BigEz

WTI Relative value to G4 currencies: aka Krümels Voodoo chart

TVC:USOIL   WTI Crude Oil
.

So this is an attempt to show my "Relative Value" chart, and why currency spreads can help both identify max/min ranges, and when WTI couples with other G4 currency.

Question /Scenario:
You own an oil             company. You store, buy & sell locally. You have locations in all major countries. You buy in any (G4) currency, but mostly in the currency of the actual sale country. You do not transport, except locally. At the EOD             (hour, sec) you need a single number that represents the value in US. Dollar of "ALL" your inventory. What amount is that? What is that value in dollars? Understand that matrix and you understand my Relative Values..

So the basic premise is Dollar is base. Oil             is priced in dollars. BUT its value to Dxy             changes. If no WTI was bought or sold for two hours.. but Dollar traded and moved.. so would the price of oil             . Not tic for tic.. (remember oil             not trading in example) but when oil             did open to trade it would balance to DXY             (assuming no other currencies in this pretend market). That spread is the base measurement .

Unfortunately it is not as simple as Dollar moves up so oil             moves down (or up). Oil             is priced and sold in other currencies around the world. So (for example) 100 barrels trade in 70% USD, 30% ERU             .. then it would stand to reason that the Value of oil             is somewhere Between those two values, but closer to US dollar             (in this example).

This happens all day long.. but because we have multiple currencies, those spreads are all different. I use the main currencies listed Eur, Dxy             , yen, pound. (G4 ).

*Read*. Most important.. (where most people have a problem) is oil             has it's own fate.. that is to say if some big whale dumps oil             , it will move down on that.. and that will not couple with any spread. That is a true value change of oil             , and spreads need to be realigned/ calibrated.

The problem is TV only gives you (2) two scales. (Left & Right) If the left is raw Dxy             no equations, right is raw WTI no equations.. the 2nd, 3rd, etc.. currencies will be off screen. So you must normalize them to fit left scale.

I have screwed with this normalization the most. You can't just say x=2, y=10, so I'll just take -8 from y to balance both at 2. Because you removed 80% of Y. The Y wave needs to scale with DXY             (over 60min). Dxy             down=Pound up (for example) you'll know you have it right when you can align the symmetric

Lastly it is a work in progress.. (over 1yr) and I still don't have all answers but it is much better than when I started.

Ok... preamble done. Let's add a currency. We will start with Pound for example. (Just because today that is the couple).

Oil             right -DXY left , no equations. Scaled.
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Add Pound - normalized
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Add Yen - normalized
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Add EUR- normalized
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Add S&P             - normalized* (more on S&P             next note)
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ALL currencies – normalized
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All - normalized, scaled, and tweaked.. (aka the Tea Leaves )
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More on next post... Good Luck!

*note & question. If I over explain, if I'm over simple in the steps I use, I use a wrong term, and/or it seems elementary , I apologize. I get A lot of questions.. not everyone is at same level, (most are above me..lol). Also because this is not a system used by many (any?) there is no web page description or known indicator like RSI , Fibs, or MACD to point too.
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Here is my play rest of day..
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..here is where i see it prior to US Open.
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Oil is a different asset than in the past.. if you think ETFs and such have nothing to do with the value of oil.. then this is not for you.

.. new way to think about above discussion coming. Also more on S&P (general market) and why it plays bigger role in WTI price, than in the past. Good Luck!
Comment: ..
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so this is Friday close.. was a good day. managed to scalp several pops but left my longterm shorts untouched. On this chart, you will notice that GBP is much less normalized than yen & eur .. part of that is internal. In a 2 currency world, value would mirror.. in this group Eur does the closest to that mirror (inverted) view. But we have many currencies so of these 4, i use a tight , medium, and loose normalization. Yen is the tightest, eur is med. and Pound is loose. this more came to happen that planned... i have my thoughts on why. later.

