Sentiment in the Forex Market: Indicators and Strategies To Profit from Crowd Behavior and Market Extremes

211 Pages·2008·4.95 MB·English

by  Jamie Saettele

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Sentiment in
the Forex
Market
Indicators and Strategies to
Profit from Crowd Behavior and
Market Extremes
JAMIE SAETTELE
JohnWiley&Sons,Inc.
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Sentiment in
the Forex
Market
Indicators and Strategies to
Profit from Crowd Behavior and
Market Extremes
JAMIE SAETTELE
JohnWiley&Sons,Inc.
i
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Copyright(cid:1)C 2008byJamieSaettele.Allrightsreserved.
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LibraryofCongressCataloging-in-PublicationData
Saettele,Jamie,1982–
Sentimentintheforexmarket:indicatorsandstrategiestoprofitfromcrowdbehaviorand
marketextremes/JamieSaettele.
p. cm.—(Wileytradingseries)
Includesbibliographicalreferencesandindex.
ISBN978-0-470-20823-6(cloth)
1.Foreignexchangemarket. 2.Foreignexchangefutures. 3.Investmentanalysis. I.Title.
HG3851.S232008
332.4(cid:2)5—dc22
2008006112
PrintedintheUnitedStatesofAmerica.
10 9 8 7 6 5 4 3 2 1
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Tomyparents,whoseLoveinspiresme.
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Contents
Preface ix
Acknowledgments xi
CHAPTER 1 The Argument for a Sentiment-Based
Approach 1
WhatIsFundamental? 4
Top-DownApproach 4
Reminiscences of a Stock Operator 5
CHAPTER 2 The Problem with Fundamental Analysis 9
HowtheHumanBrainWorks 10
TheMythofEconomicIndicators 11
NonfarmPayrolls 12
GrossDomesticProduct 16
TradeBalance 18
TreasuryInternationalCapital 19
ProducerandConsumerPriceIndexes 25
Conclusion 30
CHAPTER 3 The Power of Magazine Covers 31
TheDeathofEquities—August13,1979 32
MagazineCoversintheCurrencyMarket 32
Conclusion 49
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vi CONTENTS
CHAPTER 4 Using News Headlines to Generate Signals 53
WheretoLook 67
Conclusion 67
CHAPTER 5 Sentiment Indicators 69
CommitmentsofTradersReports 70
HistoryofU.S.FuturesTrading 71
CurrencyFuturesHistory 73
ReadingtheCOTReport 74
UsingCOTDatawithSpotFXPriceCharts 75
UnderstandingtheData 76
WatchingtheCommercials 77
WatchingtheSpeculators 78
CommercialandSpeculatorsGivetheSameSignal 80
TheApproach 83
OpenInterest 91
OtherSentimentIndicators 93
Conclusion 100
CHAPTER 6 The Power of Technical Indicators 101
WhatIsTechnicalAnalysis? 103
KeepItSimple 104
WhatTimeFramestoUse? 104
SupportandResistance 105
DeterminingaBias 108
FancyMomentumIndicatorsandOverbought/Oversold 125
WhentoGetOut 141
CHAPTER 7 Explanation of Elliott Wave and
Fibonacci 151
WhoWasElliott? 151
Fibonacci:TheMathematicalFoundation 163
Ratios 168
SpecificSetups 169
SomeDifferencesbetweenStocksandFXinElliott 175
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Contents vii
BuildingUpfromLowerTimeFrames 178
MultiyearForecastfortheU.S.Dollar 179
MultiyearForecastfortheUSDJPY 179
Conclusion 181
CHAPTER 8 Putting It All Together 183
WhyMostTradersLose 183
DevelopingaProcess 184
InConclusion 185
Notes 187
Index 191