What Every New & Or Aspiring Forex Trader... Still Wants To Know

[Pajo]

I’m totally confused about the bond yield overlay chart. What does the failure swing tell us about the dollar?

For example, suppose the bond yields are going up and one doesn’t. What does that tell you about interest rates and the dollar?

Thanks.

CourierMike

I’m pleased to say it is my turn to help out, now! I asked the exact same question a while ago and had an exchange with Autodidact over it. Eventually, we found a relationship between bond prices and GBP/USD. I wrote it out here:

http://forums.babypips.com/newbie-island/36328-what-every-new-aspiring-forex-trader-still-wants-know-324.html#post275123

I hope this helps. The great thing about this ICT thread is its collective wisdom, freely shared.

By the way, there are several other areas of what ICT has described that I am still unclear about. I shall be raising them one at a time over the next few days or weeks, all with the goal of reaching a refined understanding for everyone who might still be a bit hazy on the details.

Cheers, Pajo.

[Alishijo]

Alishijo,

Thanks for your perseverance! Your latest post certainly helped, because it clarified that we were talking at cross-purposes (to some extent). I follow what you say about the banks driving the price back to the point at which they want to enter. However, now that we have separated out the various parts of this question, I can be more specific about what I am asking.

The OTE is situated on a retracement, 62-79% of the distance between a recent salient high and low. My question was: why there, exactly? You see, ICT’s original email was described by him as an explanation of why OTE worked - at least that is how I read his post.

Thanks again, Pajo.

The main point I guess, and I think fxnumerouno’s visual aid along with his labels explains this well, is that there needs to be buyers taking the other side of the banks’ sell orders. If the banks leave it until a double top is formed, then too many of those buyers become sellers themselves. Deep fib retracements work because it is the optimal point at which the sellers can convince the buyers that the trend is resuming, without having the added sell orders of the double top traders.

From a technical point of view, it is traditionally called a 1-2-3 top, and so if you can’t get to grips with what we are saying, then google it for yourself and see if there are any other explanations out there on the internet. I can understand your urge to have reasoning behind it, but don’t let that stop you from trading it! As couriermike said, this is a great high probability trade that can be seen on the charts time and time again. What I like about it, and what truly stacks the probability in your favor, is that it combines more than one pattern if you place your stop-loss above the resistance high. Say price does not turn around at 62-79, then you are still in the trade for a double top. If it shoots over the double top high, then it might be forming a turtle soup reversal. You might get caught out with the latter if your SL is not high enough, but I have seen plenty of trades where price just creeps over the high by a few pips before reversing. How many other entries have such strong back-up plans while still keeping risk to a minimum?

[Pajo]

Alishijo,

I [I]have [/I]been trading OTEs, actually. I don’t need a rationale for this, I just need proven effectiveness, which only comes through testing, not dialogue. However, ICT [I]did [/I]say he would explain why OTE’s work. I am still not sure that has been achieved; 1-2-3 tops are a slightly more complex formation than a simple retracement and resumption of a trend. I was hoping to include an explanation in my notes, but I am inclined to stop flogging this subject, though if anyone has anything to add, please do so.

Thanks again, Pajo.

[Pajo]

Am I correct in saying that the open interest number published each week in the COT report has absolutely no bearing on the [I]direction [/I]of GBP/USD price movement?

Open interest is just the sum of all the long positions, of [U]all[/U] trader types, plus the non-commercial spreads. It is also the sum of all the short positions of [U]all[/U] trader types, plus the non-commercial spreads. In other words, open interest is exactly what it says - it is a measure of the open positions or total ‘interest’ in a commodity. Whatever value it is gives no indication of whether the commercial traders hold an intensely long net position or an intensely short net position.

When open interest changes, it indicates that the number of held positions has changed, but [I]not[/I] whether traders are getting more or less bullish/bearish about the commodity. That’s how it seems to me, anyway.

Any views on this would be welcome.

Cheers, Pajo.

EDIT: Here’s the material from ICT that prompts my question. He seems to see GBP/USD directional significance in a drop in OI:

… you want to see a drop in OI by 20% or more… this will indicate Commercials have adjusted postitions to compensate for higher prices in the near future. This sets the stage for the significant price rally higher. So in terms of the “signal” it can lag yes… there is no “lag” in the information derived from the OI vs. CFTC COT Report weekly releases. That was my point.

[Jaroon]

Also, is there any relationship between stocks and currency? Like, when the Dow and Nasdaq go up, there are more investment flows into the US, strengthening the dollar. Does that make sense? Or is there not alot of correlation there? I tried googling it but couldn’t really find anything, maybe that means there’s not alot of correlation. Not sure. Thanks for any insight you can share.

