting parts from COT bible and again if you few pages you will find that one particular post where the author mentioned pretty much the same thing as you just said on top where I copied and pasted in bold.

Again I would like to see this commercials index. We can work it out and tweak things here and there for the better. And share trading ideas on top. You’re more than welcome to join Philip! and I’m sure FE and Mike thread starter and active contributers would want the same. We’ve only been working together for a little over a month now but I’m seeing a lot of progress! It has really changed how I view trading spot currency alltogether and I’m sure it is for the better. We’re studying the reason behind the price movement and correlation here. And for anyone who’s traded long enough would agree that it is crucial. Technicals and price action come second to this. Market sentiment is the big thing and the reason why price fluctuations from one point to another I think.

That was a lenghy one I’m looking forward to your spreadsheet have a good day!

303

Good point d-pip! Thats a classic investing approach at work isn’t it buy low sell high. Just because a sentiment is bearish doesn’t necessarily mean it will crash & burn that maybe how speculators would view but on the other hand the other big players are eyeing on a bargain price to go long. Only time will tell. COT commercials data might help :wink:

304

Hey FE,

I couldn’t find the post where I wanted to reply you back posts get lost quickly here as everyone rather active. Anyways the point is what I meant by commodities price was actually a commodities index. Peterma has already stepped and provided a valueable link CRB index.

Here’s US dollar index US Dollar Index - FXStreet
EUR/USD and GBPUSD seems to mirror US dollar index almost exactly but its a negative correlation. I see a great positive correlation between USD dollar index and USDCHF. Can be of use to trade these pairs especifically , the majors. What do you think ?

305

Here’s My analysis of the COT report. I hope people find value in it. First though I want to list the advantages and draw backs of this analysis.
[B]Advantage[/B]
The analysis uses a host of formulas and indications from the report to determine: 1) Trend. 2) Bottoms and Tops. 3) Possible future direction of a currency in the short and long term.

[B]Drawback[/B]
The analysis is very lacking in terms of timing. For example, I can tell you that a bottom has formed at a particular currency. However that bottom is not a price bottom, it is a bottom of the commercials’ buying and selling. So while their activity may be at a bottom, price could actually continue to make lower lows for weeks and even months. I think this is where technical analysis should come in and support the report.

[B]Weekly Net Values[/B]

CAD -35,344 (prev: -39,630)
CHF 33,351 (20,639)
GBP -50,223 (-76,551)
JPY 100,542 (68,815)
EUR 182,110 (157,701)
AUD -27,128 (-40,243)
NZD -10,460 (-11,900)
US Index -21,124 (-18,201)
Gold -47,534 (-55,579)

Net values and its weekly changes tell us the trend and possible direction of currencies over the short term. Negative net values reflect a currencies BULLISH tendency and vice versa. An increase in a positive net value (or a decrease in negative net value) means a currency is likely to go down next week)

[B]Relative Position[/B]
This section shows commercials buying/selling levels compared to all-time extremes. I go back to 2008, when the economic crisis hit. The relative position helps us determine bottoms and tops. The result is shown in %, a reading above 80 means a bottom is in place while a reading below 20 means a top is forming. A decrease in percentage is bullish for a currency over the coming weeks and increase compared to the previous week is bearish

CAD 39.6 (37.6)
CHF 99.3 (80.5)
GBP 25.1 (15.4)
JPY 69.8 (82.5)
EUR 93.4 (100)
AUD 39.95 (34.5)
NZD 45.9 (42.5)
US 27.96 (32.7)
Gold 74.5 (71.2)

I find that this percentage works best when it reaches an extreme. Once a currency does that you wait for the extreme to return towards the normal level and you enter there. For example you see that EUR is now at 100. I usually wait for it to go below 100 (whether 99, 95, 85 doesn’t matter) and I buy Euro like a mad man.

The other way to use it is that an increase in % is bearish for the week and vice versa.

Producers long/Open Interest.

Larry Williams wrote in his book secret of COT report that when Commercials control more than 55% of the buying in a commodity, price is likely to go up. This is more of a medium term and long term perspective. Don’t just buy as soon as you see 55% or more, but look for buying opportunities when that occurs. Needless to say the same applies if commercials are short on a commodity.

