The Commitments of Traders (CoT) Report

PUBLISHED: JAN 31, 2019 07:02 GMT

In view of advanced figures for EUR futures markets from CME Group, open interest rose by more than 1K contracts on Wednesday from Tuesday’s final 527,521 contracts, partially reverting the previous drop. In the same direction, volume rose for the second session in a row, now by nearly 70K contracts.

EUR/USD now targets YTD peaks

Increasing open interest and volume coupled with rising prices is a bullish signal that hints at the likeliness that further upside remains on the cards for EUR/USD, which is now targeting yearly peaks in the 1.1570 region.

Attached Image (click to enlarge)

PUBLISHED: JAN 31, 2019 07:27 GMT

CME Group’s preliminary figures for GBP futures markets noted investors scaled back their open interest positions by almost 4K contracts on Wednesday, recording the second drop in a row. Volume, too, shrunk significantly by around 88.3K contracts, prolonging the erratic performance.

GBP/USD faces relevant hurdle around 1.3200

Cable is extending the rebound for yet another session today, although the correction higher is accompanied by shrinking both open interest and volume, leaving small room for a sustainable move higher.

PUBLISHED: JAN 31, 2019 07:47 GMT

Open interest in JPY futures markets dropped by around 4.1K contracts on Wednesday, clinching the third consecutive drop according to flash data from CME Group. On the other hand, volume reverted two consecutive declines, rising by around 61K contracts.

USD/JPY poised for a deeper retracement

USD/JPY is down for the second consecutive session today on the back of renewed USD-weakness following the FOMC event. Shrinking open interest could cap JPY strength somewhat, although the important raise in volume hints at the likelihood that extra gains remain in the pipeline.

The charts have a yellow background that indicates the square dimension of the chart. The orange dot indicates today's position relative to the high (top of chart) and low (bottom of chart) of the FX index during the last 365 days. So if the orange dot is close to the top, the currency is close to its highest valuation. If the orange dot is close to the bottom, the currency is near its lowest valuation. The blue bars indicate the distribution of valuations over the course of one year. The span between high and low valuation is divided into ten ranges (ie, deciles). Then the number of days during which the currency's valuation has been in each of these deciles is counted. The number of days is proportional to the width of each of the ten blue bars. Thus the position of the orange dot relative to the width of the blue bars indicates if the current valuation is a relatively common event or a relatively rare event. For example, if the bulk of valuations has been in the lower deciles, and the orange dot is near the top where the bars are narrow, the currency has recently moved up sharply. These charts ("FX conifers") are a simple method of visually summarizing the performance of a currency over the time period of one year. One useful feature of this chart is that it automatically adjusts for the different volatility of currencies, as the span between one-year high and one-year low is a reflection of a currency's volatility.

Latest NFCI Release: Last Updated: 01/30/19

Index Points to Looser Financial Conditions in Week Ending January 25

The NFCI edged down to –0.81 in the week ending January 25. Risk indicators contributed –0.32, credit indicators contributed –0.33, and leverage indicators contributed –0.15 to the index in the latest week.

The ANFCI ticked up in the latest week to –0.57. Risk indicators contributed –0.36, credit indicators contributed –0.37, leverage indicators contributed –0.11, and the adjustments for prevailing macroeconomic conditions contributed 0.28 to the index in the latest week.

The NFCI and ANFCI are each constructed to have an average value of zero and a standard deviation of one over a sample period extending back to 1971. Positive values of the NFCI have been historically associated with tighter-than-average financial conditions, while negative values have been historically associated with looser-than-average financial conditions. Similarly, positive values of the ANFCI have been historically associated with financial conditions that are tighter than what would be typically suggested by prevailing macroeconomic conditions, while negative values have been historically associated with the opposite.

Attached Image (click to enlarge)

You may use this tool to gauge the financial liquidity - more importantly look at the ANFCI values

1. When liquidity is tightening, take bearish trades. When liquidity is loosening, take bullish trades (USD centric).
2. Risk is a coincident indicator, credit is a lagging indicator, and leverage is a leading indicator of financial stress.

