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WTI Weekly: Key Resistance Held As Sell Excess Formed, Driving Price Lower To Statistical Support.

01/02/20 05:07:55 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 sell-side defense of key resistance and subsequent price discovery lower for Friday, December 20, 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

December 20, 2019:

The structural framework provided in Sharedata's Daily Dashboard for Thursday, December 19's auction was for price discovery higher. Our daily dual probability path assigned the primary expectation for price discovery higher, noting statistical resistance targets were: 62.16s/62.72s/63.29s, respectively. Qualitatively, these levels had held as resistance 61%, 91%, 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 62.16s-62.72s. As discussed frequently, markets are probabilistic not deterministic. Within this framework, the secondary expectation was for price discovery lower with a probable support "zone" between 60.04s-59.48s. 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. Daily Dashboard 12/19/19.
Graphic provided by: Sharedata Futures, Inc..
Heading into Friday's auction, buyers trapped near key resistance into Thursday's NY close. Balance developed into Friday's London auction before an initial sell-side breakdown attempt developed to 60.81s ahead of the NY open. Minor retracement higher developed into the NY auction toward 61.20s, testing key resistance overhead. Structural sell excess developed there before selling interest emerged, driving price lower from key resistance achieving the stopping point lower, 60.02s, near Sharedata's average daily range low target. Buy excess developed there, halting the sell-side sequence, driving price modestly higher to 60.56s ahead of Friday's NY close.

Figure 2. Daily Dashboard 12/20/19.
Graphic provided by: Sharedata Futures, Inc..
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).

Figure 3. WTI Daily Auction 12/20/19.
Graphic provided by: NinjaTrader.
In this week's analysis, the key market structure development was structural sell excess that developed near key resistance, 61.10s, early in the NY auction. This development was indication and warning that the primary daily inference (price discovery higher) was no longer likely. The failure at key resistance directed attention to key statistical support targets below: 60.04s/59.48s/58.91s, respectively. The market ultimately auctioned to 60.02s where buy excess developed, halting the sell-side sequence near the average daily range low target and the daily NY average daily range expectancy (106 ticks). The statistical framework provided support targets which the market auctioned to intraday. Following the buy-side failure at key resistance into the NY auction, the trend of the LOB shifted into a downward trend, indicating the sell programs were dominant in this auction until the market reached statistical support.

Figure 4. WTI Limit Order Book 12/20/19.
Graphic provided by: NinjaTrader.
The order flow and limit order book data confirmed the sell-side development of the directional context provided by the market structure. The daily framework identified statistical support targets and their qualitative potential to hold as support. 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
E-mail address:

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