As the summary explains on this site, Torrey Pines Capital Advisors focuses primarily on the energy markets. One of the reasons is the true supply and demand that exists for these commodities. Comparing this to the equity and interest rate markets which are so heavily watered down and controlled.
The second reason is because of the price volatility the energy markets experience compared to again, equities and interest rates. If you have no price volatility, risk to reward is greatly diminished in any trade opportunities.
The third and final reason is because the energy futures contracts are primary markets meaning, the majority of trade volume occurs in the futures and futures options contracts. What many don't understand about many of the futures markets is that they are in fact, secondary markets with the primary being either the cash markets or spot markets. This greatly affects the appearance of the underlying order flow which is a very important element to our trading process. What I mean by order flow is tracking the volume occurring at the current "bid/buy" price and the volume occurring at the current "ask/sell" price. This is also known in the trading world as the "Cumulative Delta" between buyers and sellers.
A good example would be the EUR/USD FX futures contract vs. the spot foreign exchange (FX). A majority of the volume occurs in the spot FX vs. the futures contract. So, the orders occurring in the futures contract are often just hedge positions to a larger spot FX position. The actual price movements between the two are fungible however, the underlying order flow is very different. Another popular market that this can be seen in is the E-mini S&P 500 (ES) contract although not as severe as the EUR/USD. There have been many times where the ES contract price has been moving higher while the underlying order flow or cumulative delta has been either dropping or simply remaining negative on the day. Negative meaning that the order flow is showing more aggressive sellers vs. buyers. One may say that its just because of the use of limit orders but the flaw with that thinking is that aggressive order flow moves the market. Without aggressive order flow, the market simply would not move. I'm not going to give a lesson in order types and the how and why of where they occur but that's the gist of it.
That all being said, we look to focus our trading in the energy markets. This would include Crude Oil (CL), Natural Gas (NG), Gasoline (RB), Heating Oil (HO) and the associated Crack Spreads. Additionally, our focus is on the US based markets. Brent Crude Oil is a great market as well but the correlation to WTI Crude Oil is so high that its just easier to focus on one.
The methodology used to trade these markets will obviously be for the most part, kept confidential. But this blog will be a place where we share some of our market analysis. This will benefit the average investor and retail trader in learning more about how to look at the markets from a technical and fundamental perspective and develop potential directional themes.
**Warning: Redistribution or copying of this content is strictly prohibited without our expressed written consent. This is not investment/trading advice. Trading in futures and options involves substantial risk. You may lose more than your initial investment.**
