COT Report Analysis - a thread on market sentiment

Trading Discussion News and Economy
81

Hi guys!
I don’t have the time to be analyzing other threads. Other than working a full time job, most of my time is spent collecting my own numbers. Which can be overwhelming sometimes. I would like to spend more time analyzing the data than collecting it. And that would be this. From jan of this year, I keep track of the top 8 currencies, 5 majors and 3 comm’s. The long term (weekly charts) stats, medium term (daily charts) stats, and just recently now I have the short term (8 hr charts) stats. Each other paired against one another. I can tell you who was 1st down to 8th place, rating from strongest to weakest. In all three catagories.
So, when I see your synopsis of the pairs on the weekends, it always is similar to what I know. It’s just about knowing what’s going on in the market.
One of these days I will get to reading the books I bought on macroeconomics. That’s what I love. But, trying to settle down the number crunching hopefully sometime soon. Oh, and then there’s the trading aspect of it. I journal very much of my trades. And my pip counting also.
I know…I’m a nut when it comes to data.

So, I can’t indulge in more analysis. But, in time I will get it all under control.

I appreciate this thread. Will input some stuff in the coming days. Would love to talk about the market activity.

Mike

82

Ok. I will contribute what I got. Don’t know if it’s what you want or don’t, so tell me if it’s of use.

Strongest down to weakest —trending high against

LONG TERM (weekly charts) :
NZD – AUD, GBP, JPY, USD, CHF, EUR
CAD – AUD, JPY, USD, CHF, EUR
GBP – AUD, USD, CHF, EUR
AUD – CHF, EUR
USD – EUR
CHF –
EUR –

SHORT TERM (daily charts) :

NZD --AUD, USD, CHF, EUR
GBP – AUD, USD, CHF, EUR
CHF – AUD, USD, EUR
CAD – USD, EUR
JPY – CAD, EUR
USD –
AUD –
EUR –

INTRADAY (8hr) beginning of the week (changing always)

NZD – CAD, AUD, USD, CHF, EUR
GBP – CAD, AUD
CHF --CAD, GBP
JPY – CAD, AUD
USD – GBP
EUR --CAD
AUD --CAD
CAD –

I could be more specific and give either trending high, trending low, and ranging, but that should suffice.

Let me know if this helps.
And this is all based on whose trending. Is technical based. yikes

Mike

83

Hi Mike,

thanks for your findings! Do not get me wrong, if you do not want to participate, it is ok. I only had the idea that you might be interested! If you are very busy then you cannot do it. It is also fine!

But thanks for sharing your findings. What I would need a bit though is a bit more explanation for the right interprerations of your findings. “Strongest down to weakest.” This is clear, on the 8 hours chart you think NZD was the strongest. First lets clear: 8 hour chart means the whole chart is 8 hours or 1 candlestick? Becuase usually the time means 1 candlestick but if 1 candlestick means 8 hours then CAD wouldn’t be that weak.

And then there is: “NZD - CAD, AUD, USD, CHF, EUR”. Does this means that your first choiche of trading NZD long would be CAD, then AUD and etc.? Based on what indicators and measurements did you make your findings?

Keep up the work and good trading!

84

Hi Forexchange

I’ll look more into that thread and will post later on this Sunday if I can. I’ve come to realize that there’s some shortcomings in how we’re interpreting COT report after stumbling upon Larry Williams website /explained in short how he interprets COT report/ and thread that I’ve mentioned earlier in my post.

Just for an update I’ve closed both of my JPY short trades @ 31 pips in profit after keeping it for almost half a day. Much of the rally was with GBPJPY , USDJPY rally wasn’t as strong as I expected it to be. Your analysis might have been spot on. We’ll see. I’ve closed both of these trades just to be safe as there’ll be key high importance news releases regarding GBP and USD tomorrow.

If we can get COT report interpretation close to what Larry would interpret, I think we’ve landed on the HG :slight_smile:

85

The problem I have with the COT is: What can a trader possible seek to gain from data which is 3 days old, that can’t be derived by looking @ a simple price chart and making adjustments in real time- not 3 days later?

86

I have tried pretty much everything and nothing makes more sense than trading COT report. COT report interpretation isn’t just about calculating percentages of long or short sides. It’s about how massively long or short they are /by looking at historic COT index/. So being 3 days old doesn’t make much difference. After all they move the price up or down. And big players don’t change positions dramatically in a matter of few days. Technicals are only good if COT report is taken into consideration in my opinion each to his own.

