Psychology, Price Action, Correlation, and COT
Results 1 to 6 of 6

Thread: Psychology, Price Action, Correlation, and COT

  1. #1
    In this thread I'd like to share my point of view on four Major topics:Plogy and trading mindset. If we dont understand ourselves how can we understand the market? No trading system will do the job for us since we'll never have the ability to follow it, if we can't control our own feelings. Trading in the Zone by Mark Douglas is a must read publication in this part. Price Action. Rather than using a lot of fancy indiors I would rather examine the source of all the calculations in those indiors the price . Bob Volman provides good overview in his book Knowing Price Action. Currency Correlation. Because on Forex we're trading pairs comprising 2 currencies, they both influence the performance of the trading pair in question. Accordingly there will be correlation between two trading pairs should they share the same currency. Commnt of Traders (COT). For long term analysis we have an indior that adds a new to our trading system, instead of recalculating the price. COT data permits us to see the shift in places of large speculators and examine the price action with that in mind. Trade Stocks and Commodities with the Insiders from Larry Willi and The Commnt of Traders Bible by Stephen Briese are. Plogy is undoubtedly the most important one. To me, the other three are without comprehension of individual mind useless. When we examine the Price Action, I'm not looking for some candle patterns. I am trying to think about the traders that stand behind the price movement in every candle, their own motives to be bullish or bearish, where they're very likely to take profit or loss and their feelings.

    COT data helps us to see the actual shift in places of really huge traders, who influence the price greatly. Yet again, I do not believe there is some trading pattern in this data to assist making money all the time. I am trying to comprehend their plogy too.

    A couple notes about the overall direction of this thread.I'm not likely to supply any trading signals here whatsoever. Rather, I'm likely to review the markets together and gain comprehension of the whole picture. The individual trade entrances are up to you. In that sense, I'm not trying to show my trading system per se. I am trying to show an alternate view at the markets, a framework which we are able to operate from. The discussion I'd love to have here is geared toward mid. The main analysis timeframe is per week, with Daily used for admissions and H4 for further price action clarifiion (occasionally entries are accepted on H4 as well). The analysis requires significant quantity of time but there should be no need to observe the market nonstop. I will discuss Money and Risk management as well, explaining my point of view on profit expectation and emphasizing your target #1 should be success on the market. Play good defense before you play crime. I'm also hoping to show it is possibly and achievable to exchange weekly tendencies even with a tiny account, starting as low as $5000 (0.01 lots will probably be necessary however, but even 1:50 leverage is a lot ).
    Basically, the thread will include articles on plogy, trading business, money/risk management and normal market analysis (if all goes well, that's ). We will use all major trading pairs (all EUR, GBP, AUD, NZD, USD, CAD, CHF and JPY pairs). I am hoping to update the initial post in the future with relevant information as the thread will start taking shape.t

    Getting Started
    To get started all you need to do is understand what COT is about. On my charts I use publicly accessible indiors from Meta COT project:
    This is a significant article and took me around two weeks to completely absorb when I began. It's essential to read it all, because the instructions about how to begin using COT indiors are there too. My suggestion would be to do it 30-60 minutes every day. The updated source code for the indiors is here, if you want to explore all Meta COT project:

    Simple installation

    After going through all the accessible indiors many times as well as writing a couple of my own I decided to go back to the basics and simply try to do a plogical analysis of market Price Action in conjunction with Absolute positions of Large Speculators (Non-Commercial, NC for short). Thus in the event that you simply wish to adhere to this thread you don't need to install the whole Meta COT project.

    This record includes only the crucial indiors utilized on all of my pictures together using a template.

    The contents:COT Absolute positions indior and most of COT files required for the own work. Auto pivot indior which I wrote for higher charts. It'll show pivots on Weekly chart, Montly pivots on Daily charts and Weekly pivots on H4 charts. This indior is utilized in most pictures for Sup/Res reference. Template with COT indior setup for instance for EURUSD. See below how to set up it for pairs. The template is set up with Pivot indior and 3 EMAs . Setup instructions:Open your MT4 data folder (from MT4 press File Open Data Folder); Extract the archive file in that folder. It will automatically put one template indiors into /MQL/indiors, scripts into /MQL/scripts/ and files into /MQL/files. Now you have the resources setup, but in order to use COT you want the data. I downloaded and compiled all the COT data starting at 2004. I will be updating the current data file in this thread as it's being released by the commission. Info files should amount to ~ 82mb when unpacked. This archive doesn't include data for 2015, since we'll need to update it (see below).
    Because the data archive is too large, here is an alternate download loion:

    I was not able to upload it as attachment.

    Data installation:Open your own MT4 data folder (from MT4 press File Open Data Folder); Navigate to MQL/Files/ Extract data archive there. 12 data files should be created by it. These steps have to be done any time you upgrade the data (first installation and later each week when you load new data document ):In /MQL/Files/ folder operate erase_cot.bat file - it will delete any data that was created before. Open your terminal and then operate Meta COT Script Build script on any chart Run Meta COT Script Conenate script on any chart Restart terminal
    2015 Data file upgrades

    Each week we need to load a new data file to upgrade the indiors. Here I will be updating this data file, previously formatted and renamed. All you need to do would be to extract it and then update the data, following the very same instructions above. Because there is one data file for 2015, it will ask you in the event that you want to rewrite the file when you do the updating - answer'yes'.

