SENTIMENT ANALYSIS: Cornerstone Of Orderflow Trading

Sentiment is something that is happening NOW, in the moment. It could change in seconds when a central banker would say something unexpected. COT report is about position data for the last week and gets to you 3 days late. Maybe you can make money by gauging a bit longer term market bias and taking contrarian view when market is heavily oversold/overbought. but i don't see how a report can tell you the current sentiment when all it contains is position ratio of long/shorts in the market 6-7 days ago.

Any tool that tells you about position ratio's of a certain brokers clients like Oanda and social aggregating websites like myfxbook is based on positions of retail traders. Now i dont think many would be interested in basing their trade decisions on that info.

Im not saying that you cant make money using these tools, but the question is about gauging sentiment,

Sentiment determines what will positions ratio's of speculators will look like NOT THE OTHER WAY AROUND. (except when a market is heavily stretched and cant move further before a hurtful squeeze but that still at times need a catalyst)

Every day in the market there is a story that influences the expectations of traders of what market might do that day. You need to know that story and its much less complicated than we have made it sound. But there is another thing you should know.

Its no longer about sentiment anymore as much as its was since 2008 up until few months ago. Back Then you would simply buy risk assets and sell safe heavens when it was risk on and vice versa with risk off, so yeah its was really important to know the market sentiment. The whole dynamic started as very simple and easy way to trade. First market would keep falling for weeks when risk was off, than it shrinked to days, sessions, hours and in the end the market would be risk off one moment and risk on the second. Rise of high frequency trading bots also kept reducing what a human could get out of a RORO move.

But now its changed, the correlations have broken. Before EUR/GBP/AUD/NZD/ were seen as risk (high yielding) assets and moved in tandem, USD/JPY/CHF were the safe heavens. A better than expected US data would make Risk assets like EUR rise and USD falling and vice versa Now you see USD rise and EUR fall cause its no longer about risk but pure fundamentals. Dynamics have changed to the extent that even EUR and GBP broke off with commodities ccy's(nzd/aud/cad).

Who will move first to roll back money printing and start raising interest rates is all people are guessing and betting on, The size and side of their bets depend on info about economy which you know is the economic data. The current bet is on the US cause of recent talk of fed about tapering cause of recent healthier data compared to other economies and in the longer term about US getting energy independent with shale and whole other stuff you hear everyday.

Market is confused about whether if Feds will taper or not, same with ECB will cut rates or not. Every US and EU data fig thats comes out tilts market bias into one direction or the other everyday. These data figs (specially mid/low impact ones) dint moved market much after 2008, because that was all about RORO and later got worse with EU crisis when a greek politician could move market with his mouth. Even the NFP number was so tricky and hard to trade with people thinking about its effect on RORO and the implications on QE2/3/4 at the same time, and everyone would get their stops hit. Now even housing, weekly jobs and PMI's (remember gbp in march/april) could set the tone for the whole session.

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