87

Hi Forexunlimited,

I think it is very true what rookie39 wrote in comment number 86. The report does not give you the exact level of entry but gives you an overall view of the market and I also think that large speculators do not change their view in every three days which means that being 3 days behind the actual market is still okay to see the market as a whole.

88

It would make more sense if you have years worth of data, in which you were comparing the most recent release to. It seems like you’re trying to use the strategy to trade in the longer term, but, if someone new is just getting into the report, how far back would they need to go to have statistical relevance as to the current positioning or professionals?

i.e. They may be net long this week, but, in terms of the last 4 months what does that mean?
I respect your right to trade however you see fit- I just wanted to comment because there really is no need for this data as it is all reflected in price.

How long have you been trading with the COT as your primary signal source?
What type of returns have you been able to pull down each month on average?

Thanks for continued conversation!
Jake :slight_smile:

89

Hi Jake,

you have to wait it bit more until I can give you exact answers how well the trades turn out. I started to work with COT only a couple of weeks before as I started this thread. And actually the point of the thread is exactly to learn together. Rookie39 is commited to it for example, me too. We work together with some others and try to improve our skills. Like I said hopefully at the end of the year I can tell you if it makes sense to trade like this or not!

Have a great trading week!

90

Hi rookie39,

I had this book anyway on my must read list, I will then order it today or tomorrow to move faster on the way of interpreting und understanding the report!

Good job with your trades!

91

Sounds good- I’m not going anywhere and would love to continue to monitor your progress.
Good luck guys! I wish you the best.
Don’t give up!

Jake

92

Williams is very much focussed on the commercials’ activities rather than the large speculators.

He also uses the small trader numbers at times as a contrarian indicator.

The ‘cot index’ is the indicator, he and Briese emphasize that it is not a timing tool.

Williams cites many examples of cot giving an early warning of a market turn up ahead, the one that hit home with me most was the S&P example - mainly because I was long on stocks 2000.

Quote: (he is speaking of the commercials, the cot index and the S&P 1998 -2000)

The lesson you just learned was that extremely high readings are bullish, and extremely low readings are bearish. With that in mind check out the chart and you will see what a brilliant record these guys had in showing us the buy points in the fall of 1998 and 1999 when their buying reached historically high levels, higher than seen in the prior 5 years.

Boy these guys were big buyers.

Their selling was equally fortuitous. Check out the massive amount of selling at the start of 2000 when the largest bear market in 70 years began.
At that time the commercials had taken on the largest short position in the S&P 500 index in the history of the data. In 18 years they had never been this bearish.
Stocks plummeted in response, and these insiders must have made hundreds of millions of dollars from correctly calling this critical market turning point.
End Quote.

93

Hi peterma,

great to see you here again! Thanks for your response. Do you actually trade based on the COT report or you just know how it works because you invested time in it? Do you use any other market sentiment tool for analysing the market or are you more of a technical analyst?

Best wishes

94

I only trade Eur/Usd and Gbp/Usd - in my line of work I ‘trade’ Eur/Gbp in that I have to exchange the actual currencies, so I generally am aware of what is happening USD/EUR/GBP.

I always check the cot, it gets to the point where you can guess what changes will have been reported on the Tuesday by the behaviour of price on the remaining 3 days, if my ‘guess’ is wrong, ie the commercials didn’t do what I thought they may have done, then I delve deeper.

An example of current analysis on GBP - the comms are at extreme short levels - they have been selling their GBP’s as it’s value has increased - normal business decision.

They have slowed their selling, if GBP were to decrease in value then the opposite, as GBP becomes cheaper then it makes sense for commercials to buy.

So I’m guessing that the commercials are slightly hesitant in their Bullishness on GBP - that makes me also slightly hesitant.

LOL, I should have invested time in reading the COT back 14 years ago, would have save me a lot of grief - ah well, that’s hindsight I suppose :slight_smile:

95

Also FE, to be specific to your question, I don’t use TA like most do here, I understand how many use fibs, ma’s, and various patterns, I also understand that those work for people and that is good.

‘Sentiment’ is a good word, others call it ‘momentum’, yet others use the term ‘trend’. Imo this is where TA and Fundamentals meet. UK economic news been ‘trending’ upwards for some time, price is reflecting this, so I look to news to add further momentum, or indeed to counter the prevailing sentiment.

The market sentiment tool I find best for me is how price has behaved most recently.

I have long since ditched the notion of bias, sometimes I feel red faced because I happen to have a longer term bullish bias on GBP and yet I am short for the day, will prob be so tomorrow, if the cpi numbers disappoint, otherwise I’ll be stopped out for a small loss.

