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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 continuation for Thursday, January 9, 2020 following an initial aggressive decline. 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.
Position: N/A
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.
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DAY TRADING
WTI Weekly: Despite Initial Aggressive Price Discovery Lower, Market Structure Implied Continuation
02/20/20 04:23:42 PMby 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 continuation for Thursday, January 9, 2020 following an initial aggressive decline. 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.
Position: N/A
| January 9, 2020: The structural framework provided in Sharedata's Daily Dashboard for Thursday, January 9 was for price discovery lower. Our daily dual probability path assigned the primary expectation for price discovery lower, noting statistical support targets were: 58.60s/58.03s/57.46s, respectively. Qualitatively, these levels had held as resistance 58%, 95%, and 95% of recent market auctions (respectively) based on the market generated data. This data provided a sell-side framework with a probable support "zone" between 58.60s-58.03s. As discussed frequently, markets are probabilistic not deterministic. Within this framework, the secondary expectation was for price discovery lower with a probable resistance "zone" between 60.62s-61.19s. 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. Despite Wednesday's substantial decline, market structure (the failure of structural support and lack of buy excess) continued to support the most likely premise for sell-side continuation. |
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| Figure 1. WTI Daily Dashboard 09Jan20. |
| Graphic provided by: Sharedata Futures, Inc.. |
| |
| Heading into Thursday's auction, sellers trapped near key support, 59.15s, into Wednesday's NY close. Rotation higher ensued toward 60.15s where resting supply overhead persisted. Balance then developed through London auction into the NY open. Buyers trapped early in the NY auction before a sell-side breakdown through key support developed. Price discovery lower followed to 58.66s at Sharedata's average daily range low target. Buy excess developed there, halting the sell-side sequence, driving price higher to 59.85s ahead of Friday's NY close. |
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| Figure 2. WTI Daily Dashboard 08Jan20. |
| 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). |
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| Figure 3. WTI Daily Auction 09Jan20. |
| Graphic provided by: NinjaTrader. |
| |
| In this week's analysis, the key market structure development was Wednesday's low was unsecured within the context of an aggressive sell-side breakdown through structural support. This development was indication and warning that the primary daily inference (price discovery lower) remained likely, despite the prior large price move lower. The market ultimately auctioned to 58.66s where buy excess developed, halting the sell-side sequence near the average daily range low target. The statistical framework provided support targets which the market auctioned to intraday. Following the buy-side failure at key support 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. Sellers then trapped at/near statistical support where large resting bids began to emerge in the LOB. The LOB trend shifted, and price discovery higher then developed into the NY close. |
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| Figure 4. WTI Limit Order Book 09Jan20. |
| 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. |
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 |
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