EUR/USD


USD/JPY trade status: Last night Pre-FOMC

Warning... this is just an after the fact posting

PUBLISHED: FEB 1, 2019 05:52 GMT

In light of advanced data for EUR futures markets from CME Group, open interest rose for the second session in a row on Thursday, this time by around 2.9K contracts from Wednesday’s final 528,527 contracts. In the same line, volume went up by nearly 13.4K contracts, recording the third daily advance in a row.

EUR/USD rejected from 1.1500

EUR/USD has once again failed to sustain the up move beyond 1.1500 the figure and this new rejection was accompanied by rising open interest and volume. That said, further retracements are expected in the near term, with the area near 1.1400 as the next target.

Attached Image (click to enlarge)

PUBLISHED: FEB 1, 2019 06:02 GMT

Investors trimmed their open interest positions by almost 4.4K contracts on Thursday from Wednesday’s final 202,157 contracts, according to preliminary readings from CME Group. Volume followed suit, down by around 2.8K contracts.

GBP/USD sees support in the mid-1.3000s

Cable is grinding lower at the end of the week, but the down move was in tandem with declining open interest and volume, hinting at the likeliness that a sustainable move lower seems unlikely.

PUBLISHED: FEB 1, 2019 06:27 GMT

CME Group’s flash data for JPY futures markets noted open interest shrunk by nearly 1.1K contracts on Thursday vs. Friday’s final 200,534 contracts, recording the fourth consecutive drop. Volume, in the meantime, retreated by more than 23K contracts, extending the choppy performance.

USD/JPY met support around 108.50

The recent move lower in USD/JPY was accompanied by declining open interest and volume, removing tailwinds from the upside momentum in JPY. That said, the mid-108.00s has emerged as decent support and could now allow for a near term bull run.

D1 TF | Target price: volume cluster accumulation ─ previous quarterly pivot
Buy the Dips ─ Below VWAP (aggressive entry) or between Pivot & PVP (conservative entry)

PVP = Peak Volume Price
VWAP = Volume Weighted Average Price

February Forex Outlook


US Dollar: The Dollar Index has been softer over the past two months, only rising one week in December and one week in January. It has been confined to about 100 points on either side of roughly 96.15 where it finished last year. Although the S&P 500 has recouped a little more than half of the loss seen since the record high was set last September near 2940, expectations for Fed policy have not returned to status quo ante. Indeed, after the late January FOMC meeting, the market has nearly priced out any chance of a rate hike this year. Trade issues with China will come to a head in February ahead of the early March self-imposed deadline. China’s willingness to take steps to reduce the bilateral trade imbalance is helpful and plays into the transactional approach of the Trump Administration and its desire for immediate action, but it is not clear whether it will be sufficient without deeper structural reforms and a verification process. Expect it to go to the wire. Domestic US politics will intensify now that the government has re-opened, as the Democrat-led House of Representatives provides a check on the power of the executive. The 200-day moving average is near 95.30, which was frayed at the end of the month. Also, important chart support is seen near 95.00. A break could signal another 100-point loss to retest last September’s lows.

Euro: The European Central Bank was more dovish than expected in January, and this lays the groundwork for fresh action at the next meeting in early March. The evolution of the ECB President Draghi’s comments points to the likelihood of a new long-term loan (targeted long-term refinancing operation or TLTRO). Italian and Spanish banks are seen as the biggest beneficiaries of the new loans, and the sovereign bonds have outperformed as they did at the end of last year. The eurozone grew by 0.7% each quarter of 2017 and slowed to 0.4% in the first two quarters of 2018, before slowing to 0.2% in the last two quarters. Germany, the economic engine for Europe, may have escaped the second consecutive quarterly contraction, but it is still reeling from two shocks. The first is domestic and is specific to the auto sector. The second is slower world growth, and especially in China. The New Year has begun on weak footing as the manufacturing PMI fell below the 50 boom/bust level in January. The median forecast in the Bloomberg survey is for the euro to finish Q1 at $1.16, which is a cent higher than expected a month ago.

