Retail Positioning - The Ultimate Contrarian Indicator

So I've been doing some additional thinking on this as I hate not understanding the full depth and sourcing for what I'm trading.

FXCM has active trader which shows up to 10 levels of market depth. At any one moment, you can see how much buying or selling pressure is at a particular price.

Since the information is coming from a market maker, one can assume that volume seen is coming from retail positions.

Thus this allows us to take a contrarian approach when the ratio of buyers to sellers becomes greater than say 2 to 1 over a specified time period.

Am I on the right track?

A friend of mine has a seat on the CBOT. I've learned alot from him in the past 2 years.

One thing that he's taught me is that there is alot of manipulation of 'shown' order volume on price ladders. Traders know others are looking at the order ladder so they will place 'icebergs' and or other orders that create the illusion of one order when their 'real' order is completely different.

Most 'real' trading platforms offer these order types. It actually makes alot of sense, especially if you are trading large volumes and want to keep your real agenda hidden.

Hello...am following your blog and thread here recently; looks cool. I have a couple of questions if you might address:

1) About what value on the RPM do you look for as being ideal? i.e. 1.500/-1.500, or 2.000, etc.? Any particular value you like to see before taking action like taking advantage of stop hunts?

2) When you set an order above/below the stops, about how far do you set your order? I figure about 10 pips past the S/R would work?

Thanks for any comments!

Mr TC,

My psychological bias leads me to watch the change in level in the RPM along with 'strong' support / resistance levels.

IE My ozzie chart is up right now, so I will refer to that...

The AudUsd recently went from 0 to 1.5 very quickly. That tells me there are alot of 'fresh' buyers in the market. Fresh buyers means stops near by. About the same time the Aud was bouncing off of .9060

A break of .9060 would likely lead to stop being hit. So in this case the level was not as important as the change.

Anything between -1 to 1 is flat. Anything over 3 is pretty extream - depending on the currency. The EurChf tends to be higher, the EurUsd lower.

Every currency varies on the RPM just as they do in price action.

Stops also vary by currency, you can expect the GJ to move wildly while the UsdChf tends to be milder.

Measures the change in number of employed people during the previous month, excluding the farming industry. The UsdJpy should be the most predictable mover.

Forecast: 175

The moves on this report have been extremely unpredictable. The market is reacting VERY strongly to negative news now, so we expect this trend to be true for the NFP report as well.

A negative deviation of 20-80 should move the UsdJpy -40 to -90 pips
A positive deviation of 50-100 should move the market +40 to 90 pips

Anything goes for retracements. A buy trigger that retraces quickly could be a good trade for a sell on the UsdJpy given the RPM remains > 2.5.

The retail positioning ratio signifies that if there is price movement below 90 then stops will be hit and the price will continue lower.

Warning: The market is behaving very violently and this report is one of the most volatile. Expect spread to be wild > 15 pips.

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No Ordinary Collapse: Dow Snaps Back From Near 1,000-Pt. Drop
Collapse: Some Trades to Be Canceled

Ok makes sense!... Thanks...

Hi qt
Great Blog, bin around for a month or so, also good to see you started this thread.
I didn't understand the UCI at first. I have been studying vol analysis for the last month, came back and the UCI makes sense now.
I was with the herd on the big moves the last couple days. Never again
A Big Thanks to You!
Rick

Hey Rick,

That's awesome that you have found this after just a month in the market. It took me 4 years to find/understand/create this, so you are ahead of the game

B4 the RPM I thought I was being a contrarian by going against the trend... little did I know I was doing what everyone else was doing...

If we can significantly decrease the % of retail fx traders that fail we will be hurting scam brokers, crooked banks, and funds at the same time.

The more money we make the less money they make and that makes me very happy

BTW - If anyone needs a different chart up on the blog (http://rpmfx.blogspot.com/2010/03/advanced-live-charts.html)- just leave your request here and Ill put up the most & recently requested charts.

Sorry qt you misunderstood, I've bin at this since 04, always bin with the herd, I always traded small so have not lost much, like every one I'm looking for that edge, I have found it with you. I want to get out of "emotion" trading and trade with a plan, get on the right side more than the wrong.

Thanks again for the UCI
Rick

Hello..can you comment on the current EY chart? The RPM shows about 1.5 buyers to sellers right near support (low of 116.89). Seems a sell stop below that low would make sense? But I see price did break that low, go to 116.65 (23 pips), but then just came right back up (117.14 as I write).

So in this case, is this a false breakout to the downside? Seems the strategy you outline would not have worked here. Or, is this not an ideal setup? If so, why not?

Appreciate any comments you have to help see why this a trade that should or should not have been taken...

Thanks...

I would stay away from the EJ unless the ratio is > 2 or < -2.

The EJ is right along w/ the GJ and you will have to use big stops at least 100 pips, as it swings pretty wildly.

Ideally I would also be watching for confirmation with strength in the EurUsd and UsdJpy.

Saying all that right now I would be using the RPM more as a warning not to enter into any buy's on the EurJpy.

Even though emotionally I see a huge candle pattern and am really tempted to buy and hold for 1000 pips.

Sometimes I just use the RPM for an emotional check.

Thanks for asking

http://i260.photobucket.com/albums/i...mage_thumb.png

The main trend on the UsdCad is down. Retail traders are fighting this trend by adding to long positions. A bounce off of 1.0150 combined with a rise in the RPM could signify further downside for the UsdCad the next time it breaks 1.0150.

Thanks for the set up, very nice, I took a quick 20 pips though there was more if you wanted it

http://i260.photobucket.com/albums/i...ge_thumb_3.png

Derivative of Retail Sales that excludes the Automobile Sales component. Automobile Sales make up roughly 25% of Retail Sales, but they can be very volatile from month to month and can distort the picture. Retail Sales with the exclusion of this volatile component is thought to be a better indicator of the underlying trend in consumer spending.

Forecast: Core: 0.6

A deviation of 1.1 should move the USDJPY 60 pips

A deviation of .7 should move the USDJPY 40+ pips

Retracements are not predictable.

USDJPY Retail positioning stands at 1.6 as there are 1.6 buyers for every 1 seller.

The retail positioning ratio signifies that if there is a - deviation > 1.1 and price breaks 92 stops will be probably be hit and price will continue lower.

Related articles by Zemanta - on blog
* Healthier Retail Sales So Far, But Will It Last? (dailyfinance.com)
* SpendingPulse: April Total U.S. Retail Sales Ex-Auto Month-to-Month Sales Momentum Dips by 2% (eon.businesswire.com)

For live retail positioning information click here (http://rpmfx.blogspot.com/2010/03/advanced-live-charts.html).
For 60 Second video on how to trade Retail Positioning click here (http://rpmfx.blogspot.com/2010/04/videos.html).
To get news alerts by email click here (http://rpmfx.blogspot.com/2010/01/rpmfxnews-prenews-setups-emailed-to-you.html).

Let me ask you guys a question...

Did you know that you could change the timeframe on the live charts by clicking the
"Chart Period: 30m | 60m | 4hr" ??

btw....
There are now 8 currencies live on the RPM Charts.

http://rpmfx.blogspot.com/2010/03/advanced-live-charts.html

Yes did notice that; quite clear I think. One question though: I notice the charts aren't really "live"; I know that may be a perfectly reasonable limitation, but can you clarify how often they update, and/or how many minutes behind they may be from actual live prices?

Thanks...

The charts update every 30 minutes, besides that there is no delay.

http://i260.photobucket.com/albums/i...ge_thumb_3.png