Construct a daily initiator filter from lead-contract price, open interest, and volume

Label activity from three signed changes

Daily futures activity can be labeled from the joint signs of price, open interest, and volume. That construction produces 16 named initiator combinations rather than a single volume-price reading.

The joint reading is net-effective-market-activity: a daily classification of which side is adding or exiting positions. Dominant-trading-activity is the inferred initiator on that day: new longs, new shorts, longs covering, shorts covering, or a named pair of those actions.

Take the changes from the lead contract

Price, volume, and open-interest changes should be taken from the lead contract, the month with the most volume and the highest open interest. Those changes should not be taken from the sum of all open contracts unless rollover is handled separately.

Code the day and name the initiator

A daily change is coded 3 for a meaningful increase, 1 for a meaningful decrease, and 2 for no meaningful change. The three codes are applied in order to price, open interest, and volume, and that three-digit tag is the change-code.

Price and open-interest direction name the activity type. Rising price with rising open interest is read as new-long initiation. Rising price with falling open interest is read as short-covering. Open interest rising as price falls is treated as new-short initiation. Open interest falling with a price drop is treated as longs covering, with existing longs exiting.

Let volume grade the named activity

Once the price and open-interest pair names the activity, volume is the volume-magnitude-modifier. Volume then grades that activity as increased, unchanged, or decreased buying or selling.

Dropping the eight volume-modifier rows collapses the table to four basic groups: new longs, longs covering, new shorts, and shorts covering.

Mark the more forceful directional cases

Four combinations are treated as the more forceful directional cases. Change-code 333 is new longs with increased buying. Change-code 111 is longs covering with decreased selling. Change-code 133 is new shorts with increased selling. Change-code 311 is shorts covering with decreased buying.

Keep a continuous lead through rollover

A continuous-lead-contract series volume-weights the outgoing and incoming months during the active rollover so the traded contract remains the data object without the usual front-month volume and open-interest bulge and fade.

The active rollover window can start when the new contract's open interest first exceeds the current lead's, or earlier, when the new month's open interest reaches about one third of the lead's. The busy window then lasts from about five days in gold to about three weeks or less in most contracts.

During that window prorated-ohlcvoi applies. Each open, high, low, close, volume, and open-interest print is the volume-weighted blend of the old and new lead, using each month's share of their combined volume.