Yen: The Bank of Japan shaved its growth and inflation forecasts as the data showed that the recovery from the natural-disaster contraction in Q3 has been lackluster after the October bounce. Indeed, the Japanese economy may be smaller at the end of the year than it was in June. Japan will report Q4 GDP in the middle of the February and the 0.4% expansion expected will not offset the 0.6% contraction in Q3. Many short yen positions got squeezed out when during the flash crash that saw the dollar drop through JPY105 at the start of January. The dollar’s drop set off positioning dynamics that appear to have weakened the yen’s sensitivity to the vagaries of the general appetite for risk. The policy change that lies ahead is the tax breaks that be given to reduce the impact of the sales tax increase in October (from 8% to 10%). There is little to excite investors. Foreign investors have been net sellers of Japanese shares since the middle of November except for two weeks. The 10-year yield straddles zero. The median forecast in the Bloomberg survey is for the dollar to end Q1 at JPY110. In December the median was for JPY112.

Sterling: Expectations that the UK would delay its exit from the EU was the primary driver behind sterling’s six-week rally. It is the strongest of the major currencies last month, appreciating about 3.2% against the dollar and 3.5% against the euro. In important ways, however, a delay does not change anything. The Irish border is as vexing as ever. If the trade border cannot be drawn between Ireland and Northern Ireland, nor between Northern Ireland and the UK, then there is only one obvious solution: no trade border, which requires being in the same customs union. Prime Minister May will return to Parliament in the middle of February. The underlying strategy appears to be to allow the looming deadline to focus attention if a what is widely seen as a cliff edge is to be avoided. A second referendum is possible and may be gaining support. On the one hand, it is returning the question to people for more instruction of their intent. On the other hand, if Remains win, the Leaves will be inconsolable. Analysts’ views of sterling have not changed since the end of 2018 with the median forecast still at $1.30 for the end of Q1.

Canadian Dollar: After trending lower in Q4 18, depreciating by almost 7% against the US dollar the Canadian dollar jumped back in the first part of January, recouping a little more than half of its losses. The US dollar had been consolidating between CAD1.3180 and CAD1.34 before lurching lower (~CAD1.3120) in response to the Federal Reserve statement. The macro concern in Canada is that the weakening real estate market and levered households squeeze consumption and weaken the economy. Real final domestic sales fell in Q3. Retail sales excluding auto fell in October and November. The economy contracted in November. The two-year interest rate differential has widened ten basis points in the US favor (to ~74 bp). The exchange rate often responds with a lag. The median forecast in the Bloomberg survey for quarter-end is for the US dollar to be at CAD1.32, which is up from CAD1.3020 forecasts in December.

Australian Dollar: The Australian dollar performed better than the fundamentals would have implied. The flash crash saw it drop from around $0.7000 to about $0.6740. It snapped back quickly and was testing $0.7200 by the middle of January and approached $0.7300 after the dovish Fed statement. The weakening of the domestic economy and the headwind from the slowdown in China has prompted some speculation that the Reserve Bank of Australia may cut rates in Q3 19. Central bank officials continue to insist the next move is higher. The two-year interest rate differential moved about 25 bp more in the US favor from the end of last year to stand near 85 bp. Analysts’ forecasts from the Bloomberg survey are unchanged from the end of last year with the median looking for the Aussie to finish the quarter at $0.7200.

Mexican Peso: The peso fell 4.75% in Q4 18 and recovered about 3.5% in January. It had already begun recovering by the middle of December, and the dramatic moves in the equity markets mattered little. From MXN20.50, the dollar fell to nearly MXN18.88 by the middle of January. It spent the second half the month consolidating between MXN18.90 and MXN19.25. A two-step downgrade of PEMEX credit by Fitch to BBB- (lowest investment grade) and the negative outlook seemed to reinforce the lower end of the dollar’s range late in the month. In the bigger picture, Mexico saw a sharp depreciation of the peso over the past decade. The dollar rose from around MXN10 before Lehman’s collapse to MXN22 after Trump’s election in 2016. The depreciation of the peso is much more than can be explained by inflation. Over the past decade, Mexican CPI has averaged 4% while US CPI has averaged 1.8% a year. The sharp depreciation and high-interest rates have attracted funds into Mexico’s debt market. The median forecast in the Bloomberg survey is for the dollar to finish Q1 at MXN19.47. At the end of last year, the median stood at MXN20.10.