The only two currencies that are at 55% or more this week are both JPY and CHF. JPY buying is at 57% (was 55% last week). While CHF is at 61.1 (was at 47%). Given that those two currencies are also at an extreme in terms of relative position, we want to see a decrease in percentages to start buying (of course when I say buying I’m talking about sentiment, rely on technical analysis to execute the trade.)

[B]Commercial’s relative net position to Open Interest[/B]
This measures The top and bottom over the long term (months and quarters). A reading above 80 means that a commodity is at a bottom. A reading below 20 signifies a top could be in place. This formula is very frustrating as it rarely changes, but over the long run it would help us catch explosive moves that makes trading worth while. It also help us determine the trend over the long term in a mechanical way since more technical analysts are usually disagree on a currency’s trend. I find that it works best with the other relative %. When the two indexes are at the same extreme, we are definitely on the verge of a long-term explosive reversal (hint: gold could be on its way up.) Readings rarely change from week to week so if I don’t list the previous value, just know it is unchanged.

CAD 56.2
CHF 50.1
GBP 43.7
JPY 42.3
EUR 37.8 (prev 38.4)
AUD 51.1
NZD 71.4
US 61.8
Gold 94.8

You notice that there was a bullish change in EUR on the index. What does this tell us? I really do not know, but I’m certainly not shorting Euro! especially that other formulas I used showed that a bottom is forming. Commercials are 51% long in Euro so a lot of signs say that the currency might start correcting over the coming weeks and months.

My own perspective based on this

For next week: I will look to go long on USD/JPY and short on gold if my technical analysis align. Of course there are plenty of other opportunities (shorting AUDUSD, GBPUSD) however my trading strategy have narrowed them down to these two. I use a momentum cross-over system.

Starting this week I am buy only for Euro and CHF. This means I will start looking for buying opportunities this week, but not necessarily that I’m buying them this week. I will also keep a close eye over gold for a good buying opportunity.

Hope this was useful to you guys as well, happy hunting.

306

Well unfortunately since I am a new user I can’t send out emails and there doesn’t seem that the forum has a feature allowing me to upload a file. If you can send me your e-mail I’m happy to attach my spreadsheet. I have only done the index for the last three or four weeks.

307

Hi Philip,

thanks for you post! No worries we all take positive criticism as we want to get better and it is part of the process. I rather take critics and make money than getting only “thanks”, but not improving myself.

If you wish to take an active part of this thread, you are welcome! You write: “I’m happy to share that spreadsheet every week if we can try to develop it all together and may be share trading ideas based on our efforts.” It seem like you landed the fine place because sharing trade ideas and develop ourselves is the main idea of this thread :slight_smile: Look back at our work and you can judge if you like it. We are honost with each other and having the goal of getting better.

In my opinion you look the market the right way and the example was also good. I suggest to think about 2 points where I am not sure if you are right:

  1. I take a quote from the Babypips.com school Market sentiment summary: “Remember, every market top or bottom is accompanied by a sentiment extreme, but not every sentiment extreme results in a market top or bottom.” - clear cut. So when you see an extreme point it might not reverse!

  2. I read the The Commitments of Traders Bible from Briese (you might have seen the posts where I share what I read) and he says it might be more difficult to follow commercial net position than non-commercials net positions. Why? Because commercials have deep pockets. This means if there is a non-commercial net position extreme there is more likely for a market reversal because non-commercials do not have most likely more money. The case is not so obvious in the other direction. Commercials do have often very much money so they might break the market extreme and continue buying/selling.

Have a nice Sunday

308

Hi d-pip,

Yes, very true what you wrote on the top. I know that it is important not to bet the farm on weak Europe. As [I]peterma[/I] says, it is always good to get to remember on something so thanks for telling me for not betting my farm before I get too greedy.

