Not only for new traders. Spot and identify opportunities is a challenge also for experienced traders. And some of them don't follow the conventional ways
The challenge that many new inexperienced traders have is on how to spot and identify opportunities in the market. This is also a challenge that many experienced traders face every day. This article will explain a few ways you can use to find opportunities in the market.
Commitment of Traders (CoT)
The Commitment of Traders report is published every Friday by the Commodities and Futures Trading Commission (CFTC). The data aggregates data from large commercial traders, speculators, and other non-commercial traders. This data is supplied by brokers, clearing members, and exchanges.
The report shows how these traders are placing their trades. To read the COT report, you first need to go to the CFTC website and the CoT page. Then, you need to find the report on the currency or commodity that you want and then go to the Short Format.
Here, you will find how the three traders are trading. However, you need to remember that the CoT is a lagging indicator, which means that the positions can change in future.
→How commitments of traders report can help your trading decision
Another way is for you to find the exaggerated movements. For example, the price of crude oil could move sharply because of a tweet sent by Donald Trump. Alternatively, a company’s stock can move sharply higher or lower because of a tweet or a certain news.
At times, these news usually don’t have the weight to keeping the price moving lower or higher for long. For example, Boeing stock price has been falling after the Ethiopian crash. While the downward momentum could continue for a longer period, the fact is that Boeing is a large company that will ultimately recover.
Unusual Options Activity
Most professional traders like to observe the activity in the options market. When you buy an option, you get a right but not an obligation to either buy or sell a security. A call option is a right to buy while a put option is a right to sell. Many insiders use the options market to place their trades.
Therefore, when you observe that the volume of a stock for a future date is higher than normal, it means that something could happen that will cause the price to move in that direction.
Another way you can use to find opportunities is to read news from local agencies. For example, if you are a coffee trader, you should spend a lot of time reading the news from local Brazilian agencies. This is because Brazil is the biggest coffee producer.
As such, when you read the local news, you get the information that most big traders don’t have. Similarly. If you are a copper trader, you should read the materials from Peru. If you are a platinum and palladium trader, you should read the materials from South Africa and Russia.
→ How to Do News Trading in the Right Way
The other methods of finding the opportunities are more common. These are the use of technical indicators like moving averages, RSI, and stochastics among others. Others include using the economic calendar to find breaking data like inflation, and employment numbers.