Well you would imagine a huge spike in US equities would increase demand/price of the Dollar, so a sell off should do the opposite. I didn’t really see that during the recent shenanigans in equities, not to a degree where it would add or detract from my trading confluences.

So, personally I watch the levels of equities (I know nothing about this sector) as a clue to focus on the news but not with a direct influence on my directional bias.

That said I tend to over simplify, being simple, and there must be some sort of correlation if I looked deep enough :19:

[elfrip]

hello guys,

Just started reading through this thread. I tried downloaded the files from trader resources, 2 of them failed (file is no longer available) can anyone help me out and share?

The two files are:
Trade Projection Calculator & Tax Documentation
The Ultimate Trader Worksheet

Thanks.

[couriermike]

Another thing about OTEs, and this ties in with the smartmoney/dumbmoney stuff, is that the OTE will look like a pinbar on a higher timeframe. So, as long as you have the bias right, you’re basically entering on a trap. In that respect, it’s like the turtle soup setup.

[MCAWally]

@elfrip

hello guys,

Just started reading through this thread. I tried downloaded the files from trader resources, 2 of them failed (file is no longer available) can anyone help me out and share?

The two files are:
Trade Projection Calculator & Tax Documentation
The Ultimate Trader Worksheet

Thanks.

These are the files + the Pivot Calc. They’re titled “ICT Risk Management Model.xls” and “projection_calc.xls”, Im not sure why the Tax bit is referenced.
ICT_Risk_Management.zip (65.6 KB)

Wally

[elfrip]

Thanks mcawally, appreciate the effort.

[fxnumerouno]

Am I correct in saying that the open interest number published each week in the COT report has absolutely no bearing on the [I]direction [/I]of GBP/USD price movement?

Open interest is just the sum of all the long positions, of [U]all[/U] trader types, plus the non-commercial spreads. It is also the sum of all the short positions of [U]all[/U] trader types, plus the non-commercial spreads. In other words, open interest is exactly what it says - it is a measure of the open positions or total ‘interest’ in a commodity. Whatever value it is gives no indication of whether the commercial traders hold an intensely long net position or an intensely short net position.

When open interest changes, it indicates that the number of held positions has changed, but [I]not[/I] whether traders are getting more or less bullish/bearish about the commodity. That’s how it seems to me, anyway.

Any views on this would be welcome.

Cheers, Pajo.

EDIT: Here’s the material from ICT that prompts my question. He seems to see GBP/USD directional significance in a drop in OI:

Hey,

you’re right OI just shows the number of Open Positions - for each long there is a short and vice versa. My understanding is that you will have to watch the OI in correlation to the price. Price moves up because buyers are optimistic and are willing to pay some more pips than they wanted to. With fictional numbers: The Bull wants to buy when price drops to 100, but hey thinks that there are many other bulls, so he decides to pay 105 for it, increasing the value.

Now if price is in an uptrend and you see OI rising means that there are still optimistic bulls, pushing the price up. The same is for the opposite direction. Rising OI confirms the existing trend. That’s how far I’ve understood OI, but I’m havng troubles interpret it further too. Ofcourse I’ve read how to trade it, but actually didn’t understand everything, how it works exactly. That’s why I’m not using it in my trading and I forget about it and how to trade it more and more.

What you can see in COT is who is holding the positions, but I don’t know if you want to know more about the COT or OI?

For Trading today: Stood out of LO on GU as I’m still waiting for a pullback, but entered in NYO and got 80 pips out of it. Hope everyone can see it on the charts. The reason why I entered even though I expected an upmove was the action that took place in LO. 70 pips down in 15 minutes, slowly trading up to the OTE in NYO? High of the day already made in LO for me, trendcontinuation was likely to come

AUDUSD: Tested equilibrium twice, traded up to the broken trendline again but couldn’t break it again, showing signs of weakness for me. It finally gave me an OTE in LO and as usual I closed the trade in LC for an amazing 180 pips today. I’ll look for some more downside action next week, but as I said once I like to end my day in LC, not carrying the trade any further and if the trend is still actual for me in the next LO, I’ll simply reenter on a good opportunity. The trend on AUDUSD is now DOWN for me.

greetings

[slowman]

Nice pip-taking there, slowman. Can you post the chart with your entry/exit points and where OTE was in all this, if it’s not too much trouble? Would really help visualize. Thanks.

