Hey Mike,
i was looking for a like button on your post but strangely couldn’t find it anywhere. Once we get it all down and combine our parts it should give a pretty good perspective and hopefully will produce more winners than losers.
And taking part actively in a thread motivates me in a way. So glad that I’ve stumbled upon this thread. Keep it going guys!
Strongly agree, especially with the motivation part. I will read ASAP the two books and discuss it here!
Was just thinking. I do have another market sentiment gauge. (I think anyway) And this has come from ME.
I keep track of what I call MAJOR/COMM split. The 5 majors against the 3 commodity currencies. It’s very interesting to see on a weekly basis which one comes out on top. I’ll throw that into my mix on the weekend (sun).
Ok. Then what about the risk-on risk-off factor. I do think that’s another market sentiment factor also. Although I think that one is kinda tuff to judge. Because I have seen risk off be either the CHF, JPY, or USD. I can never tell until it’s over who had the favor when it comes to risk off.
Mike
[B]Sure FE!! I’m with you.
That is a good idea to compile all of our data, info, and sentiments on the weekends. And then have a game plan for the week. I think we should also note what possible catalysts (economic indicator events) are on the near term horizon.
Then, we can watch what happens as it unfolds, and carry through with the opportunities that we will have set up already.
See, this week, I’ll tell you where I made most of my money. Sun night (market open) I was prepared to go short CAD, due to the flow since fri, NZD short also (flow), and AUD long (again the flow). I pulled the trigger and was pretty successful. Got out at the beginning of the london session. (good thing, because CAD made a serious come back very shortly after)
Then GBP I got the bull runs out of. But…hindsight is everything! If only I would have shorted NZD the entire week!! But how would we have known??? It must be catching the flow (of a currency) as it goes along, huh?
We’ll get it guys. [/B]
There’s been many trades where I went if only i had known I would have kept it going moments. For instance earlier this week if only I would have know I should have kept my GBPJPY and USDJPY running for a while with enough room to fall back if any minor retracement was to occur. I closed early and then I saw USDJPY heading down after hitting fibs retracement I went short with tight SL and got closed out earlier only to find out later USDJPY continued going further down.
Still can’t figure out how to get around this.
Thanks for the nice feedback on my buddy’s article. I’ll let him know!
Interesting what you mentioned about the major/comdoll divergence when it comes to gauging risk sentiment. Those higher-yielders (AUD, CAD, NZD) do give way to lower-yielders (USD, CHF, JPY) when risk is off. For now it appears the yen is able to take the most advantage?
[QUOTE=“Mike Wolski;642778”]Was just thinking. I do have another market sentiment gauge. (I think anyway) And this has come from ME. I keep track of what I call MAJOR/COMM split. The 5 majors against the 3 commodity currencies. It’s very interesting to see on a weekly basis which one comes out on top. I’ll throw that into my mix on the weekend (sun). Ok. Then what about the risk-on risk-off factor. I do think that’s another market sentiment factor also. Although I think that one is kinda tuff to judge. Because I have seen risk off be either the CHF, JPY, or USD. I can never tell until it’s over who had the favor when it comes to risk off. Mike[/QUOTE]
Looking forward to see how major/comm split will come out!
I agree about the major/commodities comparison. What can be a better appreciation for you, Mike than the nice words of the moderator? 
And of course this week is the very best for your comparison of commodity currencies. Maybe you can just grab the last 2 days, or even just Thursday and compare it with other weeks or days. Day comparison is probably better as almost the whole JPY move is faded by now. There is just no better risk on/off market environment than what we experienced this week.
Talk about market sentiment!!!
[B]2014.07.18. Weekly evaluation[/B]
Hi Traders,
My weekly evaluation is going to be a bit different than usually. I think the COT Report might also surprise us with some unexpecting results. I would however suggest for all of us: this week showed us how flexible we have to be in the forex market and always ready for a sentiment change, and for this reason the COT Report might not help us as much as usually as the picture was changing every day and does not help to define long term overview and picture.
