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What Time to Begin Standard Deviation Bands?


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What Time to Begin Standard Deviation Bands?

  #1 (permalink)
Philadelphia
 
 
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What Time to Begin Standard Deviation Bands?

Hello,
I've just begun working with standard deviation bands with the VWAP as the center, and I was wondering which is preferable: the SD bands beginning at Futures opening (8:20am EST for me) or the 18:00 mark the night before as ToS has it currently set.

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  #3 (permalink)
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Adam01 View Post
Hello,
I've just begun working with standard deviation bands with the VWAP as the center, and I was wondering which is preferable: the SD bands beginning at Futures opening (8:20am EST for me) or the 18:00 mark the night before as ToS has it currently set.

Well, assuming you're talking about one of the stock index futures, I'll give you my take on it. For other futures, I would probably say about the same, possibly with some adjustments to the times involved.

If you begin your VWAP at the beginning of the ETH (18:00 the prior night), you'll initially be capturing the trading during the overnight session, particularly by the Europeans, who come in around 2:00 - 3:00 AM US ET and stay in the US market until about 11:00 (figure a 6-7 hour time difference). Since their activity overlaps part of the pure US-based trading, I for one think the trades and the positions they took prior to the RTH open at 9:30 ET will still matter during the US morning hours, and so I start my own VWAP at 18:00.

A lot of other people will start at the US open at 9:30, because of the enormous jump in trading volume at that point, and because they only want to see VWAP for the pure regular trading hours. You could argue this case easily enough, and whether it's convincing to you will probably depend on your own trading style and ideas of what is most important.

There are traders I know who plot both the ETH and the RTH VWAP. Generally, especially if the overnight has seen a large price move, the two will be somewhat different at first, but as time goes on they start to be more and more similar as the US-session trading predominates.

So it is truly a matter of preference. Probably the best idea would be to try it both ways and see which gives you the best picture of what is happening, and which helps you trade the best.

Bob.

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Bob you're a legend, thank you for the great response.

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