It may be true that most small traders are wrong, but not on the market direction.
Because essentially it is a 50/50 chance proposition not considering any factors.
So… to say that most of them are wrong there should be something pulling traders to bad analysis of the market, which is not really what happens.
What is true in fact, is that most traders turn to be unprofitable.
That doesn’t mean they don’t know which direction to ride on the market, it only means they don’t know when to enter, when to exist, where to set stops and TPs.
Spot on. I’m also looking for long gbp/usd because of the three wave correction from 1.7. This is an interesting type of analysis that may prove very useful, I look forward to reading more of this.
Just for fun (I don’t particularly like discussing trades publicly anymore and I don’t REALLY trade forex anymore either):
I’m with you lasereyes (but not for the same reasons):
The weekly pivot is around 1.5098 and the S&P 500 slightly overshot the October 2009 lows and then rebounded a ‘tad’ last week i.e. it overshot the November 2009 lows. Also: the system I use is ‘giving notice’ that a slight retrace may be in order but the uptrend is still intact. Having said all of this: if the S&P 500 decides to keep going down then ‘all bets are off’ and I’ll be wrong!!! LOL!!! Do note that I’m not actually IN a trade on this instrument / pair i.e. this is just for fun analysis (although if the truth be told: had I been watching this instrument / pair I would have been long from around 1.4569 on the daily charts and still be long as of right now with a pending stop at around 1.4867).
As I said: just for fun is all (I get real bored trading the 4 hour, the daily, and the weekly timeframes which is where I’ve become ‘finally settled’)!!! LOL!!!
Well, OandA still say over 60% of traders on their books are short according to their open positions ratio and today the market has fallen back slightly to 1.5135 so I think the sentiment of retail traders is still fairly bearish on the pair.
So I’ve recently just opened another long position.
If the markets weren’t moving either up or down nobody could make any money, being on the right side of the long term trend gives you an edge and in time can make a position profitable even if it isn’t entered at the ideal price - the longer the position is open for the more likely the trend is to carry your position into a profit if you’re right or a loss if you’re wrong. The trick is spotting the trend’s direction as it can change. Retail trader sentiment is a good way to do that.
I truly appreciate a portion of this strategy as it’s based on useful information that’s hardly talked about and explored for a lot of traders. And that’s the COT report. I think everyone should get the weekly updates sent directly to their email to stay on top of the game to some extent. For me, the COT report is the only fundamental I really look at. However, just like any piece of information, I would not solely base my trade just off of that.
As far as going against the grain on retail traders, that part’s rubbish. Most traders understand the direction of the market. They lose due to a lack of risk and money management.
It’s mostly the retail traders that I’m going against rather than the big boys in the COT that I’m seeking to follow. In this thread and this trade it’s all about going against retail Forex.
Anyway, the OandA open position ratios has fallen in the past few days from around 67% of retails traders net short on the GBPUSD to around 60% of retail traders net short. This is significant because it means that the ratio by which shorts outnumber longs has fallen from around 2:1 to 1.5:1 which is quite a big fall.
Nevertheless, retail traders do still clearly favour the short side so I’m holding on to my long positions, for now.
That’s my update for today. Lets just see where this leads…
Edited -
In the COT, the smaller traders do different things to the larger traders too.
In the most recent COT report on the SP500 large $250 contract there are 20,627 non-commercials long and 34,920 non-commercials short.
However on the small SP500, the $50 contract, we have 308,407 non-commercials long and 242,012 non-commercials short.
The large non-comms are net short and the small non-comms are net long. Conclusion, the SP500 is likely to fall and the majority of small traders will be on the wrong side of the market as usual.
But the retail Forex indicators are even better than this, they’re updated hourly (or twice daily on Daily FX plus) and they show you what the really tiny traders are doing.
In the COT report it’s often hard to tell what type of traders you’re looking at. For example, are the $10 Dow contracts mostly big boys or little fish? Probably a mix actually. Same with the GBP contracts of 62,500 in the COT I think.
GBPUSD is banging up against the resistance of the 78.6 retracement. It hit, retrested, and is turning back the other way. GBPCHF is breaking through some uber strong resistance as well. Time for the pound to go down, you better run for cover. Retail traders knew it was going down. They just didn’t know when.
Well, I could take a few hundred pips profit and run, but for the sake of this thread, I’m going to put my money where my mouth is and stick long until retail Forex is net long. Retail Forex is (I believe) only right at market turning points and when they are right they quickly exit with a small profit and then start fighting the trend again.
Right now retail forex is 41.1% long, 58.9% short according to OandA, I’m sticking with my longs position until it turns. Lets just see where it leads, if I lose, I lose.
I don’t see why it’s a shame, it’s just an experiment. And posting the results and getting feed back helps me analyise the results better as I have the input of others. I’m going to do this and keep posting it until nobody is interested anymore. Hopefully the information gained from the results will be useful to some traders here.
It’s a shame, because in the end you are acting like your stereotypical losing retail trader. You have one indicator your treating as the holy grail with no proper risk reward established. It’s irony is quite comical.
Sorry you misunderstood me, I think. I’m only doing this trade with a small amount of money. And sure there will be a time when I’ll end up on the wrong side doing this, when the trend finally turns retail Forex will be right, and we might be at a top now.
But what I am predicting is that when the trend finally turns down what will happen is the majority of retail traders will start going long trying to call the bottom and usually be wrong. I think the results of this thread will prove interesting, lets see how accurate going against the majority of retail traders is.
