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VWAP filtering suggestions

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Milwaukee, WI, USA
Trading Experience: Intermediate
Platform: NinjaTrader
Favorite Futures: Equities
DavidBodhi's Avatar
Posts: 112 since Oct 2014
Thanks: 8 given, 73 received

tpredictor View Post
@DavidBodhi Your question as asked is frankly a bit odd because the first half of the question defines that you are interested in this condition and the second half argues the condition isn't very useful, after all.

The easiest way is to use a longer periodicity or send fewer alerts per day by only checking at the close of a bar. If you check only on the close of the bar then you will limit your number of alerts to the frequency of the bar.

A second and more advanced solution is to create a ranking algorithm or quality score to determine the relevance of this event. Next, you use a ranking or normalization function to rank the recent results of that algorithm and filter based on quality of signal to only send alerts for scores above certain thresholds. You would need to determine what is relevant in regards to this condition. If range markets are the problem you could create a metric that measures where price is trading in relation to recent range as a criteria.

A third option is to convert your discrete signals into continuous outputs. So, instead of having a signal that the price crosses over a VWAP instead you produce an output for every bar, similar to the MACD, and then you rank those outputs.

My wording might not have been as clear as it should have been. Certainly my intention was not to contradict myself. I was just hoping for a better 'description' of price approaching the VWAP prior to a bounce.

I'm already only checking on bar closes. I like the idea of a ranking algorhythm. I've used that technique before but it's been a while and I didn't think of it in this case. I might be able to use that to get around the fuzzinesss of my conditions.

The continuous output idea would end up being just another oscillator. I've looked at enough of those. Thanks for the reminder of the ranking concept, though.

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