Haven’t worked out how to post charts yet but I will the day I get to B/E ;), The trade did push 5pips past the low which I pulled my fib from so didnt look like an ote, but like ICT said stop 10 pips below the low or above the high depends which way you are going and bingo it either works or it dont. GLGT

[Pajo]

Hey,

you’re right OI just shows the number of Open Positions - for each long there is a short and vice versa. My understanding is that you will have to watch the OI in correlation to the price. Price moves up because buyers are optimistic and are willing to pay some more pips than they wanted to. With fictional numbers: The Bull wants to buy when price drops to 100, but hey thinks that there are many other bulls, so he decides to pay 105 for it, increasing the value.

Now if price is in an uptrend and you see OI rising means that there are still optimistic bulls, pushing the price up. The same is for the opposite direction. Rising OI confirms the existing trend. That’s how far I’ve understood OI, but I’m havng troubles interpret it further too. Ofcourse I’ve read how to trade it, but actually didn’t understand everything, how it works exactly. That’s why I’m not using it in my trading and I forget about it and how to trade it more and more.

What you can see in COT is who is holding the positions, but I don’t know if you want to know more about the COT or OI?

FXnumerouno,

Thanks for the honest reply. I suspect that our uncertainty about the use of OI is quite prevalent, so it is good to air the subject. After some thinking, I am fairly sure how to treat the COT numbers, and it agrees with what you say. Basically, there are two numbers to keep note of:

[ul]
[li]Net Commercials’ position - which suggests which way they think the price will go
[/li][li]Open Interest - which adds weight to their opinion.
[/li][/ul]

There is probably some way of multiplying these numbers together to get a fancy indicator Anyway, that’s my tentative understanding. Others’ would be very welcome.

Thanks again, Pajo.

[Pajo]

Hello all,

Here’s my next question. It comes from ICT’s first thread (which I assume is 100% consistent with the current thread). Here is the relevant post:

http://forums.babypips.com/newbie-island/32915-what-every-new-aspiring-fx-trader-wants-know-12.html#post177673

In it, ICT gives a step-by-step method to determine ‘directional bias’. I find it hard to follow and I think it could be described much more clearly. Therefore, I am hoping that ICT or someone else will be able to do that for us.

Specifically…

[B]1) Refer to the market flow of the daily charts.[/B]

Understood.

[B]2) Daily chart still have flows that could swing higher without being overbought?[/B]

I am just guessing at what this means. I really have no idea.

[B]3) If above condition is met… look for the Daily low to be made in the first 4 hours of new days trading then watch the high unfold based on targets and intraday analysis techniques.[/B]

Two problems combine here: I am not clear what the ‘condition’ from 2 is, and I am not sure what techniques are being referred to as ‘intraday analysis techniques’.

[B]4) If daily stage is bullish and 4 hour and hourly are in sync… look for Daily Pivots under the Central Pivots to provide your buy signals.[/B]

What is the ‘stage’? Does this just mean [I]timeframe[/I]? And by ‘bullish’ does he mean MF is upward, or something else?

[B]5) If the market opens above the Previous Days High… wait for a retracement back the Previous High for Support. Look for Pivot confluence at or around same High, for buy signals.[/B]

Understood.

[B]6) If we open in te BUY ZONE (in the S1-S2 PIVOTS area) expect the low to form in this area and when the low forms and time passes add four PIVOT levels higher to the Low… this is your projected Pivot High objective.[/B]

If price opens in the buy zone then of course the low must come in the buy zone, there is no need to ‘expect’ it, right? So what this is really saying, I think, is just that four pivot levels (including mid-levels) will probably be crossed in the day.

[B]7) Pivot Levels tend to see 4 levels filled by number… that means they touch atleast four levels intraday in 24 hours. Time your trades in the daily and 4 hour, 60 minute market flow and use the Pivots as crosshairs to target price objectives to reach.

Reverse for for Shorts.[/B]

Understood.

Hoping a kindly old hand will help out!

Cheers, Pajo.

Read more: 301 Moved Permanently

[Jaroon]

Yes I don’t really get OI and COT yet but I think it only gives us a useful directional bias when they are at extremes.

So when this happens I woukl ask Ali or Clark what they think and then say “Um yes that’s what I was thinking as well” :55:

[Alishijo]

Yes I don’t really get OI and COT yet but I think it only gives us a useful directional bias when they are at extremes.

So when this happens I woukl ask Ali or Clark what they think and then say “Um yes that’s what I was thinking as well” :55:

Hahaha! That’s funny, Dunc. Did you get the private mail I sent you this morning? My system admin is saying it rejected your address so maybe you didn’t.