Quick anyl on recent price behaviour: Today USDX back where it started, Eur/Gbp sustained buying, so either buying Eur or selling Gbp / Fibre (Eur/Usd) some early buying but back to where it started (like USDX)

Cable (Gbp/Usd) - sustained selling, the opposite of Eur/Gbp, so it’s not USD buying that caused the price behaviour on cable today, therefore has to be GBP selling.

So my sentiment tool is negative GBP short term (tomorrow) - my entry and stop will use the Asian :slight_smile:

96

Hi guys. I’ll explain.

I have rated here everyone from strongest to weakest. And yet strong/weak is relative. So, I break it down to who is the strongest down to the weakest, in order, for the long term, short term, and intraday. For the long term determination I pull up the weekly charts. Everybody is either trending high, trending low, or ranging against each other. So, I plot that. My rating for everyone is based on that. Whoever is trending high and has the most accumulated against each other will be on top. See, for the long term NZD is trending high against 6 others. So, I have them as the strongest. Then comes CAD who is trending high against 5 others. And so on. And since strong weak is relative, I also have them rated in the short term (I call it). So, I pull up the daily charts, determine who is trending and ranging again. See everyone is doing something, either trending high, trending low, or ranging. And look at the short term daily charts…you see the CHF I have rated as 3rd. It’s because I see them as trending high against AUD, USD, EUR. But, in the long term rating, their next to last. Because they are not trending high against anyone. And that’s all according to my perception looking at the charts and looking at the fractals. Higher highs and lower lows.
So…that’s my way of getting to know who is the strongest, then the next stronger one, then the next, and so on down to the weakest. Rated. And in perspective. Long term (pretty far out), short term (daily charts), and recently added is the 8 hr charts. I will look at the 8 hr charts and do the same thing as I do with the other 2. Find (as per the fractals on the charts) who’s trending high, low, and ranging against each other. I’m putting it all into perspective. Far out, relatively short, and really short term strong/weak.
Basically their rated in that time frame.
Look at my list. On the left is the ratings. And on the right is my proof of who they are trending high against, in order to get them where they are.
See, I used to just have one list. But, it is just so relative. And it only makes sense to break it up some and put it into perspective. Long term, short term, and intraday.
When you talk about strong/weak, your singing my song. You might say someone is strong, sure, but at what time period. And whoever is trending high, in my opinion, is stronger.

We’re all trying to put things into perspective.
This is my way.
And as I said before…I love all this stuff (IN THIS THREAD). I love talking about the big picture. That’s seems to be what this thread is about.
Don’t take me wrong…I’m all in this thread. Can’t pry me away from all this stuff.

I appreciate all your work!

Mike

97

Hi Mike,

thanks for your explanation, it makes a lot more sense now. I can see that basically your analysis really comes to the same conclusion as what I have written :slight_smile: And yes, of course here is also the point to see the bigger picture and see the markets more clear.

All of you should pay attention on the GBP!!! Like [I]peterma[/I] said that he is skeptical about it, yesterday the price action confirmed that. There were no news but GBP was quite weak! I am waiting for a long-term turning point for GBP and short term bullishness but these signs show us that the recent strength might be away. I am very interested though for what CPI comes out for the GBP in 45 minutes and how the GBP pairs are going to react on it!

Good luck everyone!

98

Well, I’m paying attention.
What do you guys think? Was good news. I made 22 pips on that scalp. And now, before I go to work in a half hour or so, am trying to decide if they are gonna keep going up today. (I can’t trade throughout the day…monitor it yes, but not able to buy or sell). I usually place limit trades.
I think the pound has much upward movement to play with. (why?) Cause they were in last last week (weakest). Week before that they were first. Then the week before that they were second to last. It seems like this week they will be on top. This could be the catalyst to propel them upward.
These are just some of my thoughts.
How about you guys?

Mike

99

2014-07-15_0512.jpg700×310 40.5 KB

This is the 8hr chart, aggregate of the pound to each of them.
Seems like have room to rise.

100

Hi Mike!

Great picture with all the charts! Funny to see 8 hours charts. Have never seen something like that. Can you maybe upload it a bit larger or with a link to some other website? I cannot see the details.

I made also good pips on the CPI report, +45 GBP/USD and +34 EUR/GBP. I will watch out though. I do see some sentiment change. I will look a bit for confirmation and when I get my signals then I jump in. However I am thinking to make a short-term GBP/NZD and GBP/CHF short trades for a bit of retracment after the news. I will see if it makes sense to jump in.

And because we look at market sentiment, both EU and German ZEW Sentiment numbers came out negative for the Eurozone. That might show further EUR weakening.

Have a nice day