Is order flow relatively meaningless on crude oil?

Hey traders, hope you are starting the new year on a positive note.

So I saw an interesting vid today about CL..



This guy is hard to follow, but it sounds like he knows what he's talking about. The biggest point he makes is that he claims 75% of the orders on crude oil are spread trades and therefore neutral/ misleading. Not sure if he really proved that in the video as he is hard to follow if you don't already understand in depth what he is talking about and are familiar with the websites he is showing (which I am not).

Any crude oil traders out there have an opinion on this?

I just got jigsaw last week and I'm focusing on crude, not because I want to just strictly scalp order flow, but I think the jigsaw tools can surely help. So I am using crude to learn and hopefully that's not a waste of time. It doesn't seem like it would be since I know there are prop traders and such that scalp crude often, I'm curious as to how someone like that would respond to this.

Order flow is something I've never gotten that deep into as I focus more on fundamentals. I think learning more about it could only help and wouldn't be a waste of time. The drawback that I've found is the tools out there are tough to come by or very expensive. The most knowledgeable trader I've come across on the subject is donpato. The dude knows about order flow.

Hmm okay hopefully he'll see you tagged him. How does one identify a price where they are wrong (to stop out) when trading fundamentals? Do you trade crude?

I didn't listen to the entire video (frankly I fell asleep). But what I got out of this was that he is looking at liquidity in the crude oil market across several exchanges, one is ICE, the other I heard quoted was CME. What he is trying to say is that the liquidity in one exchange is off set by the liquidity in another exchange, using an arbitrage method of trading.

Let me see if I can explain that better. Lets say you are a big concern with deep pockets. But since the oil market is NOT trending right now, you want to "hedge your bets". Since you are a liquidity provider (meaning you have resting orders and are not actively trading), you want to divide your exposure to risk between the long and short side of the same market. But you can't do that in the futures market. So you take 1/2 of your liquidity and quote it in ICE (lets say buy), and then take the other 1/2 of your liquidity and quote it in CME (lets say sell). You can place this liquidity at any level you chose so you can sell the top of a range and buy the bottom. (as an example).

So what happens is all this liquidity shows up as volume and looks like a large amount of volume, but it is misleading because it seem evenly balanced between bid and offer. So in effect it is neutral. Even though it is a large amount of volume it is not indicative of market bias.

I can't say for certain but I think this is what the person in the video is trying to bring across. He was very careful in the beginning to mention that this is NOT "footprint" volume, which is the actual transactions in the market, but rather, the liquidity waiting to be triggered.

Hey...THANKS!! for the pat on the back...coming from you that means a great deal...thank you, and have a happy and prosperous new year.

That does make sense. In that case it sounds like a market maker. Not sure how he reached the conclusion that 75% of the volume was Stat arb. It confuses me how there's still guys trading order flow on crude (successfully to my knowledge) if there isn't an edge in doing so. I'm inclined to believe he is overestimating in some way because of that but idk. However, I remember the founder of jigsaw mentioned once that most crude traders mostly pay attention to the tape. In that case it would make sense because that is real volume rather than displayed liquidity with no directional bias.

Here's a good case study on oil trading.