The U.S. Dollar Index has been trading in a sideways range for the last six months. Commercial traders’ forte is taking advantage of markets that are trading beyond their perceived value range. This places them in the mean reversion strategy category or, negative feedback players. The farther the market moves away from their perceived value area, the more contracts they tend to buy or, sell based on their expectation that the market will return to their value area. Therefore, commercial traders tend to perform very well in sideways markets where the market meanders above and below their price target allowing them to profit from each rise, fall and mean reversion.
We published a buy signal in the U.S. Dollar Index futures for our clients last night. This is the sixth signal in the Dollar we’ve issued in the last six months with each of the previous signals bearing fruit quickly. Looking at the Dollar Index chart, our setup is very simple. First, we only take trades in line with the prevailing commercial trader momentum based on their net position. Second, we wait for general market movement to create an overbought or, oversold situation against the prevailing commercial momentum. Finally, the market’s turn signals our entry in line with the commercial momentum as the market begins to return to its value area.
We view this as a trading opportunity. There’s no need to read anything into the story. This trade isn’t based on geo-political issues, flights to quality, or the future economic outlook. This is simply a matter of buying a market that has declined to a support level and placing our money on the side of the largest traders in the world.