    Working together with the indior

    Open any chart and load COT_abs_position template. It will load the indiors for USD and EUR futures. When you change the trading pair, the COT indior will stay exactly the same, as you want to tell it to load the right data file. In this indior's configurations there is a parameter that is file_name. Here is the list of record names for all 8 major currencies you need to use:EUR - COT - EURO FX CONCATENATE.csv GBP - COT - BRITISH POUND STERLING CONCATENATE.csv AUD - COT - AUSTRALIAN DOLLAR CONCATENATE.csv NZD - COT - NEW ZEALAND DOLLAR - CHICAGO MERCANTILE EXCHANGE. csv USD - COT - U.S. DOLLAR CONCATENATE.csv CAD - COT - CANADIAN DOLLAR CONCATENATE.csv CHF - COT - SWISS FRANC CONCATENATE.csv JPY - COT - JAPANESE YEN CONCATENETE.csv
    Let's say you want to change to AUDNZD, therefore you want Blue and Red lines to show Short and Long positions for AUD and Green and Orange to show Short and Long positions for NZD. Follow the following steps:Double click Red or Blue line on the indior to start its configurations In file_name parameter enter COT - AUSTRALIAN DOLLAR CONCATENATE.csv; press OK Double click Orange or Green line to start the second indior In file_name parameter enter COT - NEW ZEALAND DOLLAR - CHICAGO MERCANTILE EXCHANGE. Csv; media OK Ideally simply make a profile for all the charts set the time, that you want to watch rather than worry about it. I personally use Currency profiles: one for many EUR charts, one for many GBP charts, USD charts, etc..

    Additional info

    Why Speculators rather than Commercials? I'm interested in comprehension of the plogy behind the positions and when I visit the NC being intensely on the long side while the market is going down I know they're losing money and not liking it. Together with price action analysis this can be invaluable details. Commercials, as you know, may appear to shed all the time but they're on the market for reasons that are different - they market their risks. Therefore it's more difficult to predict their actions and their motives.

    Why not Net positions? Simply because I'd love to see when one side starts moving, it provides me a tiny bit more to think about.

    One unorthodox element in my analysis is that for every pair I examine COT data for both currencies. I understand that COT data is published for currency futures and EUR COT data corresponds to pair. I discovered that understanding the COT data for USD is just as important. On Forex we don't exchange the currencies - we exchange the difference between 2 currencies And so assessing them both seems plausible. This also allows me to speculate about the influence of COT on cross pairs, such as EURGBP or GBPNZD, etc..

    The legend describes the COT indior, which shows Long and Short places for AUD and USD currencies separately. On the chart I use 3 EMAs (20, 100 and 200) and Pivot factors - just to watch the price action around these prospective levels of Sup/Res.

    List of abbreviations
    Any currency could be abbreviated using its initial letter:U #8211; USD, US Dollar E #8211; EUR, Euro G #8211; GBP, British Pound C #8211; CAD, Canadian Dollar H #8211; CHF, Swiss Franc, (because C is already utilized for Canadian Dollar) A #8211; AUD, Australian Dollar N #8211; NZD, New Zealand Dollar J #8211; JPY, Japanese Yen M #8211; MXN, Mexican Peso Any trading pair could be shortened to 2 letters. Cases:EURUSD #8211; EU USDMXN #8211; UM CHFJPY #8211; HJ Support and Resistance levels:S #8211; Support R #8211; Resistance SR #8211; Support and Resistance (when referred to in general) TL #8211; Trend Line Ch #8211; Channel PP #8211; Pivot Point Time framesTF #8211; Time Frame of this chart MN #8211; Monthly W1 #8211; Weekly D1 #8211; Daily H4 #8211; 4 hours H1 #8211; 1 hour Commnt of TradersCOT #8211; Commnt of Traders NC #8211; Non-Commercial
    I see that this thread going through a few phases in course of its own developmentFirst of all we will need to build a frame to see the market in a certain way. In this period I am going to examine all 28 major trading pairs on history and attempt to discover explanation why certain moves began and finished. Here I'm using the benefit of hindsight, knowingly locating the point of reversal first and then thinking how it was possible to expect it or when was the new trend confirmed within of our analysis frame after the reversal.
    I expect this phase to continue for at least a month and there will be a lot of charts to examine in detail. Second phase is to recognize certain rules of analysis that we discovered during the first phase and start applying them to the current markets, by following all 28 trading pairs bar by bar on Weekly and Daily as they unfold. The last phase is to determine entry points at the direction of the bias that we find while performing market analysis. With this in mind I'd like the reader to understand the purpose of the current analysis which will be posted during phase 1. There'll not be a trading along with any speculation about further price movement is irrelevant at this stage, as we are attempting to polish the analysis frame by learning from history.