Can you write a bit more maybe about your 800 pip example? The reason why I ask because it surprised me. Not the 800 pips because it is in the game but what you wrote about the power of multinationals. As I read and learn more and more forex it is everywhere written that no one can influence price in a long-term. The market is just so huge that there is no person (besides a handful of people) who can change the directions. Definitely is it true for the main currencies. EUR/USD has 30% of all the trades so I do not even know how many multinationals do we need to change it only because of low levels.

What is your outlook on the pair?

Thanks for the explanation

PS: does anyone know what is the “multi-quote this message” option in the bottom right corner? I used it into my last post but nothing happened. I am actually looking for the quoating option where I can make a quote to a post but do not have to “reply with a quote” as it makes the post extremely long.

309

Hi rookie,

thanks for the reply. I do definitely do not want give you exotic currency pair trading tips where I am uncertain myself a little bit. I just shared my thoughts as I was thinking a lot on that issue and I think I try it with relative tight top loss. I do see a good opportunity to gain pips, that is all.

Well about trending: yes, there might be more reversals at this time which makes the game more difficult. Especially for trending systems like yours and Mike’s. Watch out though with your short-term trades if you cannot monitor them during the day. At least have a stop loss and take profit setting on. It will not be an easy game :slight_smile:

Don’t you find USD strong? Just ask because you said you do not find any strong currencies.

PS: when again big news are coming and I can manage it, I share my strategy

310

Hi rookie,

I answer to post Number 302 without the long quote sing.

You wrote: “My bias towards CAD, AUD and NZD the comms maybe bearish not only within the context of COT data interpretation but as a whole, market sentiment for now. But your post got me thinking it may be a good idea to buy. The classic investing approach buy low sell high sure applies to currency trading I guess. But when should we buy ? that’s a tough one to give a clear answer. If we don’t find the right timing to go long we will be wiped out pretty quickly as it would require one to have a deep pocket to follow along with commercials.” - very true. That is why I do not buy it. If there were clear signals for change I would do it. But I just do not see why would the current trend/sentiment change and also do not see the light in the end of the tunnel. If something changes then I also change my very bearish bias too.

The other thing about COT Index. I do not want to upset you but Briese writes the [I]mostly used historical data on COT Index is 3 years[/I]. Which is 156 weeks compared to your optimistic 52 weeks original idea :slight_smile: And if everyone uses it, then it is the standard time for it.

311

Something to think about FE. You always have the right questions to ask :).

312

Hi rookie (maybe peterma too),

hmmm hard to say something about that. The fact is I took sometimes a look at this index. And the fact is that I do understand how important correlation is and that many people use it. And the fact is that I cannot take advantage of it until this point because of some lack of knowledge and experience. I will do that in a later point of my forex career. I do believe what you guys write about correlations as they are just facts and true things. I still cannot use them.

Why? Look at this above mentioned index or the Nikkei with USD/JPY. Awesome correlations! And I do see that they move together. But what does it help me? That is the question I cannot answer until this point. Because it is one thing to see that they moved together historically and the present time. However they do not say anything about future possibilities. I mean when they had down it is good but when are they going to turn? The correlation only shows they go together but nothing about what comes. If they both head down they still may turn in 5 minutes so I have no indication about future movements. It would be very useful if one indicator would be a bit before the other. Then it would make me sense to follow the faster. But as they move together I cannot take an advantage for my trading, only see the correlation between them.

Even more difficult when they start diverging. Then which one indicates a future price direction? Should I apply the index direction for the price or the price for the index direction? So I understand what you mean and know it is important but at this moment these correlations I can mostly use to confirm or reject my fundamental bias but not for decideing about a trade direction or entry point.

Personally, the correlation I really do like and write down are those what peterma posted. Those are the valuable for me! He wrote that great post with chart about the direction of the Asian session and an entry point in the middle level of that session in the beginning of the London session. That is a correlation between the Asian and London session that seems to work for GBP/USD. These are more the correlations I like. With that information actually I can do start something and it is a clear cut.

313

Hi Philip,

well I like and don’t like your post at the same time. I like because it is informative. I do not like because it raises many questions and thoughts again so my easy going Sunday is “ruined” again :slight_smile: I do not want to sit at the computer the whole day so I try to share my first thoughts.

  1. Your report is good, it takes into consideration some factors what we also follow (net positions, percentile comparison).

