Another way to trade PA profitably | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

Do you need to see the past to trade profitably? 20 replies

How To Trade Renko Profitably 13 replies

Is it possible to profitably trade with MT4 brokers? 35 replies

Once you can trade profitably are you rich? 43 replies

Mark Cook on How to Lose Money Profitably 0 replies

Attachments: Another way to trade PA profitably
Exit Attachments

Another way to trade PA profitably

  • #1
  • First Post: Edited Aug 28, 2007 12:59pm Aug 23, 2007 3:41pm | Edited Aug 28, 2007 12:59pm
I started using COT way back but did not really understand what it meant until I read Larry Williams. He's an expert in COT reports.
Anyway, combining price action with COT has been really profitable for me. These trades generally last longer, generate a lot of pips (usually I get 500+ pips) and I only look at daily, weekly and monthly charts.

Basically you want to pay attention when both the commercials and small speculators are in extreme and opposite positions. I leave out the large speculators because generally they're trend followers. We want to get into a trend right when it starts and get out when it ends. Open interest is optional but could be used to determine the strength of the trend. If the commercials are extremely short and take 70% of all positions you know a major trend reversal is coming so watch for reversal price action patterns.

Make it simpler, COTs are used for picking market tops/bottoms, price action for entry. I use a really wide stop loss, usually 200 pips or last swing low, sometimes I don't use stop loss at all if I'm really, really confident.

This is really difficult to explain in words so I'm going to put up some charts so you guys can better understand how this works. Be sure to check out James16's chart thread to learn the basics of price action before you proceed.

Finally I thank James16 for his excellent thread on PA and of course Larry Williams for his enlightenment on COTs.

Pictures will be posted soon.
Take a report.
  • #2
  • Aug 23, 2007 3:50pm Aug 23, 2007 3:50pm
Quoting CateFul
I started using COT way back but did not really understand what it meant until I read Larry Williams. He's an expert in COT reports.
Anyway, combining price action with COT has been really profitable for me. These trades generally last longer, generate a lot of pips (usually I get 500+ pips) and I only look at daily, weekly and monthly charts.

Basically you want to pay attention when both the commercials and small speculators are in extreme and opposite positions. I leave out the large speculators because generally they're trend followers. We want to get into a trend right when it starts and get out when it ends. Open interest is optional but could be used to determine the strength of the trend. If the commercials are extremely short and take 70% of all positions you know a major trend reversal is coming so watch for reversal price action patterns.

Make it simpler, COTs are used for picking market tops/bottoms, price action for entry. I use a really wide stop loss, usually 200 pips or last swing low, sometimes I don't use stop loss at all if I'm really, really confident.

This is really difficult to explain in words so I'm going to put up some charts so you guys can better understand how this works. Be sure to check out James16's chart thread to learn the basics of price action before you proceed.

Finally I thank James16 for his excellent thread on PA and of course Larry Williams for his enlightenment on COTs.

Pictures will be posted soon.
Larry Williams is the EXPERT
Would you mind sharing your thoughts here from time to time based on your interpretation on COTs and crosses you're trading?
I'd love to learn and see your method at work. thanks.

p.s.
I don't subscribe to Larry's reports.
  • #3
  • Edited Aug 24, 2007 2:14pm Aug 23, 2007 3:51pm | Edited Aug 24, 2007 2:14pm
This is a weekly chart of JPY futures. I use a 52 week sma to determine the trend, COT index is set to 26 weeks to determine the extremes. If you analyze the chart a little bit you will see that the commercials almost always are long at market bottoms and short at market tops. Small specs do the exact opposite. And you wonder why 95% of small traders fail

So what we want to do is to follow the commercials. When commercials are extremely short, we short, too. and vice versa. Be careful this is the futures market so when you refer back to spot forex USDJPY, you will be shorting JPY, ie. longing USDJPY. This chart is from last week. Now we know that the commercials are short on JPY, we know the JPY will depreciate, so we look for a bullish PA to form on the daily USDJPY chart.

EDIT: the chart below should say commercials short, specs long. Sorry about that.
Attached Image
Take a report.
  • #4
  • Aug 23, 2007 3:57pm Aug 23, 2007 3:57pm
And now we know the direction of the trend is going to change, we look for a price action to form. A lot of you guys probably saw this pb off last week's close. If you got in long, stay steady because when the commercials are working the reversal generally last some time. If you're in this trade it should have generated 300+ pips. Personally I'm not in this trade but I'm long AUD/JPY, which is the same thing, just bigger swings (commercials are extremely long on Aussie so I figured maybe AUD/JPY is a better pair to trade) and smaller margin.

