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FUTURES


WTI Weekly: Key Support Fails Driving Price Lower To The Daily Statistical Low Target

07/01/20 05:18:55 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 rotation between resistance and support in Tuesday, April 7, 2020'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

April 7, 2020:

The structural framework provided in Sharedata's Daily Dashboard for Tuesday, April 7 was for price discovery higher. Our daily dual probability path assigned the primary expectation for price discovery higher, noting statistical resistance targets were: 28.49s/29.70s/30.92s, respectively. Qualitatively, these levels had held as resistance 68%, 77%, and 95% of recent market auctions (respectively) based on the market generated data. This data provided a buy-side framework with a probable resistance "zone" between 28.49s-29.70s. 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 23.67s-22.46s. 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. The failure of the market at key support in Tuesday's auction was structural indication that the primary expectation was invalidated.

Figure 1. WTI Daily Dashboard Apr 7, 2020.
Graphic provided by: Sharedata Futures, Inc..
 
Heading into Tuesday's auction, balance developed, 27.19s-26.29s, above key support during Globex trade. Buyers trapped, 27.19s, before a structural sell excess formed during the London auction. These were order flow and structural developments indicating the sell-side was successfully defending resistance. Rotation lower ensued to 26.95s into the NY open. Narrow balance developed, 25.95s-26.69s, early in NY trade before selling interest emerged at key support, driving price lower in a sell-side breakdown. The selloff developed to 23.54s near Tuesday's Average Daily Range Low Target. Sellers trapped there amidst buying interest and buy excess, halting the selloff into Tuesday's NY close.

Figure 2. WTI Daily Dashboard Apr 6, 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).

Figure 3. WTI Auction Apr 7, 2020.
Graphic provided by: NinjaTrader.
 
In this week's analysis, although the primary expectation was for price discovery higher, the market initially saw buyers trap and a sell excess develop providing indication and warning that the sell-side was defending at resistance. Subsequently, rotation lower developed to key support where selling interest emerged, absorbing large bid liquidity in the LOB as a breakdown developed. Price discovery lower ultimately continued as selling interest absorbed large bid liquidity in the LOB in multiple locations (24.90s/24.20s), driving price lower to 23.54s near Tuesday's Average Daily Range Low Target. Sellers trapped there amidst buying interest, buy excess, and large bid liquidity in the LOB into the NY close.

Figure 4. WTI Limit Order Book Apr 7, 2020.
Graphic provided by: NinjaTrader.
 
The initial sell-side defense of trapping buyers and sell excess formation at key resistance resulted in a selloff through key support toward key statistical support. Order flow and market structure indicated (via the trapped sellers and buy excess) the selloff had terminated. The daily framework identified statistical resistance targets and their qualitative potential to hold as resistance. The failure at key resistance, order flow, and limit order book data then indicated the primary expectation had been invalidated, thus favoring sell-side activity. 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

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