We have a basic COT set-up for Fiber, but it is worth noting that this is NOT a reason for entry:

The Commercials are just shy of a one year high (long position), and the Non-Coms are shy of a one year low (short position). This indicates to me that there is potential for a bottom to be formed. Adding weight to that analysis, the Williams %R (14) on the Daily chart is oversold, the Stoch (14,3,3) is oversold, and the ADX just touched 60. Can somebody confirm what the seasonal tendency is for Fiber? On a Daily chart we are just poking into an OTE zone.

Regards
Ali

[Jaroon]

Hahaha! That’s funny, Dunc. Did you get the private mail I sent you this morning? My system admin is saying it rejected your address so maybe you didn’t.

We have a basic COT set-up for Fiber, but it is worth noting that this is NOT a reason for entry:

The Commercials are just shy of a one year high (long position), and the Non-Coms are shy of a one year low (short position). This indicates to me that there is potential for a bottom to be formed. Adding weight to that analysis, the Williams %R (14) on the Daily chart is oversold, the Stoch (14,3,3) is oversold, and the ADX just touched 60. Can somebody confirm what the seasonal tendency is for Fiber? On a Daily chart we are just poking into an OTE zone.

Regards
Ali

“Um yes that’s what I was thinking as well” Haha.

Seriously thanks for that analysis Ali, the cumulative effect of these kinds of posts that will lead to my eureka moment on this topic.

No, no PM chap.

Can’t help with the seasonal bias on Fibre I’m afraid. Michael said he would give us the chart at some point and I do remember a post with seasonal bias on fibre but I didn’t note it at the time, which I regret, I might have a look for it. It was at least 100 pages ago and by a regular poster, maybe hellogoodbye?

[NeedyPips]

@couriermike

Also, is there any relationship between stocks and currency? Like, when the Dow and Nasdaq go up, there are more investment flows into the US, strengthening the dollar. Does that make sense? Or is there not alot of correlation there? I tried googling it but couldn’t really find anything, maybe that means there’s not alot of correlation. Not sure. Thanks for any insight you can share.

My general feeling on this is that stocks, say as represented by the S&P 500, have a sloppy inverse correlation with USDX. Generally, when stocks soar ‘they’ talk about ‘risk on’, which usually means USD weak and EU GU strong. ‘Risk off’ means strong USD and the S&P tanks as evidenced by these last few days. The chart below shows good correlation between the EURX, EU and the S&P, USDX is generally opposite S&P and directly opposite EU, EURX. Of course that depends on the USD being viewed as a ‘risk currency’ or safe haven, of which there has been some doubt expressed lately. Again, these last days should put that debate to rest… we’ll see.

[fxnumerouno]

Hey everybody!

@Pajo: I think he means a indicator like William’s %R or Stochastics are in the overbought/oversold zones.

@Ali: I guess that the seasonal tendency is pretty much the same like Cable And commercial are increasing their long positions and now turned from net short to net long. So I think that we can expect the Cable and the Fiber to bottom soon, seasonal tendency says mid September. I’ll be ready for the ride

greetings

[Alishijo]

“Um yes that’s what I was thinking as well” Haha.

Seriously thanks for that analysis Ali, the cumulative effect of these kinds of posts that will lead to my eureka moment on this topic.

No, no PM chap.

Can’t help with the seasonal bias on Fibre I’m afraid. Michael said he would give us the chart at some point and I do remember a post with seasonal bias on fibre but I didn’t note it at the time, which I regret, I might have a look for it. It was at least 100 pages ago and by a regular poster, maybe hellogoodbye?

I’ll resend the PM. The chart that Michael posted was for Cable…at least that is the one that is in the July 19th video. He may also have posted a Fiber one in the thread, but I didn’t see that. Can someone confirm?

Regards

[Alishijo]

Hey everybody!

@Ali: I guess that the seasonal tendency is pretty much the same like Cable And commercial are increasing their long positions and now turned from net short to net long. So I think that we can expect the Cable and the Fiber to bottom soon, seasonal tendency says mid September. I’ll be ready for the ride

greetings

A crossover from net short to net long has no meaning for me. The net change from previous week can be played as a confluence when price is in the buy zone, but I rarely use it that way.

I am looking for extreme 52 week positions in the Com and Non-com data, and in that respect, the Fiber data signals for this week are stronger. Cable is in my kill zone, and the seasonal tendencies match up, but it is not as close to an extreme as Fiber is.

Regards