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Chapter 24, Part II. Trading Sentiment. Page 3

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 26, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Commercial positions could be used as reversal signal

    So, if commercial positions continue to climb higher while speculators positions fall lower and lower – we have to keep an eye on potential upward reversal. And vice versa – if hedgers increase their shorts and the total value is very close to extreme, while speculators increase their longs – it could be an early bell of a downward reversal. As we’ve said it’s almost impossible to catch the point of reversal, since it a bit blurred in time. To protect yourself, combine COT with other analysis tools, maybe it is even better to enter the market after the reversal has started already. In general, your task is to be with the large speculation, until you’ll see clear signs of reversal on the chart in combination with a commercial line extreme.

    Pipruit: And why it happens in such a manner? Why does the market turn when speculators and commercials reach extreme positions?​

    Commander in Pips:
    Well, this will take the same answer as “why does market turn?” Because nobody is at the other side. This is demand/supply balance. If large speculators extremely long, already, who’s buying? Who will support the upward pace of market by making more new purchases? Nobody. Since there is nobody who’s buying, hence sells are starting and the market reverses. The same is for extreme short positions.

    Pipruit: I see. So, now we say that extreme in market sentiment is a signal of market reversal, right?​

    Commander in Pips:
    Hm, as a rule, but not always. Probably I say it in opposite way – market extremes should be confirmed by sentiment extremes. That is correct. The opposite statement does not always hold.”
    #1 Sive Morten, Dec 26, 2013
    Lasted edited by : Oct 1, 2016
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