Chinese Yuan: The focus on China has been four-fold. Trade talks with the US, the steady stream of stimulus measures, and the pressure on Huawei, and the impact of the slowing of China on US corporate earnings. Among these stimulus measures appears to be a form a bank recapitalization through issuing perpetual bank capital bonds that can be swapped with PBOC for bills. Some are comparing this to a version of quantitative easing. The yuan strengthened a little more than 2.6% in January. This reflected more than the recovery of emerging market currencies as an asset class, but also, many believe, a desire not to antagonize the US during the trade negotiations. Officials seemed to indicate they did not want the dollar to rise above CNY7.0. The market may have to fish for the floor, but officials may have hinted at CNY6.70. This area was being tested as the US dollar slid broadly after the FOMC meeting, and as the round of trade talks concluded. At the end of last year, analysts in the Bloomberg survey expected the dollar to be near CNY6.94 at the end of Q1 19. Now the median forecast is CNY6.86.



source: marc to market

☀ You may agree or disagree... ; )- but here are the collected reasons why traders fail to be successful in trading... #whytradersfail ─ by Hanover

☛ No proven methodological edge
☛ Lack of knowledge and experience
☛ No trading plan
☛ Failure to accept losses (causes recovery systems, irrecoverable open losses, revenge trading)
☛ Poor or non-existent risk management (i.e. focusing on the return over everything else)
☛ Making decisions based on P/L rather than market probabilities/behavior (focusing on the money, rather than the process)
☛ Undercapitalization (causes greed, over trading, over-leveraging) -- [NOTE: according to many br0kers, this is the most common cause of failure]
☛ Over-reliance on money management (including ideas like same-pair hedges, baskets, grids, averaging down recklessly, martingale variants)
☛ Complacency: a lack of respect for the market
☛ Laziness: trying to find a color-by-number shortcut to riches (i.e. make the most money in the shortest time with the least effort)
☛ Adherence to "$250 to $100,000 in 6 months" type notions
☛ Adherence to trading myths
☛ Lack of discipline
☛ Lack of patience
☛ Lack of resilience (unable to bounce back after losses)
☛ Lack of composure/nerve (afraid to "pull the trigger")
☛ Lack of stamina (quit too quickly)
☛ Lack of dedication (failure to put in the required number of hours of study)
☛ Failure to understand the importance of statistical validity, and the nature of statistical fluctuation
☛ Failure to keep a journal
☛ Over-reliance on automated systems (EAs)
☛ Over-reliance on technical analysis (using tools that "don't work")
☛ Exiting too early (should take higher RR trades)
☛ Exiting too late (should take lower RR trades)
☛ Hindsight bias
☛ Confirmation bias
☛ Apophenia
☛ Curve fitting
☛ Strategies that test profitably, but are not grounded in real market inefficiencies
☛ The randomness of price movement
☛ Letting outside noise affect your decision making
☛ Underestimating the effect of broker costs
☛ Underestimation of the amount of expertise that is required
☛ Being cheated by their broker
☛ Liquidity vacuums ( a.k.a. "flash crashes" ) and other "black swan" events.

※ TRADE LESS BETTER ※

Successful trading is counter-intuitive. Trading less better is counter-intuitive. For most of our lives we’ve been taught to work hard & if that’s not working to try harder. This mindset is perilous in trading.

Before we look at how trading less makes you more successful, let’s look at the cost of trading more frequently:

☛ You pay more commission which adds up to a significant percentage of your profits
☛ You take fewer high probability trades which decreases your win percentage
☛ You’re exposed to more risk which leads to larger drawdowns
☛ You end up thinking less rationally and responding more emotionally
☛ You have less of a life. Sitting behind your screens for 10hrs a day isn’t much different from an 8 to 5 job. It’s more stressful.

⁂ THE UGLY TRUTH ⁂

While most traders agree with the list above, they still struggle to let go of over-trading and trading smaller timeframes. Why?
There are a few reasons, but the primary logic is, ‘If I trade less, I won’t make as much money’ or ‘I need to make a lot of money quickly so I need to find as many trading opportunities as possible’. This desire to make money & lots of it (quickly) is so strong that it outweighs all the logical reasons for us to trade less frequently.
However, the ironic thing is that if you really want to make money and make it quickly, you need to trade less in order to trade better.