@smitheric1970 @CyrusTrafford @TreeDoc @Staxs
As for earlier, new premise. Simple. you are an oil buyer/seller. You send 2 guys out to buy oil. One in Europe, one in Singapore. both buy 100 barrels at best price (current local price = 50USD per barrel at time of sale) at 2+ locations (2 buys) throughout the day. At EOD you have 200 barrels. How much value did your dollars gain or loose? Only variables are 4 buys at different times over 8hrs, Two countries, and Exchange rate (your cost) at time of your Buys. ...


ohh.. one more thing, for new people not mentioned here or don't follow on TV chat, This is a study. Just because i trade on it.. (in combination with other things), you are a fool if you do. At best it will be a tool once refined. Remember... https://twitter.com/das_krumel/status/914123116233854976


A few things i picked up this week.

Not sure who posted this few days ago.. but Thanks, good.. https://topdocumentaryfilms.com/shale-cowboys/

I really like this Analysis. It also helps explain why WTI and Bent spreads are not as good of an indicator as in the past. one of the best things i've read this week. https://realinvestmentadvice.com/technically-speaking-is-the-rally-in-oil-sustainable/

Lastly, a question for anyone who gets this far... how do I buy Yen Volatility on OTC? Specificity YEN USD volatility .. yenVix -per this article:
"I am buying long-term Japanese yen volatility. No, I don’t trade OTC, so I am going to the CME and buying straddles, strangles, and every other long vol option spread I can think of. I wish there is was some way to just buy a VXX type ETF of the Yen, but there simply isn’t demand for this type of product. The inability to easily buy a hedge is precisely why it stands a much better chance of being the real risk you should be worried about.". https://www.themacrotourist.com/posts/2017/09/28/thursday/
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pre-us open. Still short, but will look for long scalps on bounces. will also be a hedge incase if wipesaw. shorts are safe few more weeks if needed. ATM
Pound is overnight couple.. but dxy is always pulling.
Good Luck

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Comment: currency is value and trigger (many times).. but fibs are magnets and roadmap the stops. Here is flat earth chart.. with imo the important Fibs (magnets) ..IMHO.
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Here is how i'm starting the day. Eur has done best overnight with RV near 50.60. will be watching Eur for today's range top... ATM. but in "general" i like to bet on dxy. RV does get above Dxy.. in fact that is the best time to short... on a good signal. but in general i bet on dxy, & S&P couples. anyway this is the range i see at 7:30am. Good Luck
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Pre-EIA
Looks like pre-eia pump is here.. as fo now day looks bullest,.. to near 50.80, for now. Anyway here is range at 6am.
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Comment: Eod. Could drift up overnight. Plenty of room. Still holding shorts.
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Comment: Sorry Eur was missing. Important becouse it is with pound at EOD. Good target/ pivot price for oil.
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Trade active: Looks like top if Dxy & S&P stop their run. Added some shorts at 50.87, with 51.2x SL , but S&P RV will be my gage. We could drop $1 so easy.. up a dollar, not so much. But S&P is a problem at the moment..
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*new example; you have a EUR account in Germany. I have a US account in US. We both buy 100 barrels of oil at the same time 14:00hrs. (Commission free) We both get same price $50. At 15:00hrs we both sell for $52. The only thing different is EUR/Dollar dropped (or spiked) that hour. You both received $52*100 on sell. Who made more money? Where did the "value" shift?

Good luck.. make money.
Trade active: Small long
.
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Added a short at what I thought was bottom, crazy Dollar open .. was fun to watch. Looks kike crazy has passed, Pound is the RV couple. As I say above it is an max RV scale, so it can be at the high /low Extreme. This is why I use it as a pivot for a trade. Looks to be turning now, so hopefully I was just a smidge early. Will dump long with profit.. not sure if it holds to original target of 50.1x. Good Look.. Make Money!

