Recognize Market Behavior Relative to Price Action

Supplemental Market Brief POST ECB on EURO...
Confirmation from COT Report

At the time of actual rapid price action, recognizing the market's behavior relative to price action was a critical time. Since most speculative Euro traders were already well positioned on the short side of the market. And eventually reloaded upon learning what the ECB had decided to do. That led the decline of the EURUSD back to the 1.0860 levels and made a sudden turn-around thereafter until the closing of the week ending the 11th of March 2016.

Sure enough the volumes supporting the rapid price change that led the upsurge was substantial, 892K contracts. And this was 2X the open interest that ended the session with just about 436K +/-. Open Interest were 4392 contracts by speculative day traders mostly coming from the retail, non-commercial markets.

And base on the CFTC - Commitment of Traders Report - better known as the COT report that was just released late afternoon. Indeed the speculative shorts were in the area of 91.3K as of the closing date of Tuesday March 9. That already provided some glimpse that the market positions were in fact over loaded. This alone was that confirmation before the data where the principle of selling the rumor and buying the fact still plays a role in the old school of trading combined with new technology-driven base trading does matter with these volatile markets.

Knowing when a speculative outlook turns into a smart trade position for value investing is indeed a edge over the market. Utilizing the important information and data on Volumes and  Open Interest in Spot, Futures and Options markets can only help derive a favorable investors with the right trading decision most of the time. 

Therefore, recognizing the rally was certainly a market short-squeeze for speculative traders which we do not encourage especially for new retail day traders that would simply get stop-out of the market without a reasonable fight. This is were unnecessary losses can be avoided. Due diligence is always good as it pays to walk the extra mile!

Sequence of Trade Strategies 2

Original Trade Position 1