⁂ How can you trade less better? ⁂

☛ Trade on 4hr and Daily charts. You will find plenty of profitable opportunities on these higher timeframes.
☛ Only trade high probability setups. Wait for the obvious, easy-money, no-brainer setups.
☛ Wait for the market to give you the ‘best’ price. Our fear of missing out often causes us to jump into trades prematurely. Wait for price to reach extreme levels or for the continuation of a trend before entering.
☛ Try limiting the number of trades you take per day or per week. Knowing you’re only allowed 2 trades a day, makes you more selective with the quality of setups that you trade.

⁂ Benefits of trading less better ⁂

☛ By applying the points above, you will find a significant change in your trading results:
☛ Your cost per trade will be less & commissions lower, making you more profitable per trade
☛ By taking higher probability trades, your win percentage will increase
☛ You will have more time in between trades, allowing you to trade rationally & thoughtfully, avoiding impulsive and revengeful trades
☛ You will be less stressed
☛ Your systems, psychology and money management. You’ll also get more time away from the charts, which makes for a healthier person and trader.

✍ BY FXCOACH

For years, We've heard that 90% of traders lose money trading, and they lose it to the 10% who are making money. More recently, it seems that the numbers I hear are 95-5, so even worse.

Some research found out that retail fx traders received better executions than institutional or exchange traders. In my experience working for two fx brokers, they are exactly right. Retail traders get ridiculously great pricing and fills.

How is it that retail traders are getting better pricing, but they still lose on a higher percentage of trades than institutional and professional traders? I think there are five reasons why retail traders aren’t as successful as professional traders.

1. Execution of Trading Strategy

Through many years of working on a trading desk and talking to customers and banks, I didn’t see much of a difference in the actual trading strategies between our trading desk, the trading desk at a bank, our institutional/professional traders, or our retail trader. Everyone has the same access to charting, technical analysis, and pricing analysis.
Professional traders do not simply limit themselves to technical analysis. They know their own trading very well: their tendencies, how much they are comfortable risking, how to minimize their bad trades while maximizing their good trades. It’s more than even that. Good professional traders have scenario analysis that gives them further analysis on their own trading: expectancy, confidence, equity moving average, etc.
Professional traders also tend to look at a potential trade through the lens of many different trading strategies and many types of technical analysis. They also have a pulse on the fundamentals behind the products they are trading. They eat, sleep and breathe the markets.

2. Big Picture Oriented

A professional trader and a retail trader might be trading the same strategy and looking at the same chart to make a trade, but the professional trader is looking at many other things to determine the viability of a trade before entering the trade. There is no fear of missing a trade. The professional trader lets the trade come to them…they are not chasing trades.
So what are professional traders looking at that retail traders often ignore? Professional traders are looking at long and short term charts and analysis…and they ask themselves what could happen…how could this trade go wrong…how much could I lose on this trade?
A professional trader looks beyond this trade and is more concerned with the overall market. What could hinder me from hitting my limit? What could cause the market to move against me? When might I need to cut my losses? They aren’t waiting until they are in a position to think through these things…they are asking these questions before making the trade.

3. More Discipline

Enough cannot be said about discipline in trading (or any endeavor). The best traders, professional or retail, are all very disciplined. Looking at the last two things that make people better traders, the best traders do their research before entering the trade.
The best traders know why they are ina trade. They know when they are going to get out of a trade. They work orders. Why? Because they have seen what can happen when you don’t work orders. They work stops and let those stops fill if they are due to be filled.
A less disciplined trader will pull their stop because they just know that the currency, stock, commodity is going to go their direction. They just don’t want to miss out, or maybe, they just can’t stomach losing on another trade.

4. Oversight

Most professional traders answer to someone. There is a boss, an investor, another trader. There is almost always someone that a professional trader has to answer to and make a case for each and every trade. Sometimes, they don’t have to make a case of the trade beforehand, but they will need to answer questions if the trade goes bad.
Those questions are almost always around the other points of this article. “Didn’t you see that the daily chart was showing this and was clearly a strong trend in the opposite direction?” “Where was your stop order to protect from this happening?” “You risked 100 ticks to gain 10?” “Why did you take the trade?” “Why did you move your stop?”
Trust me. These are just a tip of the iceberg in terms of questions asked when a trade goes sour. It is a very uncomfortable time, and the trader needs answers to why they did everything.
My point is this: How many retail traders have to make a case to someone before making a trade? Sometimes, it is good to get someone else’s opinions on a product before trading it. After working on the desk for 9 years, I found that my fellow traders hardly ever agreed with my analysis. At the very least, they had very good insight that I was missing.