    Once we reach the next phase, the most significant step of greater timeframe analysis would be to filter out on one side of this market. At any given stage the trader can simply conduct
    3 things on the market: buysell or do nothing. The purpose of the stage in my analysis would be to filter out one of these possibilities, thereby simplifying the decision making process when a transaction opportunity presents itself. Since you should always give yourself the freedom to do nothing on the market, we are searching for trading pairs where it's likely to filter out either buying or purchasing. That is it, as simple as that - the analysis is completed when we understood that the chances of the price going in one direction are at the other.

    Surely, there are situations when buying or selling chances are present with similar chances of success (which is to say, 50/50) but I naturally like to prevent such markets and search for potential trades elsewhere.

  2. #2
    Here is the last pair I examined following the same format posted in this thread. I proceeded to attempt to formalize the principles for COT indior to make it practical. The current display is quite good, as it really shows every single action taken by the big traders, allowing us to examine it into a lot of detail, however in our trading it may be a bit hard to make a trading decision from it. Over the course of my work with COT one thing I emphasize is that it is extremely hard to utilize the COT to find trade entries, it's much better suited to help us understand the market structure.

    Over the next few days I shall post a few of this analysis I was doing that has to do with price action and trading pairs significance, as I paused with this COT template for a while. I came to the fundamentals although I was and still am using COT in my trading - we will get to it soon .

    Here is NZDCHF.

  3. #3
    In this analysis I want to concentrate a little more on price action and entrance points which we could have used.

  4. #4
    The classical COT analysis advocated in most resources (see books in the very first article ) would be to take net positions of commercial traders and exhibit it as Percent Range, which is just like WPR indior or Stochastic with interval 1. It is said that if operators are buying more than they did in the past X weeks it is a buy signal and if they sell in past X weeks it is a signal. As I mentioned previously, because traders and Speculators have their ranks nearly always it does not really matter what we look at. I like to look at Speculators because they follow the trend and we could say that if their positions are overbought (input 80 area on COT index indior) we could look for a trend reversals, exactly the same if their positions are oversold.

    These two pictures will illue the idea. First is that the chart of NET positions for GBPAUD pair. Blue line is direct GBP futures positions and crimson are reversed AUD positions and brownish is their average, representing synthetic positions for GBPAUD (there is no COT data for Forex cross pairs). Above indior shows bottom and Speculators shows Commercials - you can see they are mirrored.

    Second picture is the same chart but today we are considering COT index calculated for the past 48 weeks.

    it is possible to observe that in this scenario the COT data is showing that the change points fairly well - it still misses many good tendencies however. The next picture will illue it is not always the case, and on occasion the signs go against bigger trends and don't work well at all (if you don't prefer to sit through 1000 pips DD).

    I never discovered that this simplified analysis to work well on Forex, even on futures currencies at which we can observe the real data and don't have to compute this artificial index as the average between two currencies. To me the COT data has value because it shows clearly what big traders are currently doing. To assume that they are correct and they provide clear signs when to buy or sell would be misleading. I emphasize the Price Action comes first, and when we see the large traders fading the trend that's not Placing, followed by the same traders churns out with losses, it is surely telling us something about the underlying market conditions.

  5. #5
    An example of correlation between distinct trading pairs using the very same currencies and how we can utilize this information to discover entrances at a good price. Take a look at detailed analysis of each of those pairs separately earlier.

    Because I am interested in locating long term weekly trends, I have begun looking more into fundamental analysis - something I never paid attention to previously. I am certain that there were reasons to have a bullish bias for USD in the beginning of this tendency. If everyone can compliment this analysis with a few fundamental information that will add a lot of value. I'll do it but I don't want to write about a place where I do not have experience that is sensible, therefore it will take a while.

  6. #6
    Quote Originally Posted by ;
    Excellent piece of work . Could you please inform me how to make the file COT_2015.txt? The fluctuations from April 2015 till today have not been updated. Moreover I cannot figure the connection between this file and the file deacot2015 (annual.txt). Thank you for your time!
    Hi Chcharitos,

    I am sorry, I was not checking this thread for some time now.

    CFTC altered the format of the COT report and I feel that the scripts in this thread don't recognize it correctly anymore. I decided against rewriting the scripts and rather I am checking COT info in Scotiabank report here:

    I am concentrating more on the price action and correlation between various currencies, and even though I still find COT data very helpful, I do not require such detailed analysis inside of MT4 anymore. Soctiabank straightforward charts are for me.

    I'd nevertheless emphasize that doing this detailed analysis as exhibited in this thread helped me greatly in my understanding of the markets and collectively with continuous work on my trading plogy, helped me to move towards constant performance. I'd greatly advise anybody to begin doing this job for themselves and get started enjoying it, since it's necessary (in my opinion) to become successful trader.

    All of the best,

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
This website uses cookies
We use cookies to store session information to facilitate remembering your login information, to allow you to save website preferences, to personalise content and ads, to provide social media features and to analyse our traffic. We also share information about your use of our site with our social media, advertising and analytics partners more information