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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 rotation between resistance and support on Thursday, March 20, 2020. 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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FUTURES
WTI Weekly: Heightened Volatility Saw Rotation To Both Statistical Resistance And Support
05/14/20 02:20:03 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 rotation between resistance and support on Thursday, March 20, 2020. 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
| March 20, 2020: The structural framework provided in Sharedata's Daily Dashboard for Friday, March 20 was for price discovery lower. Our daily dual probability path assigned the primary expectation for price discovery lower, noting statistical support targets were: 23.68s/22.74s/21.80s, respectively. Qualitatively, these levels had held as resistance 60%, 80%, 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 23.68s-22.74s. As discussed frequently, markets are probabilistic not deterministic. Within this framework, the secondary expectation was for price discovery higher with a probable resistance "zone" between 28.14s-29.08s. 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 the larger structural decline that was developing, market structure continued to support the most likely premise for sell-side continuation before resumption of the larger sell-side auction. |
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| Figure 1. WTI Daily Dashboard 20 Mar 2020. |
| Graphic provided by: Sharedata Futures, Inc.. |
| |
| Heading into Friday's auction, balance developed near key resistance before a buy-side breakout attempt developed in Friday's London auction. Price discovery higher developed to 28.49s near Friday's Average Daily Range High Target. Sell excess developed there, halting the rally phase before price discovery lower developed through prior key resistance as the breakout failed. Price discovery lower continued initially to Friday's Average Daily Range Low Target before ultimately trading lower to 22.39s near Friday's 1st Standard Deviation Low Target. Buying interest emerged there amidst buy excess, halting the sell-side into Friday's NY close. |
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| Figure 2. WTI Daily Dashboard 19 Mar 2020. |
| 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). In this week's analysis, although the primary expectation was for price discovery lower, the market initially saw a failed buy-side breakout in which a sell excess halted the rally. Subsequently, price discovery lower developed as large bid liquidity in the LOB was absorbed by selling interest. Price discovery lower ultimately continued following a larger retracement to 22.39s near Friday's 1st Standard Deviation Low Target. Sellers trapped there amidst buying interest and large bid liquidity in the LOB into the NY close. |
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| Figure 3. WTI Daily Auction 20 Mar 2020. |
| Graphic provided by: NinjaTrader. |
| |
| The initial buy-side breakout through key resistance resulted in a rally toward key statistical resistance where market structure indicated (via the sell excess) the rally had terminated. The daily framework identified statistical resistance targets and their qualitative potential to hold as resistance. The order flow and limit order book data then indicated the halting of the buy-side sequence before the larger sell-side trend resumed as price traded toward key statistical support into the NY close. 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. |
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| Figure 4. WTI Limit Order Book 20 Mar 2020. |
| Graphic provided by: NinjaTrader. |
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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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| Sharedata Futures, Inc. has not added any product or service information to TRADERS' RESOURCE. | |
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