What do we see on a chart?

Hi Traders,

Technical analyses: The study of past price to determine the most probable outcome in the future right? Well, that is how most traders see technical analyses. Another way of putting it is by saying that we analyse patterns and their behavior to recognize them in the present to know what they will most likely do in the future.

But what is patterns? Candlestick patterns, reversal patterns, price patterns, continuation patterns. They are nothing less than crowd behavior! They present buyers and sellers and in that basket of buyers and sellers are hidden knowledge, feelings, emotions, ideas, inside info etc.

It always surprises me that a trader will put up 3 or 4 indicators, cramping up all the info on the chart; that is exactly where the info lies, on the chart, in the candlestick, in the pattern! That is where you can read:

  1. Who is in control of the market.
  2. Who is the dominant decision makers.
  3. Who is selling/buying with aggression.
  4. Who is running for cover.
  5. We can even see how many participants there are and if they are sidelined or not!

I use one indicator and that is the Relative Strength Index. I use it to confirm divergence which in turn shows me when the bulls/bears lost strength in a rally/decline. Another indicator I can justify is Volume. Here I can bring in the COT to see where trading is overcrowded at tops and bottoms which also shows me reversal.

Let’s rather get behind the big role players, the banks, the institutions and buy and sell in the right direction of the market. Let us rather look at crowd behaviour hidden in price on your chart, learn to read it and join the trend to more profits!

 

Happy Trading!

How to use sentiment

Hi Traders,

Please look at the chart below of the COT index.

This Chart is of the Aussie and it shows how committed traders are to the Aussie.

The yellow line is price, the blue histogram is non-commercial positions and the yellow histogram open interest or total number of positions open. (Volume)

A few notes here:

I have 5 boxes marked and how I read this information.

First thing we need to always recognize here is that we are in a downtrend. Find the trend and now it becomes easier to read the info correctly.

Block 1 : We can clearly see how traders are committed ‘too bullish’ on this currency. The price starts to drop just after that. So why should that happen? Think of it this way: Traders are all committed to their position and cannot buy more, they are all over committed! It is here where the selling begins, or profit taking. Now that everyone is up to the brim, or sentiment is at a high bullish or bearish, the market are likely to turn.

Block 2: Just before block 2 we can see a bear market and how the positions swing to all bearishness and not strange at all that the price go up after over commitment of bears. In block 2 we now can read the information on the histogram that less traders are bearish, so more traders are going long, usually noted after a bottom.

Block 3: Again after a sideways period, many pick the bottom and we can clearly see how traders commit to the bullish side thinking a bottom is in place where after the trend just continues lower.

Block 4: The small block; and yet again, it seems every time the market just makes a small bounce, traders buy in and commit to the upside mistaking it as a bottom.

Block 5: Deja vu? history repeating itself? This is the reason I am looking for signs of a turn in the Aussie to go lower again. Strange? 1) The bounce, 2) every trader and his dog committing to bullishness? Looks to me exactly as the same scenario as in block 4?

2016-03-23_1243

 

Happy trading!

 

 

What is sentiment?

What is ‘Market Sentiment’

Market sentiment is the overall attitude of investors toward a particular security or larger financial market. Market sentiment is the feeling or tone of a market, or its crowd psychology, as revealed through the activity and price movement of the securities traded in that market. For example, rising prices would indicate a bullish market sentiment, while falling prices would indicate a bearish market sentiment. Market sentiment is also called “investor sentiment” and is not always based on fundamentals.

BREAKING DOWN ‘Market Sentiment’

Market sentiment is important to day traders and technical analysts, who use technical indicators to attempt to measure and profit from the short-term price changes often caused by investors’ attitudes toward a security. Market sentiment is also important to contrarian investors, who like to trade in the opposite direction of the prevailing sentiment. For example, if everyone is buying, a contrarian would sell.

Read more: Market Sentiment Definition | Investopedia http://www.investopedia.com/terms/m/marketsentiment.asp#ixzz43ij2AP2K
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Read more: Market Sentiment Definition | Investopedia http://www.investopedia.com/terms/m/marketsentiment.asp#ixzz43iix63tY
Follow us: Investopedia on Facebook

About Commitments of Traders – as per www.oanda.com

The Commitments of Traders (COT) is a report issued by the Commodity Futures Trading Commission (CFTC). It aggregates the holdings of participants in the U.S. futures markets (primarily based in Chicago and New York), where commodities, metals, and currencies are bought and sold. The COT is released every Friday at 3:30 Eastern Time, and reflects the commitments of traders for the prior Tuesday.

The COT provides a breakdown of aggregate positions held by three different types of traders: “commercial traders” (in forex, typically hedgers), “non-commercial traders” (typically, large speculators), and “nonreportable” (typically, small speculators).

The Net Non-Commercial Positions shown are from contracts held by large speculators, mainly hedge funds and banks trading currency futures for speculation purposes. Speculators are not able to deliver on contracts and have no need for the underlying commodity or instrument, but buy or sell with the intention of closing their “sell” or “buy” position at a profit, before the contract becomes due. These contracts, sold in lot sizes that vary by currency, net out to have either a surplus of buy requests (positive values in the chart) or sell requests (negative values).

The Open Interest represents the total number of contracts, including both buy and sell positions, outstanding between all market participants. That is, the total of all futures and/or option contracts entered into and not yet offset by a transaction, by delivery, by exercise, and so on. These figures are not netted, but instead show overall volume (that is, interest).

Note: In the futures market, the foreign currency is always quoted directly against the U.S. dollar. In the spot forex market, some currencies are quoted the opposite way. For consistency, these graphs provide futures market position data on a reverse axis (with negative values above the 0-axis) whenever the quote order is opposite the spot forex notation. This is the case for the Swiss Franc, for example, which in forex is quoted against the US dollar (USD/CHF).

Helpful steps to analyzing a chart

Hi Traders,

Many times I catch myself just staring at the charts or just flipping through them, not really looking at what it is telling me.  This behavior might lead to either missing a trade or taking the wrong trade. I also have come to know that this is common among many traders, not having a system. Yes,  I said it: system! I have a zero tolerance towards systems when it comes to trading and believe in clear, solid technical analyses with solid foundations. I will however be systematic when it comes to analyses!

Here is some key points you might want to try:

  1. Time Frame
    • I start at bigger time frames to see where I am at in terms of trend, tops, bottoms, cycles etc. I then work myself closer to the action.
  2. Candle info
    • I always look at formations, volatility, momentum and strength – on every time frame
  3. Trend
    • It is indeed your friend. Stay with trend of one time frame bigger. (Sell on a 4 hour in line with Daily trend etc)
  4.  Supply and Demand
    • Small areas where I see institutional buying and selling in the past will have my attention in the future.
  5. Price
    • Traders trade price, the numbers on the right hand side of our charts we so easily forget.
  6. One at a time
    • Don’t try and analyse 30 pairs in 1 hour. Look at one chart, don’t miss any info up the point where you have a feel of that market; then move on to the next.
  7.  Read the info
    • Technical analyses is to study the chart, feel it, get your plan in place and write it down.

Once you have the ideas on a monthly and weekly chart in place it is easy to stay up to date with the daily time frame and smaller intraday trends. You have done the hard work, believe in your plan and at the right time, execute.

Happy Trading!