5. Patient and Calculated

Professional traders are very competitive and very confident. The best traders wait until the odds are stacked in their favor before trading. I love the Jim Rogers quote: “I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime.”
Like I said earlier, the best traders let the trades come to them and don’t go chasing after trades. They are patient. They are calculating. They take risks and lose money, but the money they lose is calculated beforehand. The risk of them losing is small, as is the amount of money being risked.
The point of all of this is that you don’t need tighter spreads to be more profitable. You probably don’t even need better charts or a new trading strategy.
Most likely, all you might need is more insight and better discipline in applying that insight. Just like most things in life, more knowledge is a great thing, but discipline can really reap positive rewards.


source: steve nauta of daticks

☀ Key Takeaways from The Hour Between Dog and Wolf

Robert Shiller called it “irrational exuberance”. John Maynard Keynes called it “animal spirits”. John Coates, the author of The Hour Between Dog and Wolf, explains how testosterone and cortisol are the yin and yang of market sentiment. The book explains the link between hormones and markets and shows how an investor’s physiology changes throughout a market cycle. I finished the book having a better understanding of how our bodies respond to taking risk, and how to avoid the hormonal pitfalls that detract from performance.

⁂ Here‘s what I learned:

☛ The link between our body and brain isn’t a one-way street. There’s a significant amount of body-brain feedback and our physical hormonal response influences our mental decision making. Steroid hormones ensure our body and brain work together. Testosterone rebuilds energy stores and cortisol breaks down energy stores for immediate use. Testosterone and cortisol levels can wildly vary and shape investor behavior.

Source: Page 187 of The Hour Between Dog and Wolf

☛ Daniel Kahneman (of Thinking Fast and Slow fame) changed his stance on intuition. Kahneman initially thought intuition wasn’t that useful because he originally studied it in fields like political forecasting and stock picking. Kahneman partnered with Gary Klein (who mainly studied firefighters and paramedics) and they concluded that intuition can be relied upon, but only if two criteria are met:

☝ Someone has to work in an environment that’s regular enough to produce repeating patterns, and

✌ They need to encounter patterns frequently enough to learn from feedback on their performance.

☛ Information is pleasurable. The novelty of new information is interpreted similarly to pleasurable activities like eating and drinking. These activities cause a release of dopamine which then motivates us to seek it out again. Give an animal the choice between eating or self-stimulating with dopamine and it will self-stimulate until it starves.
We’re hardwired to crave risk-taking. Dopamine surges after a unique action lead to an unexpected reward. The amount of dopamine released is related to how unexpected a reward is. Dopamine is addicting. Profits gained after taking excessive risk leads to more dopamine when variance grants you the inevitable lucky coin toss.
Source: Page 149 of The Hour Between Dog and Wolf

☛ Testosterone is the molecule of irrational exuberance. The “winner effect” shows that animals who won a fight were more likely to win their next fight or competition. Winners had higher baseline testosterone levels and losers saw testosterone drop to 1/10th of pre-fight levels. The body chemistry of winning animals (and likely recently successful investors) is different than the body chemistry of the less successful. Eventually, this testosterone build-up raises the probability of excessive risk-taking.

☛ Cortisol is the molecule of irrational pessimism. Chronic stress breaks down our bodies and detracts from mental performance. Three things trigger the stress response: novelty, uncertainty, and a sense of uncontrollability. Our stress response switches the body and brain from prioritizing everyday functions to an emergency state. In the stress response, cortisol production is triggered and the body demands glucose. The stress response is designed to fuel a muscular, not mental, effort. A prolonged stress response suppresses the immune system, reduces REM sleep, and raises your heart rate and blood pressure.

☛ The most experienced and profitable traders have different body chemistry than inexperienced traders. The author found that the most profitable traders had high and volatile steroid hormone levels. They had quick hormonal responses when challenged, but their stress response was less volatile. Inexperienced traders had chronically high cortisol levels, leaving them in a state of perpetual anxiety.