  2. It is funny but I already answered in post 307 for some of the things, before even reading your post. And you already liked it :slight_smile: Please go back to number 307 as in the end I wrote non-commercials instead of commercials. Now it is corrected and was a big mistake. Be aware of that. What does matter at this point is regarding to your “[I]Drawback[/I]” section with timing. As I wrote, I think your net position Index brings more point for non-commercials as commercials have deep pockets. As I described this idea in post 307 in point 2.

  3. I do find great that you follow the relative positions. It is not clear but from your readings I think these are all commercial positions in your analysis. This “Relative Position” is good to know and if you share good to follow. I think it has to be a great work. Please take a look at one of my recent posts to rookie. For the COT Index most people use 3 years old data. It is questionable if that is the right time frame. But as everyone uses it, it is like Fibonacci, self-fulfillment in many cases. So who knows if it is actually a help or drawback to use data since the crisis in 2008 and not the widely accepted running 3 years old data.

  4. “Commercial’s relative net position to Open Interest”. I think the same. For some reason no one uses it, but I do and post it myself for non-commercials every week and I think the same way about it as you do. I mark readings under 30% and above 70%. I do compare it to net positions though and not to a percentile factor as this calculating method has 1 drawback I realized.

Just an example with false numbers.
Lets say week 1. GBP/USD: non-commercial long: 30 000 short: 20 000. Open interest: 50 000. Results: Long: 60%, Net position: + 10 000

Week 2. GBP/USD: non-commercial long: 25 000 short: 16 000. Open interest: 41 000. Results: long: 60.97%, Net position: + 9 000.

As you might see in the 2. week we see a divergence. The percentile comparison shows the longs are rising but net position is decreasing. In this example the percentile comparison gives a false result as the gain comes only from the more less loss of the proportion non-commercials, even if non-commercials actually lost more net position than commercials. This is the tricky part of it and even if net positions was decreasing the percentile factor shows the opposite! Be aware of this drawback. It is important.

  1. I like that you shared your ideas. Please make it [B]bold[/B] or [I]italics[/I] as it is the summary of your analysis of the data and rookie, Mike and myself have to see it as we will most likely comment it. With bold letters you emphasize the importance of it. I do agree your USD/JPY, AUD/USD and GBP/USD bias. As you and other also wrote about potential rising of EUR and CHF I will pay now attention. I do have a very bearish signal, make own decision but hear to everyones ideas and be careful. I might not trade EUR for a bit. Gold looks very interesting to me as it has my long term interest and I do not know that market. So if you have some information, tips, experience etc. just go ahead and share it!
314

ForExchange,

Thank you for two very insightful posts. Some of the ideas and questions you posed are actually keeping me on my toes :smiley:

I personally use Commercials as I implement Larry Williams’ Secrets of the COT report. Having said that Williams does reference Briese a lot as an authority on the report.

I have to say that your criticism of commercials and their deep pockets is spot on. I find that frustrating myself. As I said Gold for example has been at or near a bottom for two months. In those two months Gold rose from 1260s to 1340s, back down to 1290s then ending last week at 1310. That is a lot of money and I’m sure non-commercials had a different take on trading the pair in terms of tops and bottoms.

However thinking of it, I think that the difference is because looking at commercials and non-commercials have different purposes. I could be wrong but if I have a hypothesis, it would that looking at non-commercials help you take week long swing trade as well as having the current term in perspective in terms of tops and bottoms.

I think a trader who looks at commercials trading is a trader who is going to stay on the sidelines for the majority of the year and only make one or two trades per commodity catching the big moves (I will analyze commercials’ positions on April on the Euro to see if it did see that May fall)

I think the two can be used together; studying commercials can help us form a long-term forecast and provide confirmation to non-commercial activity. (For example, I would suspect that non-commercials were at an extreme long during the Euro’s May fall. They possibly even added to their position the week leading to the fall. I will check the records to see if that is the case.)

