Depth Gauge: Crude Oil (CL)
So where is the market going?
Picking market tops and bottoms make for great headlines, but staying on the correct side of the trend is more important for long-term trading survival. The Depth Gauge is a slow moving indicator that focuses on one thing -- the trend. It answers the question whether the trend in Crude Oil is moving higher or lower. The driving force behind this weekly indicator is not to generate buy/sell recommendations. Its true intent is to provide a historical perspective of bull/bear phases for the Crude Oil as well as position sizing guidance to assist in its trading.
Depth Gauge overview:
1. Historical Perspective: The direction of the Depth Gauge (i.e. Underwater Volume Index (UVI)) is the key to interpreting this indicator. Is it bullish (rising), bearish (falling) or neutral (mixed)? Three-year UVI stats offer perspective on the general characteristic of Crude Oil. Answering the question has it been more bullish, bearish or neutral in the recent past. New trends will most certainly emerge in the future, but to do so they will need a spark to change. Knowing the general makeup of Crude Oil can be helpful until true change occurs.
2. Position Sizing Guidance: As mentioned, the Depth Gauge indicator is slow moving as it waits patiently for true trends to form. Traders trade -- that's what they do. The Depth Gauge chart offers traders the ability to adjust their position size when they trade. When Crude Oil is trending higher, there may be an opportunity to profit on the short side, just as there could be an opportunity to profit on the long side during bear trends. The key is to maximize position size (number of contracts traded) when trading WITH the trend rather than against the trend. The current condition for Crude Oil is posted at the bottom of the Depth Gauge chart. Trade accordingly.
Rolling Underwater Volume Index Study:
Past Performance is NOT Indicative of Future Results. There is significant risk of loss investing in managed futures. This form of investment is not right for everyone. The subjective opinions expressed on this web site are solely those of the author and are not representative of the views of any other entity or individual. Click here to link to the full disclaimer.