Welcome! Dear Traders,you are reading my forex trading experiences. Forex trading is a very profitable and very risky business opportunity. If you are a beginner, calm down,have a cup of coffee, and convince yourself that you need to study hard to win in forex trading. Obviously, the task is not easy as the statistics claim that only 5% traders win in forex trading. If you are determined, serious,and hard working, you can surely be included in the group of winners.

COT REPORT ANALYSIS-CHANGES IN NON COMMERCIAL NET POSITIONS

yourFXguide-In previous post, I wrote about Bearish Cypher harmonic chart pattern, that was actually requested by on of my twitter followers. But now a days, I am mainly focused on finding the best ways to apply COT report analysis in currency trading specially short term currency trading. One of my twitter followers also mentioned that COT report is lagging in terms of  data released and its effects on the market. 

I support that when the COT report is released in a week, the effects of the data published on the report are already taken place. That is the reason traders say that COT report is lagging. 

Every trading tools applied in the trading industry have some drawbacks, and COT report is not different than that. But it is not deniable that COT report has some merits that can be helpful for the traders to identify market trends, reversals, and continuations.

In this post, I am going to show how the changes in net non commercial net positions can help traders to understand the market sentiment. In my previous post on COT report analysis, I promised that I will show how the changes in non commercial net positions can be effectively applied to understand the market sentiment and trend. 

To conduct this study, I entered five years COT report data into a spreadsheet to see how the changes in net non commercial positions explains the market trends and sentiment. Remember, here I am not presenting the big picture of the changes in non commercial net positions rather I am focusing on every piece of non commercial net positions data. Following are the key findings from the study conducted by me.

When non commercials are changing their mind: I am talking about the situation when non commercials are turning into net short/long from net long/short positions. One of this kind of situations is found on the euro COT report released on 13-May-2014, when the non commercial became net short from net long. On 6-May-2014 non commercials were net long by 32551, and on 13-May-2014 they became net short by 2175. This kind of situations surely indicate a change in the market direction.

In the above chart, a daily chart of EUR/USD currency pair, we can see during that time EUR/USD currency pair makes its historical high and became bearish. Interestingly, since then euro non commercial net positions never be positive.

So, transformation of non commercial net positions from positive to negative or negative to positive indicates significant change in market sentiment.

Sudden up and down in non commercial net positions: Sudden up and down in non commercial net positions create confusions. A bigger change in non commercial net position is interpreted as a signal of strong trend towards the change commonly by the beginner traders. But actually this is a wrong interpretation because the data shown on the COT report already have the effects on the market.

Yes, sometimes the bigger changes in net non commercial positions indicate strong sentiment towards a  trend. But, commonly after a larger change in net non commercial positions, the changes become smaller, and market generally goes through a corrective phase.  

Continuous increase or decrease in non commercial net positions: After a transformation from bullish to bearish or bearish to bullish, or after a larger change in non commercial net positions, the changes in non commercial net positions become smaller. Interpreting the smaller changes in non commercial net positions is the hardest tusk to do in COT report analysis.

Analyzing the relationship between price and non commercial net positions can be an effective technique to solve the problems arose in understanding the small changes in non commercial net positions.

Negative relationship between price and non commercial net positions: We know bullish divergence and bearish convergence found with indicators, specially oscillators, are completely rely on the negative relationship between price and indicators.  Similarly, negative relationship between price and non commercial net positions can be applied effectively to understand market sentiment.

If in a given week non commercial net position is bearish means negative and the market is bullish, it should be expected that the market will reach the short term top soon. In other way, If in a given week non commercial net position is bullish means positive and the market is bearish, it should be expected that the market will reach the short term bottom soon.

Dear Traders,If you have any question regarding this post, you can drop it into the comment section below. I generally respond to your comments within 24 hours.

You can also subscribe yourFXguide to receive updates right into your inbox. Simply, enter your email address into the email subscription box and click subscribe, then sign into your inbox and click the confirmation link. Thank you !!!

1 comment :

  1. Thank you for your great post. It's really very informative and really helpful. Please Keep posting. Thanks again.
    23 traders

    ReplyDelete

Drop a comment...