August 2008
Intermediate to advanced
208 pages
6h 50m
English
book
Sentiment in the Forex Market: Indicators and Strategies to Profit from Crowd Behavior and Market Extremes
by Jamie Saettele
Content preview from Sentiment in the Forex Market: Indicators and Strategies to Profit from Crowd Behavior and Market Extremes
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Sentiment Indicators 91
extended periods from May 2005 to March 2006 (a triple top of sorts was
made during this time). The percent long ratio did not warn of every signif-
icant turn (significant in this sense would be at least multimonth), but it
warned of very major turns.
Applying Percentiles to Ratios
Obviously, the goal is to have COT indicators that are not only timely but
also reliable. Our arsenal includes the COT Index (which is calculated with
the Composite COT) and the percent long ratio (speculative). I also look
at the percent long ratio (commercial). Remember, there are three main
characteristics of COT data that warn of a turn.
1. The difference between speculative and commercial positioning is
large, usually the largest it has been in a certain period (13, 26, 52
weeks): COT Index at 0 or 100.
2. Speculative positioning is the most bullish at the top and most bearish
at the bottom: Spec Ratio Index at 100 or 0.
3. Commercial positioning is the most bearish at the top and most bullish
at the bottom: Comm Ratio Index at 0 or 100.
When these three things line up, the probability of a turn outweighs
the risk that comes from giving back profits by staying in the trade. In this
instance, it is wise to keep risk tight and/or examine the chart for a possi-
ble reversal trade. Figures 5.14 to 5.17 are charts ...
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