Your point on open interest is an absolutely brilliant one and worth observing. Williams’ book argues that, in your example for instance, that price usually rallies when open interest decreases and commercials hold 55%+ long of the position. However, most of the charts he showed were using a weekly chart. So the rallies occurred months after we recorded the 55% value. I’d assume that using the non-commercials what have helped us make many winning trades during then while maintaining a long-term bullish bias.

Only testing can help me formulate a solid theory on that. But I wanted to take the time to thank you for pointing me to areas that need improvement.

As for gold, I can tell you that it is a market worth adding to your portfolio because the volatility and $ per pip are amazing. They also have immense respect for the COT report. The same applies to silver. The great thing about those two is that commercials (since I focus on commercials) are almost ALWAYS with a negative net position. On the few occasions when they have a positive net position, you can be confident that a very strong rally will begin (make sure you compliment that with technical analysis of course).

I’m also wondering if you know whether the UK and Europe have a report similar to COT?

315

Change in the way of my reporting! rookie said some change ideas in my reporting method which I applied. I also made some additional changes. I will do post the net positions from this point as this is a very important number, which I did not pay attention until this point. I will also only write the facts down (like rookie) and make my comments on the currencies in the end of my report at the summary section. The only idea I do not apply (after some thinking on it) is that I do not post the open interest. In my opinion open interest is good to be aware of and I write it in my excel chart. However if open interest was posted here, the number does not mean anything to readers and at the same time readers cannot take advantage of these numbers. I think open interest is not definitely a key data. As I keep track of it for me anyway, if there is a surprising number then I will post it. The percentile change in long positions will be posted further on.

[I]So, let’s see what the COT Report tells us this week. Very important that the percentile factors will always show the long positions of non-commercial speculators:[/I]

[B]AUD[/B]: 68.83% vs. 69.98%. Net position: 33 300.

[B]CAD[/B]: 64.03% vs. 62.57%. Net positions: 21 455.

[B]CHF[/B]: 24.75% vs. 29.78% Net positions: -18 853. Here is open interest important: 57 238 vs 44 022 a week before and 32 259 on 27.06.2014. The differences are huge.

[B]GBP[/B]: 55.01% vs. 59.89%. Net positions: 12 121. Here we can also see a large change to the downside.

[B]NZD[/B]: 80.98% vs. 74.02%. Net position: 14 500. This is a misleading signal. As both non-commercials and commercials decreased their position size, the ratio for non-commercials increased but their net position decreased. It is exactly the case that I described earlier to Philip.

[B]EUR[/B]: 23.07% vs. 25.57%. Net position: -128 747.

[B]JPY[/B]: 8.59% vs. 8.82%. Net position: - 95 399. Open interest increased from: 172 210 from last week to 192 906.
[B]
USD Index[/B]: large speculators are almost on an extreme level. Hmmm… a signal for your (some of you) optimism for EUR.

[B]MXN[/B]: 63.22% vs. 81.09%. Talk about sentiment change! As we know this trend has changed on Friday.

What you might not now is that I also keep track of Gold, Silver, Crude oil, MXN, BRL, RUB and ZAR besides the main currencies. I do not report these findings though, only when there is some significant different is to be seen.

[I]Metals[/I]: altogether we can say there was price falling or in the last week which is quite surprising in this risk off sentiment. Less non-commercials were bullish this week as a week before. Interesting is to follow the last 3 days of the week which are not included in the COT report: gold price was rising and silver was falling. At this moment I do not understand these markets good enough to understand why this happened the way it did.

[B]Gold[/B]: 78.88% vs. 93.35%, net position: 90 679

[B]Silver[/B]: 74.92% vs. 85.21%, net position: 28 559

[I]Summary: now the biggest differences were the weakness of GBP (expected) and the JPY. Here I think we really have to pay attention. As I do not have historical data on JPY and I also do not have the COT Index on it is hard to say how extreme the situation is. Still, longs are only 8.59% and open interest were increasing a lot. Hmmm here might happen something soon. Something similar can be observed for the EUR, only not so extreme as it is for the JPY. So it does confirm the way of thinking that some of you expect the EUR to gain strength.[/I]

Unfortunately the Oanda website does not function today so I could not compare price action with the net positions.

