Forex smart money
The next thing you need to do is configure your screen to only see 12 months of data. My chart above is from May back to May of This is referred to as a 52 week look back period. Next we need to identify what the lines mean. The red line represents the Commercial traders.
The blue line represents the large speculators. Each week the COT report is released the chart will plot the net difference between the Commercials and Large Speculators positions. As of last week the red box on the right shows the Commercials had 26, more long positions than short positions. The blue box shows the large speculators had , more short positions than long positions.
The CFTC also list the small speculator each week in the COT report, but they have no impact to speak of on market prices anymore so we just focus on the Commercials and larges speculators. Just knowing the net positions by themselves does not tell us a lot about the positions held by these large participants. But using the 52 week look back period we can look and see if the current weeks COT report is at an extreme of the last 52 weeks of the report.
Starting from the right and working left we can see some of these extremes that happened in the past and how price reacted to these extremes. In April you see that the blue line is near the lowest point yellow ellipse than at any other time during the last 52 weeks.
This means that the large speculators have been following the price down by selling in the downtrend to their most bearish position in the past 52 weeks. At the same time the red line, Commercial traders were at the highest level blue ellipse than at any time in the past 52 weeks.
This means the Commercials have been buying into this price decline and absorbed all of the supply the large speculators had. Now look up at the chart and notice the blue arrow under the price low, the Commercials then caused the price to rally.
This same pattern can be seen by looking back and seeing what the price did when the large speculators had too many short positions yellow ellipse and the Commercials were buying from the large speculators and absorbing the supply blue ellipse. Each time the two participants were at or near their 52 week extremes price changed direction. Speculators can bet against the Commercials and win for a while, but soon the Commercials step up to defend prices and take advantage of the price extremes.
Commercial buying was probably by processors of the industrial metal, locking in low prices for future delivery. Next we will look at what happens when the producers get aggressive and start selling into price rallies. Around February we see the Commercials green ellipse holding the least amount of longs than at any other time in the past 52 weeks.
They had a net short position. The large speculators purple ellipse held the largest net long position than any other time in the past 52 weeks at the same time. Again, betting against Commercial traders when they are at extremes is not a wise choice.
The price chart shows a red arrow at the top of the chart. We see price fell from those highs due to Commercial selling. In November we see the same pattern where the Commercials were selling and the large speculators were buying.
Because the Commercials had more shorts than longs and at a 52 week extreme the price again fell. Each week you will review the COT and your objective will be to find markets that the net positions are currently making new 52 week highs or lows.
Then you know you have found a market that is poised to reverse a trend if one existed or possibly begin a new trend.
Keep in mind, this is not a timing tool and it must be used in conjunction with our technical analysis to determine if there is a good trade or not. If you learn to read the COT report you can find some interesting opportunities in the Futures markets. How is Change Figuring into your Trading? Dealing with Volatility Issue Index Archive. Disclaimer This newsletter is written for educational purposes only. A rock-solid trading method, money management plan, and advice on how to be the best.
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