Source: Page 227 of The Hour Between Dog and Wolf

⁂ My two actionable insights from the book were:

☝ An information diet is good for your mental health. Investors have access to unlimited data, market commentary, and investment options. More information isn’t better (see: The Paradox of Choice by Dan Ariely). The Center for Humane Technology has a great video on how tech companies are engineered to steal your time and attention.

✌ Exercise, deep breathing, and cold water immersion physiologically toughen us and reduce chronic stress levels. Exercise expands the productive capacity of our amine-producing cells (therefore relying less on the stress response), and helps defend us against anxiety and stress. This is similar to the concept of hormesis that Nassim Taleb talks about in Antifragile. Basically, a little bit of a bad thing can be a good thing.

Taking risk in financial markets doesn’t just require an understanding of the cold data. Knowing why your body behaves the way it does, and how to balance it, is important to becoming a better investor.


─ by Adam Collins ─

※ Trend Following Strategies ※

☛ Momentum and trend strategies don't offer a free lunch of higher returns and lower risk.

☛ Their historical volatility reduction benefits are associated with frequent whipsaws when trends slightly turn negative and then resume higher (or vice-versa)

☛ False positive signals are a feature, not a bug, of trend strategies.

A false-positive signal should be an investor's baseline expectation when they're using trend or momentum strategies. The asymmetry between gains lost and losses avoided is partly why momentum has been coined the "single biggest embarrassment" to the efficient market theory.

FYI: There's an ample amount of evidence on the persistence of momentum over many decades and across many asset classes.

Momentum and trend strategies are not a cure-all that allows you to participate in 100% of gains without any downside. They have historically allowed you to capture a majority of the upside but at the cost of occasional false-positives. I personally consider this a price worth paying to have a high probability of avoiding large future losses.


source: adam.collins

#v2vDisclaimer

1. My post here at FF makes no guarantees as to the accuracy or completeness of the views expressed, including timeliness, suitability of any information - e.g. indicators, videos, images/charts, and documents posted or shared herein. All contents I posted here at FF are subject to change (bound by ForexFactory's & Thread Owner's rules and restrictions) and may have become unreliable for various reasons, including changes in the market conditions or economic circumstances.

1. In addition, please be reminded that there is always the potential for loss. Your trading results may vary. Unique experiences and past performances do not guarantee future results. Hence, it is highly recommended to seek a duly licensed professional for investment advice whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal.

☝ If you don't like my post, simply click ignore option and I'll do the same... Otherwise, I can simply ignore anyone whenever I am damn well, please...

Last Updated: 04/03/19

National Financial Conditions Index (NFCI)

The Chicago Fed’s National Financial Conditions Index (NFCI) provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets and the traditional and “shadow” banking systems. Because U.S. economic and financial conditions tend to be highly correlated, we also present an alternative index, the adjusted NFCI (ANFCI). This index isolates a component of financial conditions uncorrelated with economic conditions to provide an update on financial conditions relative to current economic conditions.
The NFCI and ANFCI are updated on a weekly basis at 8:30 a.m. ET on Wednesday, and cover the time period through the previous Friday. When a federal holiday falls on a Wednesday or earlier in the week, the NFCI and ANFCI will be updated on Thursday.

Latest NFCI Release:

Index Points to Steady Financial Conditions in Week Ending March 29

The NFCI was unchanged at –0.85 in the week ending March 29. Risk indicators contributed –0.37, credit indicators contributed –0.33, and leverage indicators contributed –0.15 to the index in the latest week.

The ANFCI was also unchanged in the latest week, at –0.69. Risk indicators contributed –0.48, credit indicators contributed –0.38, leverage indicators contributed –0.11, and the adjustments for prevailing macroeconomic conditions contributed 0.29 to the index in the latest week.

The NFCI and ANFCI are each constructed to have an average value of zero and a standard deviation of one over a sample period extending back to 1971. Positive values of the NFCI have been historically associated with tighter-than-average financial conditions, while negative values have been historically associated with looser-than-average financial conditions. Similarly, positive values of the ANFCI have been historically associated with financial conditions that are tighter than what would be typically suggested by prevailing macroeconomic conditions, while negative values have been historically associated with the opposite.

