YEN COT ANALYSIS - WHERE THIS CAN GO WRONG
I went through a COT analysis of the Yen about a month ago saying it was setup for a buy. I live in a different world than most where I actually admit when I have blown something. This is a bad habit the book says lie lie lie, market market market. I don't like that book.
One of the challenges of using COT data which I have stated over and over, is when you get strong trends going and the commercials setup shop on the opposite side of the trend. This is not a signal for action, it is more an indication they are hedging which is their primary function. For the record I have not done any long trades in this market and the main reason for that is the seasonal. Look at how precisely we have followed the seasonal pattern in this market.
Using COT data is an art not a science - I guess that is why you need me?
The logic I had used for stating I thought this was setup for a buy is displayed on the chart. I felt the big boys were setting up to defend the price level we are breaking below now, I was wrong about that. One distinction that has to be made is that between setups and trades. A setup is just that a setup. It does not mean we just go right in at the market and do a trade. It means the conditions are there from some stand point, in this case the COT data, for a move to happen. That is far different from a trade entry setup.
Often on weekly charts you can have setups in place for months that do not generate a trade on a daily chart. This is not a perfect world. I am surprised how many people don't understand this difference. I recall a year or so ago watching a few of Larry Williams weekly videos on setup markets and then having friends bad mouth him when they did not instantly move the way he predicted. They just did not get it even after I explained to them that fundamental setups don't mean you go to a 5 minute chart and enter at the market. I guess that is why most people lose money trading.
When I talk about setups on weekly charts what it means is that I feel the fundamentals favor a move in one direction over another, the probabilities are on our side. That does not mean it will always happen. I do point them out when I think we are close to moving in the direction I point out but that does not mean I expect it the very next day. It may happen the next day but that is not the reason for the commentary. There are only a couple of setups I have been able to identify that have been right 100% of the time and they occur very infrequently, perhaps once every few years.
Summary, the COT setup is not valid in the Yen at this point, it is not a buy setup now. It has not held where it needed to for this logic to apply.
ES FOLLOW UP
My buy signals did not ever trigger on Wednesday so the dilemma of a sell setup with a short term buy signal never materialized. I still see this as a sell setup on the weekly. One day of price action will rarely change a weekly setup. My short term indicators are also still going down but I don't see an entry here so on the sidelines in the indexes I stay. Trading is usually slow during this week so there is no reason to try and push something.
I am watching the Euro right here for a short entry.