Trapped traders - how to use the commitments of traders report

2017年8月15日

Before reading this I want people to understand that this kind of trade doesn't always work (NO TRADING SYSTEM DOES) so if this single trade doesn't work, don't lose confidence in the technique - it has served me extremely well and I have used it many times before. Both for USDJPY (2 ideas) and USDCAD (1 idea) - you can find these ideas on my page.

Links to those ideas

(UCAD was positioning hugely long)

You can find the commitments of traders report on this page (cmegroup.com/tools-information/quikstrike/commitment-of-traders.html) every Friday. It reflects the current positions of forex futures traders in Chicago's Mercantile Exchange on the Tuesday of that week.

You want to see the "leveraged" positions - these are CTAs and hedge funds - the people like you and me that are speculating on these prices with the objective of making returns; usually with leverage.

This is last Friday's report for AUDUSD.
prnt.sc/g8wire

Note how Long (blue) positions have been rising.
On 18/7 the net position was 45k LONG, on 8/8 the net position is 75k LONG.

So between these two dates, we know that 30,000 long positions were opened. The price on 18/7 was 0.7916 and on 8/8 it was 0.7911. Those positions were therefore opened above 0.7900.

The current price is 0.7820 and that means that all of those positions are experiencing a draw down of AT LEAST 80 pips (>1%). They are trapped traders.

If price continues to move down, at some point those people are going to get out of those longs because the draw down will be too much for them to take.

Getting out of a long = going short => price moving down = move people have to exit their longs = going short => price moving down etc.

So just go short and you can benefit from this.