narnach-fx

[narnach-fx]

Monday openings are dangerous

The monday market opening is a *dangerous* time to trade. There is a very low trading volume, big jumps in prices and a bid/ask high spread. Opening a new trade during this time seems highly speculative at best. Trades that carry over from friday better have a S/L with 10-20 pips to spare, otherwise the turbulence could ruin a trade for no "real" reason.

[narnach-fx]

Heiken Ashi charts look like regular candlestick charts, but they instead of a direct representation of the prices, they are more like an indicator: they apply some math to the values used to render the candle. A HA candle opens at the midpoint of the previous candle. Its close is the average of the price instead of just the close. High and low are the same as for candlesticks. The net effect of HA candles is that they smooth out the irregularities of normal candles, making trends more easily visible. Once a trend of HA candles starts, if the regular candlesticks on the same timeframe move in the same direction, it seems a good indicator to open a trade and follow the trend.

[narnach-fx]

Direct link to the current COT report. There should be a new COT report every Friday at 3:30 Eastern Time, but I am not sure how long the website update lags behind. It currently reads last updated on 25 September 2012. It's a lot of raw data, but searching for 'euro fx' brought me to EUR/USD forex stats.

[narnach-fx]

Babypips has an interesting article about using the COT report as a market sentiment reversal indicator.

[narnach-fx]

Why I started this blog

After a couple of weeks spent reading about forex trading and doing some trading on a demo account (which resulted in a net loss), I have decided to study more before opening a real money forex account. I have read Michael Archer's book [Getting Started in Currency Trading](http://www.amazon.com/gp/product/B007ZQ3356/ref=as_li_ss_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=B007ZQ3356&linkCode=as2&tag=narnach-20), which gives a good overview of what forex is. He explains a trading method, but reading it on the Kindle app on my iPad made it hard to keep referring back to what the heck all his Three Letter Acronyms meant, so I have to review those chapters again and make notes. This blog will be useful. Last week I started watching [Michael Huddleston's youtube video series](http://www.youtube.com/playlist?list=PL6FF885B7F8E75B5B), but I realized I had already forgotten a lot of what I had read and seen in a week. To force myself to understand what I read and see, I decided to start blogging about it. If I can explain it, I should understand it a lot better than when I just nod along and absorb the info. An extra benefit is that this should make it easier to explain what I learn to my friend who is learning about forex together with me.

[narnach-fx]

In this video, Inner Circle Trader (Michael J. Huddleston) explains about the weekly Commitment Of Traders (COT) report. The report lists aggregate short and long positions for three distinct groups of traders: * Non-reportable / small speculators / retail traders / "dumb money": the least informed and least experienced traders, most likely to make losing trades. * Non-commercials / large speculators / "informed money": the institutional traders are trend-following on the market. They take a long-term approach to trading, so short-term losses don't matter much to them. * Commercials / hedgers / "smart money": They have a big understanding of and influence over where the market goes. The commercials and non-commercials have a habit of taking opposing positions in the market, retail traders (on aggregate) fall in the middle. Commercial traders buy regularly while the market goes down and they start selling their positions while the market goes back up. They sell their bought positions at a higher price than they bought them. Because of their deep pockets, they can absorb the short-medium term loss to make a long-term profit. Tracking what commercial traders do gives a good indication of where the market is heading. If the commercial traders have a 12 month extreme net long or short, this can indicate if the market is overbought or oversold and about to reverse the trend. An extreme net long indicates commercial traders have been buying for a long time and prices have reached a low point. The prices are about to go up again. At this point, you want to get out of your own short positions and go long. An extreme net short gives the opposite signal. The take-away from this is not to blindly follow the COT data, but use it as a strong indicator where the large traders are going. Trade in the direction of the most recent 12 month commercial net positions. If they are going long, you trade long. If they are going short, you trade short. When they reach extreme long/short positions, close your positions and wait for them to reverse trend. Once they have reversed the trend, tag along again for the ride.