I want to do this with a small amount of money because I was told on this thread that the majority of retail traders are not wrong, just unprofitable. That’s what I’m disputing here, I’m not advocating blindly following any magical indicator and I apologise if that’s what it sounded like. I asked why the majority of retail Forex were usually wrong, the answer I got was that they aren’t. I’m trying to prove that they are. If I can’t prove that they are I’ll accept I’m wrong.
Anyway, retail Forex have been net short over the last few weeks while the market has risen over 500 pips or so. If this is the top then now I’ll be wrong. But if I am I predict that retail Forex will take their small profits and start buying (going long) into the down trend. Lets see
I must say: I’m enjoying the ‘banter’ here on this thread. It’s nice to see a whole bunch of opposing thoughts and ideas and the reasoning behind such thoughts and ideas i.e. it’s always fascinated me how ten people can look at the SAME chart and have different opinions. I guess that’s what ‘makes’ this business ‘tick’.
HOWEVER: it’d be REAL nice if GBP/USD decides on a direction. ANY direction will do (I’ve sort of joined you guys for fun here with a ‘teensy weensy’ position and I’ve been stopped and reversed twice now in the past two days on the four hour charts)!!! LOL!!!
Regards,
Dale.
Edit:
By the way: it would appear that I was wrong in MY initial analysis i.e. the S&P is doing EXACTLY what it’s SUPPOSED to do!!! GO UP!!! And yet: it does not seem to be affecting this pair which is unusual.
Yeah, and there’s enough money for everybody to be right regardless of what side of the trade they’re on. It’s all about exits.
Last week I couldn’t read a thread on a forum without somebody telling me why it was a good idea to short the pound, now that we’ve had nearly a whole week of nothing, I suspect most of the weak hands have been shaken out by their own impatience, and the decline can begin in earnest.
I’ll still be holding my longs, since we’re about half-way to my target, but hell, I’ve been wrong aplenty, so who knows how it will all turn out.
Thereis a thread ovr on FF about the COT report - look that up.
It is the large traders tat you need to care about not what the traders of one broker out of a thousand are doing.
Yes it is the large trader you need to care about, and as they make the market move, if they see retail traders are net short, well its in thier best interest to make the market rise. Half of the market movements is just the big boys manipulating you out of your money…
So its actually not a bad idea to trade against the direction of Retail FX when thier is a majority in one direction.
“Retails trader knew it was going down. They just didn’t know when”… Every single trader, large or small, genius, stupid or otherwise, knows it’s going down [I]sometime[/I], they just don’t know when (none of them, if they pick the top or bottom then it’s just luck). The difference seems to be the way the large and the small traders tend to play it.
The large players usually don’t try and predict the market tops and bottoms as they’ve learned that they can’t. So they tend to go long when it’s going up and stick with it until it starts to fall.
Smaller traders on the other hand seem to try and pick tops and bottoms and are usually wrong until luck makes them right, after luck makes them right they usually take a small profit and start trying to pick tops and bottoms and end up in the wrong again.
I predict that if the resistance around 1.5220 holds then after the break down retail Forex will be net long through most of the downward move.
Anyway, the situation today is the resistance at around 1.5220 has held and a triangle is forming. The shape of the triangle suggests the market will fall as the support is slopped and the resistance is flat. As a general rule the more of a slop on a support or resistance line the weaker it is and the more likely it is to break. Still, the position is still in profit so I’m holding onto it. The indicators I see seem to suggest that retail Forex is still net short on the GBPUSD by around 60/40, so let’s stick with the longs for now
As I said: this thread is great i.e. it’s a ‘meaty’ discussion (for want of a better phrase that’s not coming to mind at this time of the night)!!! LOL!!!
A question (again just for interest sake): why is it a forgone conclusion that the GBP must fall??? I mean to say: if I look at the daily, weekly, and monthly charts then what is wrong with the levels 1.5470 (or thereabouts), or 1.6700 (or thereabouts), or even 2.0000 (or thereabouts) and above???
From a personal point of view: I learned MANY thousands of USD of losses ago, and MANY months ago, to not rely on MY UNDERSTANDING of fundamentals OR to listen to analysts. My logic tells me that IF equities soar (I’m talking about the Dow to 14 000 and above) then the USD weakens and the GBP will therefore strengthen and, of course, GBP/USD could possibly move up to the levels I mentioned. The opposite of course being true if equities ‘fall through the floor’.
Some additional info (for what it’s worth):
The S&P is trading below it’s 50-day and 200-day MA and a ‘Death Cross’ was made a few days back. APPARANTELY: this is has always been a very reliable signal i.e. that equities are going to go down. I cannot tell you how many ‘junk e-mails’ I’ve had in the past few days trying to create all SORTS of related panic.
And then JUST TONIGHT: I heard on our national talk radio station, during the evening financial slot, that some Elliot Wave Theorist or the other says that the equities markets are due for a, WAIT FOR IT, a 90% correction according to Elliot Wave Theory. That would take the Dow down to 1 000!!! That’s a bit HARSH don’t you think??? LOL!!!
Then again: I think I’ve lost the ‘plot’ of the thread (it only ocurred to me while I was typing this) i.e. the idea here really (as I understand it) is to validate (or otherwise) the COT reports. But I’ll leave my comments above as maybe somebody would like to comment further.