316

Hi Philip,

sorry, I answer fast because it is Sunday and I just need some time outside after spending so much on forex this week. I try to be productive on long-term and not burn completely out in a couple of months.

Two points to your nice answer:

  1. I did post my trade setups yesterday morning for the next week. As we were very active I do not know the number of the post but it was quite long and it was yesterday so you should find it easily. I have to say though that these setups do take more risk into consideration as normally. I see some big risk/reward ratio that I will try. Something like that I never did before what I do now so of course it might be a bit risky but I believe in it.

  2. I do not know anything like the COT report in the world. It is unique with its stats. I think we would hear about it quite fast if something similar would be out their. And some of us would go crazy with even more homework to do :slight_smile:

Have a nice Sunday to everyone, I will be most likely back for market opening!

317

Hi guys!

Wow. Lots of good stuff going on in here. Philip, very nice to have you! Your bringing some good info for us.
All of you are definitely on it with the COT report. And I feel a little on the outside, with THAT. (I just haven’t researched the COT). But, thanks to you all, I am catching on more and more every time you guys report on that stuff.

Well, this is all about the big picture, sentiments, underlying current flow. It consists of many aspects. And now I’ll contribute what I can.

Major/Comm split. That’s breaking the market down into 2 groups. It helps to know where the weight lies more. It gives us a little bit of an edge. Seeing the big picture from out to in.
Last week, at this time, we were seeing the Majors on a roll. They took 2 in a row, looking for 3. And history (this year) shows us that a good trend consists of 3 weeks in a row. 6 times this year there has been a string of 3 weeks in a row that either a Major or Comm dominated. And here we are last week at this time the Majors have 2 in a row. Well, they took it. Not by a whole lot. I’ll try to put it into perspective. Let’s look at the runs this year so far. This is in chronological order.
Majors — +54 (weeks 1-3) Breakdown (+26, +10, +18)
Majors — +36 (weeks 6-8) (+4, +20, +12)
Comms – +71 (weeks 11-13) (+24, +43, +4)
Majors — +27 (weeks 14-16) (+12, +8, +7)
Comms – +50 (weeks 17-19) (+9, +24, +17)
Comms – +54 (weeks 23-25) (+36, +3, +16)
Majors — +41 (weeks 29-31) Present (+15, +20, +6)

I see: Majors came out on top better than the last 2 times they were. When the Comms are on top, they are by much.
(btw FE…no matter how I come up with the numbers, the bottom line is always the same) (I believe these are very accurate)

Last week I thought because of the amount of economic data coming out for the Comms, they could easily show up and make it interesting. Well, actually they did make it interesting. Monday = Comms. Tuesday = Majors. Wednesday = Comms. Thurs = Majors. Friday = Majors. That would be 3 weeks in a row that the Majors took over the last 2 days of the week.
So…what we have now is the Majors up 3 in a row. What’s gonna happen this coming week? Well, if they will take a 4th, it will be a first. (for this year anyway). We have a trend going now. And the recent track records show that it doesn’t last more than 3 in a row. But, you all know that that can change! Let’s keep this all in mind. And the whole reason for this stat is to kind of get an idea of which camp has the edge. It kind of narrows it down some. Because, there are reasons why the money sides one way or the other. (don’t even ask me the reasons :34:)

So, what about the trends? Well, last weekend I had (determined) only 2 pairs trending, on a longer term. The weekend before I had 11 pairs trending longer term. This weekend I have 6 pairs trending longer term.

EUR/USD —stayed trending throughout.
EUR/JPY —trending, not trending, trending again now.
CHF/JPY —trending, not trending, trending again now.
NZD/USD --newly trending now (bias USD)
NZD/JPY --newly trending now (bias JPY)
USD/CAD --trending, not trending, trending again now.

I got kicked out (stop loss) of EUR/USD. Plan on getting back in soon, only if it starts moving down, but not above 1.3444. That’s my line drawn for them.
EUR/JPY —was stopped out, but got back in before the end of the week.
CHF/JPY —same as above.
NZD/USD —am in now. Will add some size if going below .8439
NZD/JPY —watching closely. 86.37 is the level. At 86.22 now. I should be in (is trending, but just began).
USD/CAD —was stopped out, but haven’t gotten back in yet. At 1.0970 now. My limit line is 1.0935. (should be in) Will watch closely.

