It’s not it’s not logical to assume it [I]must[/I] fall at all. It doesn’t matter how low or high the market is today, it can always go even lower or even higher tomorrow. BUT it is a very human thing to assume that it does. There are a lot of things hardwired into our brains by evolution that make human emotions very bad for trading.
For example, it’s wired into people’s brains to stick with the herd because that’s what benefited our ancestors and the ones with genes that made them pre-disposed to sticking with the herd were more likely to survive. In trading however you need to follow the market not the herd, the market is driven by the ‘big players’ not the herd, the herd generally lose.
Another example might be that we tend to base our future expectations based on what has recently happened. Our instinct tells us that if something has just happened it’s likely to happen again soon. So 1.5200 [I]seems[/I] high to our minds because when I started this thread I’d just entered long at 1.4731 - so the jump seems high to our mind and makes us think its over done. It might be, but it doesn’t [I]have[/I] to be.
I shorted the EURUSD a while back when it was at a 6 month low, people said it was so low it just had to rise because it was the lowest it had been in ages. The Euro then went on to make a 4 YEAR low against the US Dollar. I exited that position not because a 4 year low meant it was so low that it couldn’t have gone any lower, but because the market stopped going lower. Ironically retail Forex appeared to have been net long through most of the drop.
If I were looking to make a new GBPUSD trade at this point I’d be looking to go long once the resistance was totally broken; but our instinct would tell us to get in once it bounced of the support because after breaking the resistance it’s to high and has to come down - but it doesn’t.
I’ll admit I don’t pay much attention to the COT report, so maybe I should just leave this thread alone, but here’s the big picture, care to make any wagers?
You make some excellent points and I can indentify with many of them. I myself used to have a problem whereby I could never bring myself to long something if price was at the top right hand corner of my screen and could never bring myself to short something if price was at the bottom right hand corner of my screen. Sounds stupid huh!!! As a prime example: take a look at a monthly chart of EUR/AUD right now. There was a time where I’d not even CONSIDER shorting that pair as it stands now simply because of the way it ‘looked’ on a chart!!! I’ve at least learned to act on signals no matter what but I have to admit that even now, if I got a signal to short the pair, it would actually be a concious effort on my part to do so. And it’s so ridiculous if you think about i.e. remove a few months worth of bars from EUR/AUD and I’d have been ‘singing the same tune’ BACK THEN and look what’s happened!!! (Don’t get me wrong anyone: I’ve no IDEA where EUR/AUD is going i.e. all I know is that if I have a trading method that I trust I take the signal now no matter what my ‘bias’ is telling me). Although that all being said: I know for a fact that I have a long ‘bias’ i.e. going long just ‘feels’ right (but that I think comes mostly from my equities ‘bias’)!!! LOL!!!
Back to GBP/USD: there was a time where I would have looked at the weekly chart and thought that it just HAS to turn. It HAS to!!! LOL!!! I think this is a big mistake that many new traders make. Just because it’s been moving up steadily does not mean that it HAS to drop. And maybe that explains, or rather backs up, your notion that the ‘smart money’ will go WITH the market whereas others will, for some or the other reason, take a look at a chart, like the weekly chart of GBP/USD, and try to go AGAINST the market.
Further to the above (and many older members know my ‘story’ here): while equities were plummeting during sub-prime and the credit-crunch I had the idea that JUST BECAUSE certain stocks had dropped ‘radically’ (mainly the financials at the time) that they simply HAD to turn. Instead of following the very trading sytems that had worked very well for me up until that point: I went against them simply because I could not get over myself!!! I think I bought Citigroup (as an example) at something like $48. To make matters worse: I kept adding to the position on the way down until I was margin called in spite of the fact that my trading systems of the day were SCREAMING to short it (and it was not just Citi i.e. NAME a financial stock and I was long the stock)!!! LOL!!! Citigroup closed today at around $3.96!!! LOL!!! But: YOU DO LIVE AND LEARN (some of us ‘learn harder’ than others for sure)!!! LOL!!! Would I short Citi tomorrow if my system gave me a signal to do so??? HELL YEAH!!!
