Advanced Positioning, Flow, and Sentiment Analysis in Commodity Markets, 2nd Edition

CHAPTER 3Performance Attribution – An Insight into Sentiment and Behavioural Analysis?

Chapter objectives

• 3.1 The Proliferation of Speculative Positioning Data
• 3.2 Why is Positioning Data Interesting
• 3.3 Measuring the Skill or Performance of MMs
• 3.4 Net Futures Positioning vs Net Trader Number Positioning or Alignment

Changes in positioning, especially speculative positioning, can impact prices through different channels. This can either be directly – due to the actual trade flow in the market, or indirectly – by shaping sentiment and affecting the behaviour of market participants. The interplay between these dynamics can be challenging to disentangle, but together they are important in understanding price evolution and risks in the market. An awareness of how effective speculators have been at generating profits in a particular market is also important in being able to provide a degree of conviction to the analysis.

Whilst the focus of this chapter is on speculative activity, how other trader groups perform can also be useful when trying to understand other aspects of price.

A robust and intuitive model to show the markets where speculators have performed best is developed. The objective in doing this lies in the assumption that the markets in which speculators have historically generated positive returns should be markets where they are likely to continue to perform. Future trends and shifts in the positioning in these markets could, therefore, provide useful trading indicators ...