Attached Image (click to enlarge)

You may use this tool to gauge the financial liquidity - more importantly, look at the ANFCI values

1. When liquidity is tightening, take bearish trades. When liquidity is loosening, take bullish trades (USD centric).
2. Risk is a coincident indicator, credit is a lagging indicator, and leverage is a leading indicator of financial stress.

A nice read and information shared here @FF by copi88 :

For Time being GBP seems like the risk off "safe heaven"

No, GBP hasn't become a safe haven. The large pension funds are not allowed to carry FX exposures on their cross currency investments. Due to the change in the FX value versus their foreign investments at the month end, they are forced to balance their books to correct this exposure. This is why GBP has been bought. This is what book balancing is all about.

Does this mean this will happen at the end/beginning of each month?

Yes, it will happen throughout the month but at the end of the month is when the major rebalancing happens. You will often see articles mentioning this at the end of the calendar month where they one or another currency needs rebalancing.

They can either do the adjustment in the stock or the FX markets. It is usually done through FX as there is more liquidity and therefore easier to do.
The institutions use models to value instruments so they know when they are trading at a discount (the can buy it for cheap and sell it later for a profit) or at a premium (ie can sell something expensive and buy it back later cheaper for a profit). Institutions will only deal when they have value. You would look for a trade when there is a divergence between value and price.


FX works just like any other auction market. When your broker (if they are a market maker) accepts your trade they are taking the other side of that position.
MMs will widen the spread or withdraw their liquidity only if and when they detect large institutional buying or selling pressure as they do not want to be on the other side of that trade. MM makes its money by facilitating large volumes of transactions. They do not care if the market goes up or down. MMs love it when the market trades in a small range. They can just rotate price back and forth and make a fortune. When they detect order flow toxicity (a term used by MMs when they detect one side of the order book becoming imbalanced) they will pull their liquidity to avoid being on the wrong side of the market move and only apply their minimum required liquidity in the market.

Imagine you are the MM and in a room full of people helping them transact. Some guy wants to buy 50 and another wants to sell 30 so you fill the rest of that buy order and you make the spread as your profit and this happens back and forth over and over price ticks up and then down. Now all of a sudden some guy wants to buy 5000.

What would you do? Would you fill that order at the current price? No, you don't want to be on the other side of a losing trade so you tell that buyer, ok I'll buy your 5000 but you give them a terrible price. You quote them a much much higher price. You have widened the spread or withdrawn your liquidity. This is what happens when you see fast moves away from balance areas.


This is the market makers model and how their business works. They do not care about your 3 lot stop loss.
Here is an interview with an MM that goes into an explanation of their business, that they have no directional bias, how they are concerned about volatility how they protect themselves through the options markets, don't care about your stop losses, etc.



For sure stop loss hunting happens but its not your broker or the market maker that does it. As you say its rather done by the large directional players in the market.

However, its usually done to get off their position and not done during an accumulation. Below is a diagram of what a usual market accumulation pattern looks like.
The value line (purple starts to go up) so the institutions will want to get long and so will create a pattern of lower lows and lower highs creating the illusion that the market is in a downward trend to encourage sellers into the market. They will then start to accumulate all that selling at a pace so as not to stop the downward move.

They will also cap any move back to the upside (red boxes) until they have accumulated enough size on their books. Once they detect that selling has started to drop off and no more sellers are coming out to play they will then start the markup phase. Price moves back into value and starts to pull back. When the market maker detects that buying is now coming in above the 50% pullback level they take this as a warning from the institutions that they want to mark up prices and they pull their liquidity. This is when you get the fast moves away from the balance area.

For them, the biggest issue now is how to get off their large buy position. The juxtaposition is that they need to find BUYERS at higher prices. How do they get people to buy something that is more expensive? Well, they have created the perfect setup for it. All those sellers have their stops above the market at the red lines.
The institutions' term this 'Paycheck' for when they mark up the price through those levels they trigger those stops and those sellers have to become buyers to get off their positions. The institutions have now found their buyers at higher prices and will start getting off their trade in the green box. The move up is not fuelled by new buyers but rather by the old sellers forced to become buyers.

This is the one advantage retail traders have over the institutions. We can deal anywhere on the chart whereas the institutions cannot due to the size of their positions.