Such a situation is quite possible and you can find many confirmations of this by yourself. It is quite difficult to calculate such a probability.
From the point of view of technical analysis, there could be no factors that point to repeated retracement. However, volume analysis could provide some ‘leads’.
First of all, you should recognize that you cannot calculate the whole market position margin… A big number of short and long positions are opened in the market simultaneously and all of them have their unique history. Some portfolios grew in value, some fell.
Exchanges (or connected structures) have a possibility to calculate both the individual value of every portfolio and general value of a group of portfolios. For example, the SPAN system is in charge of calculating portfolio value on the CME…
Major market participants, most often market makers, who have to track values of all portfolios due to their responsibility to provide the market with liquidity, can connect to the SPAN system.
Providing the market with liquidity, a market maker needs to make calculation in the forward market of:
- futures contract portfolios;
- options market portfolios.
The matter is that the futures price change, volatility and time value decay of options significantly change the value of every portfolio.
Let’s assume that you have an ESM0 futures short position. And your portfolio will grow in value when the futures price goes down.
Let’s further assume that you have, together with a futures short position, a sold PUT contract with the underlying asset of ESM0 on some close strike. Then your portfolio will grow in value only until a certain moment, after which the portfolio value will not grow.
Thousands of possible combinations are formed during a day and traders form their portfolios in many ways. Some traders build complex structures, some take a linear risk with a regular stop loss – all these things influence the general portfolio estimate, which is tracked by the exchange (or, more exactly, the clearing house), which plays the role of the main counteragent.
The task of the main counteragent is to avoid emergence of such circumstances, under which obligations might not be executed.
We all remember events in April 2020 when WTI oil quotes turned negative… It was a shock scenario namely for the Moscow Exchange and Russian brokers, who didn’t have algorithms of the margin calculation under conditions of a negative price. Brokers were forced to pay profit for short position holders at the moment of the fall at their own expense, since there just was no sufficient initial margin available on behalf of short position holders. Accounts of short position holders turned deeply negative and it generated a wave of court claims against the exchange and brokers. We may assume that the Moscow Exchange and brokers acted within the legislation and decisions of the court instances would be made not in favor of traders.
Usually, the market makers, the role of which are played by such major banks as JP Morgan and Goldman Sachs, are used for developing resistance to sharp price fluctuations. Big volumes of market makers are capable of stopping the market or ‘pushing’ it in the right direction where it is necessary.
That is why, when we see an impulse towards the level and expect its breakout, the SPAN system will show that a volume, sufficient for breaking the level, hasn’t been accumulated yet.
The destiny of further movement largely depends on the direction, in which the volume would be accumulated. That is why we could have witnessed an up impulse from the scenario under consideration for the ESM0 instrument. However, indirect indicators, by which we built our assumptions, would have other values. For example, the buying delta would have been not so high in this area.