Anyway: I’m not sure if the above is relevant. That said: maybe it serves as some insight as to EXACTLY what the COT reports are telling you (and I personally think that you’re ‘on the money’ for what it’s worth)!!!
The COT report… let me ask, if you were a big trader, would you want everyone knowing your were going long ? therefore letting others take an easy ride up on your coat tails ?
If they have billions to play then you are not going to know what they are up to from a report, they are too rich and clever for that. You’ll only know what they want you to. I’m talking about the traders that move the market in the long term direction. They would have many many accounts under many many names/company’s and no doubt one trick would be to open lots of large shorts while at the same time opening even more long but in small sizes to make it look like supposedly “dumb” money is long.
If you can make money off of it then good for you, I’m just saying be careful what you think you see.
As for the Oanda long short ratio I have been checking it out for a while, and I’m not totally sure what to make of it. Today I remembered DailyFX have a similar version they call SSI (Speculative Sentiment Index) and I read the article on how to read it and possibly use it and it’s similar to how Davidee uses it. The how to is here:
and the free weekly SSI updates for 6 currency pairs are here:
of course if you sigh up you can get bi-daily updates… lol. I think they mean you have to open an account with them.
For those who have not seen Oandas 2 week graph of long/short ratios it is here:
There used to be a program that stored the long/short positions percentages of Oandas older version of long/short ratio ladder and pie graph but I can not find the software now, or even that ladder on Oandas site, but I think a indicator that stored the long/short Open Positions and then plotted it on say metatrader platform would be interesting to play with, especially as Oanda updates their data every 20 minutes.
It’s not hard to hold on to the position if you believe as I do that picking tops and bottoms is impossible and the solution is to enter in the direction of the long term underlying trend and let that trend take you further and further into profit for a long as it lasts.
The market going against me by 90 pips is nothing, in fact I should EXPECT that. Because I don’t believe I can enter at the bottom during a long trend. So the market going against me at sometime during my trade is to be EXPECTED.
The real danger isn’t that I exit after a little move against me. The danger is that I double up and continue to hold on after it’s clear that the trend has changed and I entered just before the trend had ended.
On a pair like the GBPUSD I’d have a stop loss of around 600 pips. Suppose the market goes as high as 1.63 and I exit around 1.59. That’s 1200 pips. But I don’t use leverage to start with. I’m usually leveraged at about 1:1 when I enter. If it keeps moving in favour of my position I’ll enter more positions and can be leveraged at as much as, say, 6:1.
Suppose it goes to 1.63 and I exit at 1.59 after getting a signal that the trend has changed. Now suppose each time it moved 300 pips in favour of my trade I entered long. I’d have one position that was 1200 pips in profit, another 900 pips in profit another at 600 pips profit and another at 300 pips profit and a loser of -300 pips which would have been entered around 1.62. That’s a risk to reward of around 4:1 or 5:1.
Trade with a stop loss of 90 pips and you’ll almost certainly get burned - there is that much randomness in the market, and the shorter the time frame the more of this randomness you’ll see.
Control the greed (use low leverage and forget trying to pick tops and bottoms) and the fear will control it’s self.
And if watching the market go against you 90 pips is messing with your head then don’t look at it, go watch a movie or go for a walk or something.
Sometimes I wonder just how helpful the COT report is in regards to retail traders, simply because I think (no, I have no stats) a majority of retail traders are scalping/intraday/swing (maybe a week at the outside trade length) trading, which really means nothing to me.
If it told me position traders were net long/short that would be meaningful, but I think the short-term players outnumber the long term players by a substantial amount, meaning tomorrow it could be the opposite, and has no impact on my trades when my targets are weeks/months away.
Like anything else, the COT report is just a tool. In fact, it’s a lagging indicator itself as the numbers are pulled from the Friday before the weekly Tuesday release.
I would never trade directly off of a COT report. However, it’s good to be well versed in various aspects of how money moves, who’s moving it, and which direction they are wanting price to move.
Well that’s Tuesday over and the pair has spent most of the afternoon about 1.5150 after falling but finding support about the previous low. What’s interesting though is that at 1.5150+ the number of short positions has risen so that the ratio is at almost 2:1 again. This makes me think a big move up is more likely than not.