It is hard to write this week for me as I took some of my largest forex losses this week. The week is not over and I have some promising trades at the moment on, however they are not closed so we have to see what happens.
I think it makes more sense to write about what I learned this week rather than about currencies as the game was basically safe havens vs. higher yielding currencies. These issues are very important. I was expecting a tough week full of reports which make it a bit difficult to trade sometimes. I did not get very well the NZD and GBP moves a couple of times and the bearish CAD Press Conference ended up with a bullish pip result… However more of the problem was the suddenly changing fundamentals: the Israeli-Gaza conflict was known to me, but I got to know too late the sanctions against Russia and the plane crash yesterday. These 3 events at the same time were just too much for my trades! I got stopped out in many trades and took losses.
What did I do then? I am very interested about all of your opinion as I never did something like this and it is questionable if it was the right move but thinking about it, I thought I have to take the risk. For my higher yielding currencies which were not stopped out I widened the stop loss and at night I also entered many JPY short trades. That was my thinking behind the plan: “Well the JPY strength is not because of the strong Japanese economy but only because of geopolitical risk. So if the geopolitical factors do get better than all these currency pairs will be stronger again. So I just go against JPY. And if I am wrong I will sit on my losses as carry trade is great against JPY and I will earn with it every day.” My basic plan was that the weak Japanese economy cannot hold on too long against higher yielding stronger currencies. I think the idea was great and happened exactly what I thought, the timing was bad though. I entered my trades a couple of hours ahead of the JPY peak, which means I was many hundreds of pips negative. I thought it would be great chance to enter even more JPY shorts however my risk would have been way too much. At the time of this writing the trades came back to a surplus and the plan worked out. The pitty is of course the many hundreds of pips left on the table. And of course who knows what the news brings, JPY rally again at any time. I will work now with tight stop losses to protect myself. Even if I close the trades, I think I can mostly get 50% of the maximum pips because of wrong entry, way too early against the flow (I think I can make 20-50 pops based on different currency pairs). JPY was only half of my problem but it got solved. The higher yielding currencies are still not doing great against other currencies than the JPY and especially my AUD short trades are not working at the moment.
So what do you think about my JPY short trades? Was it just too much risk to enter them and make wider stop losses on higher yielding currencies? I mean what I did is basically against everything I learned in forex but I had the overall view that a retracement has to come.
The COT Report comes out today; we have work to do, although as I wrote earlier the report might have some data which can be a bit tricky to interpret. On the other side, many of the risk off moves were happening in the second half of the week which means they will only be in the COT report next Friday! Keep this in mind!
Have a nice weekend and good trading today.
Hi guys!
Man…I’m sitting here getting caught up on the thread. Yep your right FE, I feel REAL good having the big dog step in and mention about my post. I am truly honored.
Ok…that’s nice…let’s move on.
I’ll tell you what I have on that.
I’ve kept track since the beginning of the year. This is how I figure it out. Simply adding up the up days and down days, pitted against each other. So, like yesterday, the majors have it, 20-8, and comm’s are 3-15. That means majors all totaled 20 up and 8 down and the difference being +12. The comm’s only have 3 up and 15 down. Difference being -12. That means (the comms): AUD had an up day against the GBP and NZD, that’s 2 of the three. Then CAD had an up day against NZD. That would make 3. I realize just now that I am counting a comm against a comm, and probably shouldn’t be, but that’s how I’ve been doing it. Just adding up the total of who had an up day or down day. And I should mention that if a pair has 10 pips or less, I count as even. I always know who had an up day, down day, or even. And in this regards, I just group all of them into the majors/comms. That’s 5 against 3. And I’ll tell you, it is interesting to see how it always goes back and forth. It’s like I can even predict which one will be on top. But anyway, from the beginning of the year up to now, it shakes out even. Majors have 13 weeks of being up on the Comms, Comms have 13 weeks up, and there was one week when they were dead even. There was 3 different times when the Comms had a streak of being up 3 weeks in a row. Weeks 11, 12 13; 17,18,19; 23,24,25. We’re in week 28 of this year now.
