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

CHAPTER 4Concentration, Clustering, and Position Size – Price Risks and Behavioural Patterns

Chapter objectives

• 4.1 Concentration, Clustering, and Position Size
• 4.2 Concentration, Clustering, Position Size, and Their Relationship to Price Over Time

Concentration, Clustering, and Position Size are positioning metrics that can be used to help measure risk, sentiment, and conviction dynamics in commodity markets. They can be thought of as broadly representative of the following:

• Concentration: a measure of positioning risk.
• Clustering: a measure of sentiment.
• Position Size: a measure of conviction.

In this chapter, these metrics are explained and Positioning Price charts are introduced as a useful way to visualise the evolution of these metrics over time, how they are related to each other, and their relationship to changes in price and curve structure.

Collectively Concentration, Clustering, and Position Size dynamics provide a solid foundation to many of the indicators, models, and analyses covered in later chapters.

4.1 Concentration, Clustering, and Position Size

Concentration, Clustering, and Position Size are ways of measuring and tracking the evolution of certain aspects of risk, sentiment, and conviction in commodities for each trader group (MM, PMPU, SD, OR) on a long and short basis, for example, MML or MMS. They can be defined and summarised as follows:

• Concentration: the size of a futures position as a percentage of total futures open interest – a measure of ...