I did make some pips last week scalping the GBP on the news. I did good. That’s the only opportunity I get scalping is during their news releases.
For the most part I didn’t do all that bad. Bottom line was +2.7%. Things went bad though with the trend changing. But I’m not really upset. Learning so much lately. See, I’m not banking on MY ideas, or MY determinations, but just simply on the fact of trending conditions. I do have to be smart on position sizing, stop loss, and take profits though. I feel good with my longer term strategy, which is still unraveling with the specifics.

I’ll be in touch today guys.

Mike

318

I thought I share a trading idea I saw. It is present on the weekly and daily chart in EURUSD. There is an AB=CD pattern that completes at the 1.3228 area. This is a trade I might consider taking since we discussed a possible reversal/pull back in Euro. Stop loss would be 10 pips below 1.3200. Conservative targets are 1.3409 and 1.35200. More aggressive targets are 1.35234 and 1.37060.

Since many here are into correlations as well, the same pattern is there in usdchf. @91895 stop loss are 10 pips above 0.92429.
Profits are at 0.905701 and 0.89760 (conservative). Or 0.90030 and 0.88862.

319

So the same thing has happened to me I’ve lost all my report as I was almost done. Can’t retrieve :(. Will have to do this again. I’ll bring the rest of the report up soon shortly guys.

Hey guys,

So this time around I’m doing things a little bit different. Like we have been discussing commercials data alone /net position/ doesn’t really help much as we follow non commercials so I’ve decided to compare commercials and non commercials net position changes I’ve uploaded a sheet up thought it would be easier to see since we’re comparing the two. FE had some doubts if comparing the two especially net positions will bring anything but I’m doing it anyways. Let’s see if its of use guys. Since they’re both big players I personally think it doesn’t hurt to look at both and monitor what they’re doing even if we’re following non commercials. I won’t delve deep into non commercials as FE is already covering it. Same goes for commercials as I only have two weeks of data. So this is all I can do for now. Hopefully when my database grows I will be able to cover more. *Philip if you’ve got things to add as regards to commercials since you’ve been following them for a month please feel free.

Page1.jpg700×442 41.8 KB

The comms
AUD, CAD and NZD

Non commercials: Non commercials have reduced their net position /longs/ across the board same goes for their longs. One thing thats worth mentioning this time around is if you have been paying attention to CAD net positions lately, this time around CAD net position /longs/ has seen a decrease for the first time since 1 of July when net position turned to positive readings from minus. Non commercials outlook for comms looks bearish especially for CAD as buyers backed off from adding on their longs.

Commercials: On the other side of the boat commercials have reduced their net position /shorts/ while adding up on their longs. We see quite drastic change especially with AUD and CAD not so much for NZD. Now while non commercials outlook is bearish for all especially for CAD as buyers cut down some of their longs we see one thing in common with AUD and CAD, that is price level increase regardless of non commercials bias. Now I remember as I was reading FEs post that he posts from the Bible commercials longs and shorts aren’t homogenous. I referred commercials as hedgers /banks and institutions/ while Philip called them as producers. Like I said since commercials longs and shorts aren’t the same it could well be both taking on opposite side of trades within commercials. This makes things a bit complicated to analyse but I think we may be able to get some clarity from price level changes and use it as a guide.

This is how I see it, I may well be wrong but here’s an idea guys. We see an increase in longs and decrease in net positions /shorts/ and price level increase across the board for all. I would assume in this case banks /lets call it/ have reduced their net position /shorts/ in futures suggests that they no longer feel the need to hold comm longs in spot forex. If thats the case we should see decrease in price level as well as they would sell off their longs price would sunk. However we see an increase in price levels for all, that could mean the producers may have stepped in started buying as they see it as a bargain price pushing the price higher. It could signal that they may have started buying the comms.