The majors had only 2 different times when they were up 3 weeks in a row. Week 1,2,3; and week 14,15,16. But it’s been back and forth the last 2-3 weeks. Last week went to the Comms. So far this week the majors are up a good bit (+12) with one more day to go. And it’s funny cause it seems like the comms are making some strides back today. I kinda think that they will pull it back to maybe even.
That’s all nice, but it’s still hard to tell WHICH currency in particular will be the strongest of their group. There could be a good hedge strategy in there somewhere.
I’ll give more details later.
Hope you can understand some of that.
Mike
That is a nice study Mike!!! As far as I see the first basic indicator would be: if commodities or majors are up 3 consecutive wins, then we can expect the fourth week will be won by the other party. I think the longest streak was three for one side.
The only downside I see is what you mentioned yourself: I guess it would have been better not to count comm vs. comm and major vs major as they do not really fit into the analysis. More than that major vs. major get 5 points every day comm vs comm gets 3 point only every day. So actually the majors are getting 2 “present points” every single day! This is quite a difference and might lead to an overall commodity victory in the long term. Don’t you want to change ithis from now on?
End do not get fired from your job because of this thread
Hi FE
Looks like you did good with going with the flow on JPY short. I was surprised this morning when I woke up to find them correcting.
I could be wrong, (for sure), but, it seems like you have a longer term sentiment in place with a shorter term trading strategy time frame. I do have lots to learn about the whole yielding of currencies. What exactly do you mean “higher yielding” currencies? Is it the commodity currencies? In my mind I would only think of that aspect if I was trading on the lonnnngggg term. But, if the players ARE thinking that, then I have so much learning to do.
So my question is is that a major factor in determining a trade in the short term (within a week’s time)?
I guess if the big players are running to the JPY, then it must have some merit.
Some of my thoughts.
Mike
Good point.
I’m gonna revise that. It only makes sense! Maybe just don’t count the in house numbers.
Off to work I go now. I’ll check in (as I always do), during the day.
Mike
Hi Mike,
yes, I like to have a long term sentiment as “trend is my friend” but make many shorter term trades.
Higher yielding currencies are mostly the commodity currencies at this moment but it can be any currency. In the forex world high yield currency pairs means the interest rate differential for the long side. JPY has about 0% so people go against JPY. NZD has the best and then comes AUD. This is an important factor as many traders plan on the carry trade which is extra revenue and they do not want to go short on high yielding currencies. If you read the blog from Pipcrawler he likes expecially setups where he can go long on higher yielding currencies. EUR and USD are very weak, CAD and GBP are a bit better.
Hope this helps.
Ok guys. This is what I got. Probably all what we know already.
As of the beginning of london: ( looking at the 8hr charts for this perspective analysis)
USD, AUD, JPY all tied for the strongest.
GBP comes in a close second.
CHF third, really close to the next 2. Which are
EUR and CAD, which are neck and neck.
NZD bringing up the rear, by a lot.
Notes: Biggest mover I would have to say is the AUD, and that would be on the up.
JPY has dropped a lot.
USD dropped some, but still considered strong.
GBP dropped some, but still relatively strong, not as much though to the USD and AUD.
I think a commodities will come back today and even out the score against the majors.
It is take profit day though.
Mike
Hi FE,
Hows that interest rate is determined ? if it does fluctuate is there a way to find out ?
When I opened JPY cross pairs such as USDJPY, NZDJPY and GBPJPY on higher frame charts , were all trending up with JPY - net positions almost always. And I was wondering why. Is it because of interest rate differential with JPY at 0% ?
Hi rookie and Mike,
as I see we have to clear these interest rate differentials! 
Interest rates are one of the most deciding factors for currencies (if not the most!). If you guys read news or hear press releases, interest rate policy is the main question for every aconomy. Journalists always ask: „When can we expect rate hike?” Interest rate decisions are always tier 1 data!
