WTI Weekly: Balance Leads To Imbalance As Market Structure Provides Insight Into Pending Trend

09/19/19 04:19:41 PM

by Taylor Ireland

In this article, we examine the order flow and limit order book data in the WTI futures market that provides insight into the breakout above key resistance and subsequent buy-side price discovery for Monday, August 19, 2019's auction. Market structure and order flow provide insight into the actual transactional activity of a dual-auction's price discovery process. Analysis of this data provides real-time insight into the actions of market participants, providing a dynamic dataset to inform one's risk management process.

Security: WTI
Position: N/A

August 19, 2019:

The structural framework provided in Sharedata's Daily Dashboard for Monday, August 19's auction was for price discovery higher, noting the d-shape (Gaussian) distribution structure of Friday's auction. This structural development implied maturation of balance and growing likelihood of trend. Our daily dual probability path assigned the primary expectation for price discovery higher, noting statistical resistance targets were: 56.29s/57.12s/57.94s, respectively. Qualitatively, these levels had held as resistance 66%, 87%, and 96% of recent market auctions (respectively) based on the market generated data. This data provided a buy-side framework with a probable resistance "zone" between 56.29s-57.12s. This type of daily framework, while useful, is more effective when using live order flow and structural analysis to confirm or negate the most probable daily inference.

Figure 1. WTI Daily Dashboard For Sep 19, 2019.

Graphic provided by: Sharedata Futures, Inc..

Heading into Monday's auction, price discovery higher developed in Monday's Globex auction toward Friday's key resistance, 55.61s. Low volume selling interest emerged there, halting the buy-side sequence. Price discovery lower developed back to test Friday's close where structural buy excess formed, halting the sell-side sequence ahead of the NY open. Buying interest then emerged, driving price higher early into the NY auction before buyers trapped and balance developed around key resistance into the London close. Buying interest then emerged again, 55.70s/55.80s, driving price higher out of the D-shape distribution to 56.30s at Sharedata's average daily range high target into Monday's NY close.

Figure 2. WTI Daily Auction Sep 19, 2019.

Graphic provided by: NinjaTrader.

The practice of analyzing market structure developments is best accomplished with the use of order flow and limit order book (LOB) analysis. In short, plotting the buy and sell transactions of significance (in this case volume equal to or greater than 150 contracts) as well as the resting limit bids and offers (equal to or greater than 75 contracts) allows us to see both the actions and intent of larger participants (who significantly affect price).

In this week's analysis, the key market structure development was the buy excess, 54.84s-55s, formed in the London auction after which large buyers emerged. This development was indication and warning that the primary daily inference (price discovery higher) remained likely (despite overnight, low volume selling interest). Market structure is best displayed by plotting the price-time data in the form of a frequency distribution (often referred to as a profile). D-shape, or Gaussian, distributions provide structural confirmation that a balance area has matured and reached a level of consensus amongst the buy-side and sell-side. As price trades out of such a distribution, it often induces an inventory adjustment by the market participants who are offside and helps fuel directional activity. The statistical framework provided resistance targets which the market auctioned to intraday. Following the development of the buy excess in the London auction, the trend of the LOB shifted into an upward trend early in the NY auction, indicating the buy programs were dominant in this auction until the market reached statistical resistance.

Figure 3. WTI Limit Order Book Sep 19, 2019.

Graphic provided by: NinjaTrader.

The order flow and limit order book data confirmed the buy-side development of the directional context provided by the market structure. The daily framework identified statistical resistance targets and their qualitative potential to hold as resistance. This confluence of structural, statistical, and order flow data provided insight into the auction's outcome based not on lagging fundamental data or media hype but rather structural formation and transactional behavior of significant quantity that drives price discovery.

Taylor Ireland

Sharedata Futures, Inc. provides historical data mining and visualization for the benchmark NYMEX Energy Futures Markets.

Sharedata combines structural analysis of the market generated data, dynamic systems analysis, and Bayesian causal inference techniques favored by the scientific and intelligence communities to provide a robust framework for addressing the uncertainty and risk in energy pricing.

Title:	Founder
Company:	Sharedata Futures, Inc.
	Dallas, TX
Website:	www.sdfanalytics.com
E-mail address:	support@sdfanalytics.com
Traders' Resource Links
Sharedata Futures, Inc. has not added any product or service information to TRADERS' RESOURCE.

Click here for more information about our publications!

PRINT THIS ARTICLE

Request Information From Our Sponsors

DEPARTMENTS: Advertising | Editorial | Circulation | Contact Us | BY PHONE: (206) 938-0570

Comments or Questions?	Article Usefulness
	5 (most useful) 4 3 2 1 (least useful)

DAY TRADING

WTI Weekly: Balance Leads To Imbalance As Market Structure Provides Insight Into Pending Trend

SUBSCRIBE TO OUR FREE EMAIL NEWSLETTER!

SUBSCRIBE TO OUR FREE
EMAIL NEWSLETTER!