We all know by now that we shouldn’t be following the commercials blindly even though they hold a bigger position as we have to find the right timing to tune in with them. I think if we keep tracking commercials activity long enough for a couple of months more we may be able to use this as a support to Philips indeces to try to determine tops bottoms and reversals.

So conclusion my bias toward the comms are bearish. But I will be paying close attention to commercials net position changes as sudden drop would signal producers heavy buying activity and possibly a reversal. But thats a very long term perspective. For now i will be looking at opportunities to short the comms.


The majors
GBP, EUR.

Non commercials: As for GBP non commercials have reduced their net position /longs/ and same goes for their longs signaling a bearish outlook on the other hand for EUR they’ve increased their net position /shorts/ and reduced the longs signaling again bearish outlook.

Commercials: While commercials have added on their longs for both EUR and GBP price level decreased for both. And we see a decrease in net position /short/ for GBP and increase in EUR net position /longs/. In this case since we dont see any price level change it could be assumed that producers may be have put EUR and GBP on hold to go long until they spot a good offer to buy at a bargain price. As they haven’t started buying yet we haven’t seen an increase on price level. So if banks /lets call it/ have cut off some of their /net position/ shorts for GBP and increased their EUR /net position/ longs in futures, they might have decreased their longs for GBP and increased /shorts/ for EUR in spot forex.

Non commercials and commercials seem to correlate a bit this week both for GBP and EUR being bearish.

The ‘safe havens’ JPY and CHF

Non commercials: JPY and CHF have been dominated by - net positions while we saw little increase on longs non commercials are still seem to be betting down on JPY and CHF as they add on their net position /shorts/. For now outlook for these two pairs seem bearish if we look at non comms.

Commercials: On the other hand commercials have added on their longs as well as a great jump in net position /longs/ for both. However I spot another familiar thing that is in common between the two - price level increase despite non comms bearish outlook like FE mentioned on JPY non comms seem to be getting at quite an extreme level. And looking at things from commercials perspective with price level increase it could be suggested that producers may have stepped in buying CHF and JPY thus we see some increase in price level. When I say this I don’t mean the reversal is about to occur nor do I mean we should be looking at opportunities to buy these. It’s still an idea and I will highlight again here that producers may have started buying them. We’ll see how price level aligns with this idea as we progress further on and as we begin to collect more data on commercials.

In conclusion my bias towards CHF and JPY is somewhat bullish but only towards certain currencies though non commercials still seems to be bearish on both of these commercials may have started buying them. I remember from the Bible non commercials usually end up holding on to their position at a /or during/ reversal while commercials have deep pockets to hold through reversals. I think JPY is about at a extreme if I look at non comms and I’m not shorting JPY especially given the rising tension around the globe and comms loss. For now JPY, CHF and USD seem to be performing well against the rest.

I’ll post my trade set ups later tonight.

Good luck guys!

Untitled 1.pdf (326 KB)

320

ForExchange,

Let’s not forget the purpose of the FX market is to facilitate international trade and financial transactions. Multinational corporations, end users such as Boeing, Caterpillar, McDonalds, BMW, Sony, Samsung, etc are the major long-term participants in the FX market. When the multinationals/end users start to share a similar point of view/sentiment towards the market they certainly do have deep enough pockets to turn it.

“Theoretically” as exchange rates rise to “expensive” levels they increase their selling, as rates drop to “bargain” levels, they increase their buying.

Think of it like a playground seesaw with a bucket of EUR on one end and bucket of USD on the other. The objective is to keep the seesaw “somewhat” level by adding to and subtracting from the “EUR bucket” and the “USD bucket” at “bargain” prices.

As the EU drops, they would be selling from the USD bucket to buy “bargain” priced EUR. Six months ago they would have been selling from the EUR bucket to buy “bargain” priced USD.

And, the USD they’re selling today to buy the “bargain” EUR are the bargain priced USD they bought six-months ago, back and forth and around and around it goes year after year. :slight_smile:

PS for the most part, the activity of commercial hedgers = activity the of multinationals/end users.
And, extreme high/low levels = “bargain” levels.
Current level of EUR contracts held by commercial hedgers is approaching the 200K level, almost a two year high. I don’t know but maybe we’re close to a trend change???

.