It is hard to say the story short, but if an economy goes good, then they hike rates to slow down inflation and make people deposit their money in banks. If an economy goes bad, they decrease rates to push money into the markets and push the economy, which means people will take out their money from banks.
To calculate in the forex market with an example: NZD has 3% interest rate, JPY has 0% or 0.1% and every night you pay/recieve the interest rate differential for open position at 5PM Eastern time zone. So if you are long NZD/JPY you become money, if you are short you pay. This is a key importance in long-term strategy as everyone wants to recieve extra money. If your trade goes the right direction you earn extra money with NZD/JPY long. If you are long on NZD/JPY but it goes the wrong direction, you still recieve your interest rate revenue, therefor your loss is not so great. With NZD/JPY it is the opposite. So most people want to be long on NZD/JPY, AUD/JPY, CAD/JPY and JPY/GBP.
Interest rates are often a good indicator how an economy is doing. Please ready all the following articles:
Interest Rates 101 | Fundamental Analysis | High School
What is Carry Trade? | Carry Trade | Freshman Year | Undergraduate
How Do Carry Trades Work for Forex? | Carry Trade | Freshman Year | Undergraduate
To Carry or Not to Carry | Carry Trade | Freshman Year | Undergraduate
Carry Trade Criteria and Risk | Carry Trade | Freshman Year | Undergraduate
Summary: Carry Trade | Carry Trade | Freshman Year | Undergraduate
This is necessary knowledge! Good luck!
Hi rookie and peterma,
peterma has read the books, and rookie was learning from that very informative forum thread so I have a question. You two both mentioned the net positions. My question is if it was important for the commercial or for the non-commercial sector? What did you guys read? Which segment do you have to look at for the net position change?
Thanks,
ForExchange
Hi FE,
Williams comes down heavily on the commercial sector, his general reasoning is that they are the experts or the ‘smart money’ in their chosen commodity. He also lists the many times that the small trader is wrong, Briese takes a more balanced view -
“When I started trading in the early 70’s there was not much trader info available. Today there is too much. And to make matters worse, it is filed together with misinformation and disinformation. As a reader of this book your are entitled to be disabused of the worst of these half-baked ideas. Here is a run down in no particular order.”
He then lists those ideas:
Tip - Always follow the commercials
Tip - Net long is bullish, net short is bearish
Tip - Always fade the small speculator
Tip - It is only logical to compare hedging to the seasonal average
Tip - The COT is old news by the time it is released.
Under each heading he details reasons that these ideas are mis-informed.
An example, fading the small speculators.
“This has to be a gimme, right?. …every market book is unequivocal in stating that small speculators are net losers. I cannot argue with this premise. My only reservation is your ability is to find out what small speculators are buying or selling, or how much. The CFTC does NOT release this information…
Now who’s pulling whose leg I can hear you say, are we reading the same report?”
He goes on to note the actual make up of the ‘non reportables’ and that “the small speculator may be ‘dumb money’ but he is not stupid enough to come out from hiding among the commercials in the small trader category”.
Hi peterma,
first of all, thanks for your answer. I remember you were already writing to me earlier to follow the commercials. You read of course the book so you know then the reason why is it like this, but it still does not make sense to me. So maybe you can tell me short.
That is how I see the situation with my logic:
Commercials are there for hedging reasons and not to make money. Non-commercials (speculators) are the winners and there to make money. So it look logical to follow the non-commercial category. Small speculators: they have no idea.
If I understand right your second and third tip, this means follow commercials based on net long or short and never follow small speculators. Based on this, I checked the two bullish currencies for the last months, the GBP and NZD. During the bullish phase commercials were net short and small speculators were net long. So as it makes sense, commercials lost and this time even small speculators made money. Based on the advice in what you wrote, I would have done the opposite and lost a lot of money.
Can you explain this? Thanks