I've been in this trade from the beginning of this week when I read a market commentary on DailyFx about carry trade unwinding and subprime and JPY may strenghen more and rate increase and all sort of stuff like it's the end of the world, and I was laughing, literally.
Attached Image
Take a report.
  • #5
  • Aug 23, 2007 3:58pm Aug 23, 2007 3:58pm
Quoting raczekfx
Larry Williams is the EXPERT
Would you mind sharing your thoughts here from time to time based on your interpretation on COTs and crosses you're trading?
I'd love to learn and see your method at work. thanks.

p.s.
I don't subscribe to Larry's reports.
I don't either. But he's the shit.
Take a report.
  • #6
  • Aug 23, 2007 4:11pm Aug 23, 2007 4:11pm
More to the power of the commercials.
This trade could yield 400+ pips just by following the commercials, blindly.
Attached Image
Take a report.
  • #7
  • Aug 23, 2007 4:32pm Aug 23, 2007 4:32pm
Wow, thank you for the thread. Definitely knowing the general market sentiment could give a great edge.

Did you also use Implied Volatilities data to read market sentiment?
  • #8
  • Aug 23, 2007 4:33pm Aug 23, 2007 4:33pm
http://online.wsj.com/article/SB1187..._us_whats_news

this is from the wall street journal. Read the commentaries on this week's rebound momentum.

I think otherwise. IMO the rebound will last longer, at least through next week. We'll see what Friday's COT will tell us. Be advised because my opinion is based on absolutely nothing just kidding, but I've never seen a "commercial reversal" lasts for only a week.
Take a report.
  • #9
  • Aug 23, 2007 4:35pm Aug 23, 2007 4:35pm
Quoting kihl
Wow, thank you for the thread. Definitely knowing the general market sentiment could give a great edge.

Did you also use Implied Volatilities data to read market sentiment?
I'm not familiar with implied volatilities but I thought it was used in Options? I could be very wrong
No I don't use it. Would you kindly point me to a link where I can learn more about implied volatilities? Thank you.
Take a report.
  • #10
  • Aug 23, 2007 4:55pm Aug 23, 2007 4:55pm
Is the chart in post 6 from a paid service or is it available free from some broker? Thanks Paul
  • #11
  • Aug 23, 2007 5:34pm Aug 23, 2007 5:34pm
Quoting plind
Is the chart in post 6 from a paid service or is it available free from some broker? Thanks Paul
It's free, just do a google search on COT charts.
There're paid COT indicator and data file that you could put on MT4 charts. $25 bucks a month I think.
Take a report.
  • #12
  • Aug 23, 2007 7:24pm Aug 23, 2007 7:24pm
May i know where did you get your COT chart from ?

Thanks.
The future depends on what we do in the present.
  • #13
  • Edited 9:11pm Aug 23, 2007 8:53pm | Edited 9:11pm
Quoting compro99
May i know where did you get your COT chart from ?

Thanks.
Try these:

1.

2.

3.

4.
  • #14
  • Aug 23, 2007 9:15pm Aug 23, 2007 9:15pm
One more thing we need to take caution is that COT does not work that well on all pairs. If a pair is in a strong trend, that is, when the 52 weekly SMA is moving in one direction, trade with the trend. So if the trend is up, trade only when the commercials are long, ignore short signals. And vice versa.

An example would be USD/CAD, probably the most trended pair. Only trade short signals.
Take a report.
  • #15
  • Aug 24, 2007 12:29pm Aug 24, 2007 12:29pm
Quoting CateFul
I'm not familiar with implied volatilities but I thought it was used in Options? I could be very wrong
No I don't use it. Would you kindly point me to a link where I can learn more about implied volatilities? Thank you.
http://www.investopedia.com/articles.../05/022305.asp

http://www.dailyfx.com/story/strateg...812258994.html
  • #16
  • Aug 24, 2007 1:12pm Aug 24, 2007 1:12pm
In your chart on post #3 you say that commercials are extremely long, but the COT level for commercials is very low?

Typo?
  • #17
  • Aug 24, 2007 2:15pm Aug 24, 2007 2:15pm
Quoting lonespruce
In your chart on post #3 you say that commercials are extremely long, but the COT level for commercials is very low?

Typo?
Thank you so much for pointing it out, I didn't even notice that.
Take a report.
  • #18
  • Aug 24, 2007 2:23pm Aug 24, 2007 2:23pm
Quoting CateFul
Thank you so much for pointing it out, I didn't even notice that.
Therefore, does this mean that JPY will be going up and UJ moving down?
Regards
  • #19
  • Aug 24, 2007 2:29pm Aug 24, 2007 2:29pm
Quoting CateFul
One more thing we need to take caution is that COT does not work that well on all pairs. If a pair is in a strong trend, that is, when the 52 weekly SMA is moving in one direction, trade with the trend. So if the trend is up, trade only when the commercials are long, ignore short signals. And vice versa.

An example would be USD/CAD, probably the most trended pair. Only trade short signals.

Great work! I've been using the COT report for "projections" too. and you are reenforcing my bias on USD/CAD... price action supports this on the weekly and
GMMA shows the long term MA's are DOWN meaning we are still in a downtrend.

Keep up the good work.. would love to see more.
  • #20
  • Aug 24, 2007 2:40pm Aug 24, 2007 2:40pm
What time on Friday is the new data released?
0 traders viewing now