Euro ready to continue decline - according to COT Data COT Data is pointing to the Euro ( CME:6E1! ) to continue its fall after seen a brief rally
For the last couple months, the large speculators have been accumulating so much Euro that is is becoming over-crowded (See the green line in the NET COT FO graph on the weekly chart). A small catalyst could send this currency back into a downward spiral, fueled by the speculators being overly long. I will be looking for my proprietary reversal signal to enter the trade and use sound risk management thereafter
Notes on My Trading Methodology and What I'm Even Talking About
COT Definitions:
- COT: Commitments of Traders Reports - A weekly report published by the government (CFTC) that shows long and short positions of the below 3 groups (As well as much more data I don't look at). We look at the NET positions of these 3 groups and compare them to historical levels to signal trade opportunities
1- Commercials: Hedgers - We want to trade with them when they're at extreme levels (Think Tyson, Cargill, General Mills, etc)
2- Large Speculators: Hedge funds and large institutions - We want to fade them when they are at max positions (Think suits in NYC and commodity funds)
3- Small Speculators: People/institutions trading small lot sizes not big enough to report to CFTC - We want to fade their max positions as well since they represent the public (Think dude in his PJs trading and small trading firms)
Indicators on Chart:
- The first indicator shows the net positions of the 3 groups above plotted over time
- The second indicator is an index of the relative buying/selling of commercials over a certain lookback period. Anything above 95 is looking for buy, look to sell when it hits 0
- Note: Just because the Commercial's net position is negative doesn't mean it can't be relatively net long and signal a buy (same in the opposite scenario)
Trade Setup - Both Must Happen:
- When commercials are at max levels we are alerted to buy or sell (Depending on the criteria above)
- On a daily chart , use technical indicators, candlestick patterns, news, etc to enter the trade (not shown here)
- Added bonus when the trend is your friend (I use a Multiple Moving Averages indicator to visualize)
