Inflexion

When there is a mismatch between net speculative OI (longs-shorts) and net number of speculators (long traders-short traders) we have inflexion and it can be a useful trading signal.

To interpret the inflexion we need to consider the market context as it is unclear how price may behave when inflexion happens. We might have reversal or continuation.

When there is inflexion it is highly likely that we might have potential shift in speculative positioning and it is a good indicator to identify change in sentiment.

Application

Red up arrow: Net traders is bearish but net OI is bullish. (A few traders are holding large longs but majority of traders are bearish with small short positions)

Blue down arrow: Net traders is bullish but net OI is bearish. (A few traders are holding large shorts but majority of traders are bullish with small long positions)

When inflexion happens a few traders are hold large position and we have to ask ourselves “Do they know something we don’t know? or Are they just managing large funds?’

Because the true reason is unclear we should consider the market context.

Examples

Study these two examples one from commodity market and another one from financial market.

The inflexion is highlighted down the chart.

Wheat

Australian Dollar

As you can see inflexions do not occur frequently.

Wheat

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