My friend wants to trade crude oil with order flow, but what markets would a correlation/divergence trader follow? For example: treasuries I follow: UB ZB ZN zf zt and I trade off the first three. Equities correlation trader may choose Es NQ YM and TF. An energy trader may trade :??? Crude oil Brent oil heating oil? Dollar index? Idk


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I have not yet found a solid set of correlated markets for CL, neither have I seen anybody convincingly laying out some markets that have a correlations as strong as those you gave in your examples. Truth is, CL is imho not the best market for orderflow trading purely based on correlation/divergence. It moves somewhat independent, which can be a good thing, or a bad thing, depending on your point of view.

Having said that, there are some things to look at: CL is a commodity that strongly influences (and is influenced by) the standard commodity indices, e.g., Bloomberg commodity index. It is also perceived as a riskier commodity, so it correlates well with rotations into risk. Plus the obvious dollar correlation (crude is international, so others have to hedge). I use JPY and GC to gauge some of those influences. But this is really more of a feeler for market sentiment than a correlation on any given day.

Correlations to RBOB Gasoline, Heating Oil and ULSD do also exist, but CL seem to lead those (anybody with some data on this?). Also somewhat Natgas, as it is another energy sector commodity. And Brent obviously, but the stat arb HFTs take care of any significant divergence in that. I personally could never make much out of these correlations when trading CL itself.

Important in CL might also be the various spreads. The crack spread for instance helps to gauge when refiners might have to react, but this is not as important intraday imho. Apart from that, many people and especially institutional investors trade calendar spreads on crude, so your friend might want to start looking into these as well.

That's my 5c. Any other ideas? I would be interested as well

fhx13 

I have not yet found a solid set of correlated markets for CL, neither have I seen anybody convincingly laying out some markets that have a correlations as strong as those you gave in your examples. Truth is, CL is imho not the best market for orderflow trading purely based on correlation/divergence. It moves somewhat independent, which can be a good thing, or a bad thing, depending on your point of view. Having said that, there are some things to look at: CL is a commodity that strongly influences (and is influenced by) the standard commodity indices, e.g., Bloomberg commodity index. It is also perceived as a riskier commodity, so it correlates well with rotations into risk. Plus the obvious dollar correlation (crude is international, so others have to hedge). I use JPY and GC to gauge some of those influences. But this is really more of a feeler for market sentiment than a correlation on any given day. Correlations to RBOB Gasoline, Heating Oil and ULSD do also exist, but CL seem to lead those (anybody with some data on this?). Also somewhat Natgas, as it is another energy sector commodity. And Brent obviously, but the stat arb HFTs take care of any significant divergence in that. I personally could never make much out of these correlations when trading CL itself. Important in CL might also be the various spreads. The crack spread for instance helps to gauge when refiners might have to react, but this is not as important intraday imho. Apart from that, many people and especially institutional investors trade calendar spreads on crude, so your friend might want to start looking into these as well. That's my 5c. Any other ideas? I would be interested as well

Crude is an animal all it's own...it correlates...and then doesn't! You have to look at broader market analysis and be patient with your trade. I don't know anyone who trades Crude with Orderflow only....there is some benefit if you use it as a secondary form of analysis but don't rely on it!...much better off with Volume Profile IMHO....and a hell of a lot easier on your eyes!

I'd add Gasoil to what @fhx13 said, but I think he''s right CL leads rather than follows.

Well as already mentioned HO, RB. RB in spring can lead CL. HO in Fall can lead CL. S&P500 can lead during slow cycles. US dollar can lead also during slow cycles. Be aware of news events and market hours/volatility cycles: API (Tuesday) and EIA (usually Wednesday) report days. Euro close on API day (usually Tuesday). Euro open starts the 24 hour volatility cycle back up while midday US/US close is usually the peak. Always watch for OPEC planned news releases. And to a lesser extent the old pit open and closes can offer some bump. Check the commitment of traders reports/charts to see where big money is going for longer term perspective. Just a few tips. Hope it helps