How to filter noise out of Technicals and Fundamentals part 2
Part 2 Fundamental noise filtering
I place far more weight on fundamental analysis then technical. At first I thought it was useless as half the news or analysts would say one thing and the other half would say the opposite. the trick is to only look at sources that can reliably and logically be shown to have a impact on the market.
Who has an impact on the market:
1: Speculators (yep just speculators not the news or the actual state of an economy)
while that statement is not exactly true it seems to be a reliable self fulfilling prophecy
lets take a look at large speculators positions from 2002 until 2018 compared to a bar chart.
[IMG]i65.tinypic.com/15p085k.jpg[/IMG]
this picture shows the weekly CFTC commitment of traders reports from 2002 to 2018 correlated into a line chart under a corresponding bar chart.
The arrow in the picture points to a turning point where the speculators (green line) went from net short to net long. what happened?
The market shot up like a rocket. outside of consolidation periods the market just about always drops or gains right after this happens just looking at the EUR it ALWAYS marks the end of a trend without fail. Its almost eerie how accurate the CFTC comittment of traders reports are at predicting trend changes.
where do we get the COT report and how do we use it?
Step 1:
go to http://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm
step 2:
click on the Chicago Mercantile Exchange and scroll past the butter, cows and logs to the EURO FX
[IMG]i67.tinypic.com/1r8ahl.jpg[/IMG]
step 3:
look at the important parts of the EURO FX data.
[IMG]i67.tinypic.com/w9h2qa.jpg[/IMG]
1: the date of reported positions
2:Non-Commercials (people investing to make money. These are the people who have so much money in positions they have to report it to the CFTC weekly. people and company's with that kind of money have far more resources to base their decisions off of then me and if most of them think in one direction then odds are most of them are right. As we can see on the chart in the picture most of them went net short not during but before the euro crashed in 2014.)
3: On the left long positions on the right short positions. (far more long then short this is a definite uptrend.)
4: changes from last week.
very very important for positioning in immediate furtue. For example on the 9th we got this report
[IMG]i66.tinypic.com/2mfme5s.jpg[/IMG]
what happened directly after was an uptrend. look for changes in net long and short positions. An increase in net long from last week or a decrease in net short from last week will likely predict an uptrend in a day or 2. sometimes the trend already happened by the time you get the report.
The COT report is the only fundamental analysis I use.
Why:
1. conflict of interest.
most of the large news company's are owned by banks ergo any information I gather based on news is biased.
2. Education
I grew up on fishing boats in Alaska and currently drive a forklift all day. forming a accurate opinion based on economic data on my own is beyond my level of education. Lets recognize our weak points and not pretend we can be on par with someone who has spent years in college for economics.
3. Retail traders are 90% wrong and I am a retail trader
lets take a quick look at how Retail traders net positions look.
https://www.oanda.com/forex-trading/analysis/open-position-ratios
as we can see with the EUR/USD 63% of retail traders are trying to short a market that has been going up for months non-stop and they have been for months its usually worse then 63% too lul.
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