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

CHAPTER 6Advanced DP Analysis – Deeper Insights and More Variables

Chapter objectives

• 6.1 Advanced DP Indicator Charts
• 6.2 DP Indicators, Price, and Curve Structure
• 6.3 DP Hedging Indicators
• 6.4 DP Factor, Fundamental, and Currency Indicators

In Chapter 5, Dry Powder (DP) analysis was introduced as a way of visualising positioning in a commodity market.

The objective of DP analysis is to provide an indication of how much bigger long or short position can get – simply how much dry powder is available in that trader group to build the position further. Conversely, DP analysis also provides an indication of how small a position can get – a useful metric when large positions unwind.

In this chapter, DP analysis is extended to include a variety of new types of information to better visualise positioning profiles in the context of other factors. These can include positioning data on the other trader categories, the price of the underlying commodity, the shape of the forward curve, certain types of fundamental data, and macroeconomic variables.

6.1 Advanced DP Indicator Charts

In Chapter 5, Dry Powder (DP) charts were plotted as a single chart. This had the benefit of showing the sizes of the long and short clusters relative to each other, as each cluster shared the same axes. For more complex charts, the long and short clusters are plotted as individual charts. They are now bigger, more legible, and can also include different variables applied to each of the clusters.

As DP ...