Btw.. oil moved first, 07:54 hrs and Dollar (all Currencies) moved at 08:24 hrs. Exactly 30 minutes after. Move was equal in RV and was inverse to dxy.
Comment: Meant I Added small long. Sorry. 40% short with 10% long day trade
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Tight ranges suck. but are still workable.
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Holding my small long over WKed. cheap insurance.. Shorts sill on. Have a safe weekend!
Comment: Morning.. here is the pre us open. Looking to exit my Friday longs today.
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Comment: EOD.
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Still 50% short.. sessional dump still coming .. but it needs to shack bears like the first winds of winter..
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Weekly still negative.. GL
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Comment: Looks like about to see 93.00 in DXY? Hoping overnight WTI shorts got squeezed out at 04;30am.
Over time WTI always tries to balance on Dxy RV.
Still short for now, think most of this is currency driven.. GL!
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Comment: Where I’m starting. Still short about 50%, & cash. Just beginning .. bumpy road. GL
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Last break was with pound, others were not as responsive. Regardless of levels or scale, you can see pound dumped first .

Something I’m working on..
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Comment: This morning..
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Yuck..Got hit overnight. But I don’t think GBP can hold it up here long. Like the last three Pound swings, I think it’s a good opportunity to play back to base (dxy). Annual Autumn falls always start with a bang. Makes you question your religion.. 51.8x/.9x may be that number. GL, Be safe, make money..
Comment: Great day after all long scalped two nice moves. Bought at extremes sold eairly both times. Could have made more, but happy with coin I made. Will be updating idea next week. Simpler.. well easier.. Here is EOD.
Crazy dxy move just before US open. Was part of a bigger rebalance from last week, early this week. Footprints of a carry trade..
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Here is spread with just Dxy, USOil, S&P.. if that helps.. Have a safe Weekend!
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Comment: Crazy fuk’n day.. made 8 trades, and was 100% cash twice. Made a little coin, broker made almost as much. But I’m 20% short and better balanced. More important none of my the main charts have been violated .. lol. Anyway, here is eod on Relitive Value.

I always hear "Oil is inverse to doller... or oil is dropping with doller." Well both are correct. Oil can run inverse to dxy for say 3hrs, but on a 10min TF they can be coupled..in opposite is also true. The difference is the range of the move. The spread determines value. In a world without any other currencies, that would be zero. I belive total Buy/sell Volume of originating accounts ($,€,¥) effect the price of the spread.

Keep some power dry.. last year we saw big swings. I like to give .10 and take .25. Points, %, account balance.. however you trade. I focuse on the break. Everything is not a break though. So I use currency as a signal.
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Start of week..
4hr Heikin looks bearesh. Or pause.. not broke, not conclusive . I like the double bump RSI. High but not extreme. Bumps are sexiest.. lol
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Season looks intact.
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Waves look good..
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Comment: Sorry, 4hr Heikin chart
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Comment: Here is overnight
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Comment: Pre US open and EIA. I have started resets at EOD. Normalization works best over appx 16hrs. With deviations in scale growing on the extremes . This should put me in a sweet spot at US open, and explains why post 11am resets were more accurate.
Anyway.. 20% short, cash.. looking to shoot down the next rocket . Or ride it over the horizon ..lol. Good luck, make money!
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I’m liking the 4hr Heikin.. Every reset of this blue TL has been a big wick, followed by a down trend.. going back 2 years.
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Morning start.. still short, about 40% . I still see seasonal top, or near accross all charts.
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Here is 4hr heikin before USOpen
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Morning RV before USOpen & EIA. No trades yesterday. Still 40% short, underwater but ok. Still bearesh on season tops always shake early bears . GLg
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4hour Heikin looks bearish too..
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Bad at updating..
Day start, short 40% /long 25% hedge, will close long today most likely.
Loss on shorts, but mitigated with long scalps. Ready to be 100% short for swing.
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big day for Sine wave..
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Be safe

https://mobile.twitter.com/das_krumel/status/928262291929337856
Excellent work!
Reply
Took a few days for me to get to this @BigEz but just wanted to say fantastic analysis. I'm still a novice trader learning the ropes of WTI, and not sure I understood everything you said but got some of it.

Also great questions from @TreeDoc!
Reply
Hi BigEZ. Some project you took upon yourself!

Some points or questions which may help or hinder ... so apologies up front if that confuses more than it helps!

1) If I was a refinery in say the UK, I suspect that all the oil I bought would be paid for in USD, and not GBP. You would be to have that confirmed. I may or may not sell product in GBP to the distributors, but that is not the point.