If today’s big rise of around 200 caused the retail traders to start going long I’d say it was a sign that the up trend was coming to an end, but they shorted the latest move up by almost 2:1.
If the price can’t move higher soon and/or the ratio starts to fall I’ll be looking to close the position.
You clearly do not know what the COT report is, what it states, and why it states it.
Not everything is a dramatic conspiracy as you are attempting to make it out to be. The retail aspect of trading is so small, that we’re all just just a little pixel in this huge picture.
Do you really think the floor trader dropping 50 lots on a single trade is concerned about you?
Ha ha… I have learnt enough about the markets to not believe in it, do you believe in father christmas, the tooth fairy and that news release numbers are not known beforehand by those who move the markets ? Tom Williams is man enough to tell it like it was in his time, so was Jesse Livermore, and I believe it to be no different now, just more computerized.
True, but by thinking this way I am seeing why price moves the way it does more so that anything else I have ever read.
Ok this is something I keep hearing so in true conspiracy form I’m going to dis-believe it, if you believe it answer me this… if the Retail trader is truly so insignificant, then would that not leave just the Banks, Businesses/Investment/Hedge Funds to trade amongst themselves, so how do all these “businesses” stay in business ? who’s money is it they are all taking in order to stay in business ??
Ha ha… what’s a floor trader… but seriously… a floor trader should be more worried about tripping over an ever increasing number of tumble weeds blowing on through.
Most traders will probably not believe what Tom Williams and Jesse Livermore have to say, but then again most lose at this game too.
Well, that’s Wednesday over and the pair has made another high although it fell a few pips short of taking out 1.5300. Right now it’s hanging around about the 1.5260 mark. It also rallied yesterday too. Interestingly the sudden increase in the ratio of retail traders short to long that jump from around 1.5:1 to around 2:1 that I wrote about yesterday happened much earlier on in the day yesterday than when I wrote about it and it PROCEEDED the rally.
[I][B][U]So what going on guys?[/U][/B] Number of small retail traders that are short jumps from around 1.5 to 1 to 2:1 and bang the market rallies about 300 pips in two days! Yesterday’s low was about 1.4964 and yesterday the ratio of traders short to long reached around 2:1 yesterday. [/I]
Their is no belief required in the COT report. It’s a statement of facts produced by a governing body in a regulated industry. The COT report is a statement of irrefutable facts, not something that takes faith or belief to accept.
As far as your business question, you and I are trading with our respective broker/dealer. We’re not trading with billion dollar hedge funds, world banks, or governments. And the money lost in forex from the retail side is keeping the broker/dealers happy. The US or any other major player could care less how much I win or lose a day in this multi trillion dollar a day industry.
Ok this is something I keep hearing so in true conspiracy form I’m going to dis-believe it, if you believe it answer me this… if the Retail trader is truly so insignificant, then would that not leave just the Banks, Businesses/Investment/Hedge Funds to trade amongst themselves, so how do all these “businesses” stay in business ? who’s money is it they are all taking in order to stay in business ??
I would think they are taking each others money. I think it is rare in this day and age that people agree so while some will be long others will be short. Most of the money that moves in forex has absolutely nothing to do with speculation at all!!!
Honestly there is no conspiracy about retail traders being just a little blip on the screen, it is reality and all you have to do is think about it logically. Think about what forex is and why it exists. It has existed for some time now yet retail trading has only been available for a few short years (mostly due to electronic trading) So how did forex ever exist before us???
OK so if the bank traders are making money and they need losers in order to do so, and the losers are not retail traders then all I can think of is the Banks customers and businesses that need to exchange currency and do so through the banks are the losers… so to speak.
Also it’s not always mentioned but the COT report in only a snap shot of 1 day, not a week. I noticed even in the school section on this site this was not mentioned.
1.53 and 1.54 were both taken out today as retail traders piled on more and more shorts. DailyFX also reported an increase in retail traders going short.
I have some ideas that I’ll post as to why they do this when I have time (probably at the weekend) but I’d like a few people who believe that retail traders are usually wrong about the market (if there are any people here who like me actually believe that) to post some of their ideas as well if anyone would be so kind?