2) Many of my costs would be in GBP, but that only effects my profit margin, not the price of the crude oil I bought.

3) I think the USD dollar price per bbl is the value of your crude, unrefined oil. There may be another case to answer if and when oil is traded in Chinese Yuan, in the Chinese market.

4) My profit and loss will be effected by the GBPUSD exchange, if I am converting everything into pounds. So if the USD weakens against the GBP, it's cheaper for me to buy oil, I'm making more profit off it and so am tempted to buy more oil when the GBPUSD favors me, and hence a weak USD has the habit of driving oil price up.

5) DXY is a relative indicator of USD strength heavily weighted towards the Euro. Lower USDCAD also is an indicator that oil prices are rising, especially as the Canadian economy is dependent on oil - essentially oil sets the value of the CAD.

6) It's interesting that oil couples and uncouples from the USD - many factors involved such as inventory gluts, disruptions of supply etc. It's even more interesting that you chart seems to show oil couples to some currency pairs. It's probably a full time job watching them couple and uncouple.
Reply
BigEz PRO TreeDoc
@TreeDoc,

Tree.. thanks man. I appreciate you taking the time to review.


1) If I was a refinery in say the UK, I suspect that all the oil I bought would be paid for in USD, and not GBP. You would be to have that confirmed. I may or may not sell product in GBP to the distributors, but that is not the point.

That is correct, but I guess my analogy is asking how you calculate all inventories into one Value.. dollar. Maybe think of storage local delivery provider. I have tanks in Malaysia and Singapore. I buy local Malaysian, store and transport it to Singapore for export by others. .. if I buy a barrel at 10am for x amount of dollars and sell it at noon, and the dollar dumps during that time, what was/is value during trip.. even if I sold it at same price in dollars, It’s worth less, who eats that value change? Now track that value change scaled in 3min candles..

I need to think of better example maybe. Even if we buy and sell all oil in dollars.. most companies, individuals, banks, outside US balance sheets are not in dollars.


2) Many of my costs would be in GBP, but that only effects my profit margin, not the price of the crude oil I bought.

Yes, this is value in dollars which floats against whatever currency you use. Currency/Transaction cost only issue.

3) I think the USD dollar price per bbl is the value of your crude, unrefined oil. There may be another case to answer if and when oil is traded in Chinese Yuan, in the Chinese market.

Yes always measured in dollars. Your conversion cost between time of buy & sell. Transaction cost to holdings.

4) My profit and loss will be effected by the GBPUSD exchange, if I am converting everything into pounds. So if the USD weakens against the GBP, it's cheaper for me to buy oil, I'm making more profit off it and so am tempted to buy more oil when the GBPUSD favors me, and hence a weak USD has the habit of driving oil price up.

Yes, that is a strategy.. for traders, but not barge companies, storage facilities, local transport. Oil needs to be valued the whole way.. every candle of the trip/hold. When tanks are full move to singapore to sell (as example) currency timing doesn’t rule.. whatever the physical business, the exchange cost are there.

5) DXY is a relative indicator of USD strength heavily weighted towards the Euro. Lower USDCAD also is an indicator that oil prices are rising, especially as the Canadian economy is dependent on oil - essentially oil sets the value of the CAD.

I think it is more complicated.. if oil went up when (DXY/CAD/EUR) Etc. went down, everyone would see the direct correlation and trade that. Many currencies play a roll. I should add CAD though. I think it has to do with how much oil was bought in what currency exchange. If 90% of my oil was bought/sold in dollars, it’s value would be close to DXY. If 90% was bought/sold with an exchange cost, it’s value is different.

6) It's interesting that oil couples and uncouples from the USD - many factors involved such as inventory gluts, disruptions of supply etc. It's even more interesting that you chart seems to show oil couples to some currency pairs. It's probably a full time job watching them couple and uncouple.

Yes.. that is the biggest issue, but once you have the scale right it flows pretty easy.. there are also a timing issue. When a G4 currency dumps/spikes it takes time to react .. but that is another issues. I like to treat it like a fisherman watch tide.. cycles are much easier for me to see. Thanks a ton for comments, will give them more thought.
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