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Calling on CL Intraday/VWAP/DOM Traders: Help Interpreting Research Results


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Calling on CL Intraday/VWAP/DOM Traders: Help Interpreting Research Results

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  #1 (permalink)
Austin TX
 
 
Posts: 3 since Nov 2019
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My research and trading is primarily statistical and price-based. Generally the data I use in my analyses are technical. I've never used the VWAP before, but since I heard some things about it, and it was easy enough to collect data on, I thought I'd do some light research on it for the most recent backtest analysis I've been doing for a Long/Short intraday system in CL.

I've finished the analysis on VWAP in relation to price entry and the results I have are interesting, but since I don't work with volume much, I don't really know how to interpret them. I was pretty surprised. The Edge seems very powerful, but I don't feel comfortable implementing any optimization that doesn't make logical sense to me. I would really appreciate if any more experienced volume-based traders can help me understand what is going on here from a more fundamental perspective.

The system enters trades from 9:00am to 11:00am EST on the current most liquid CL futures contract. Trades are either exited just before the day's close or when a Profit Target/Stop Loss is hit. The data and execution is done on Tradestation 10 and the VWAP is Tradestation's provided VWAP indicator. There are two setups, which I will briefly describe so you understand the general intraday market environment I am working in:

1) Long: Buy pullbacks on uptrends when price is breaking new intraday highs. Stop loss 10-15 Ticks from Entry. Entry Price is always above VWAP.

2) Short: Short pullbacks on downtrends when price is breaking new intraday lows. Stop Loss 10-15 Ticks from Entry. Entry Price is always below VWAP.

The setups are quantified and actually pretty simple, but I don't think it's terribly necessary to explain in detail what they are. I don't think that information is relevant to the content of this post.
There are 4 images I am providing. The y-axis of the charts is Net Profit in Ticks. They are, in order of appearance:

1) Long Setup: 2018 results (Out-of-Sample)

2) Long Setup: 2019 results (In Sample)

3) Short Setup: 2018 results (Out-of-Sample)

4) Short Setup: 2019 results (In Sample)

The way the VWAP is analyzed is based on its distance from the trade Entry. The information on the images should self-explain the data and results. Each year has between 150-200 trades of sample data, fairly evenly distributed between each parameter setting. Let me know if you have any questions so I can help clarify if needed.

My conclusions:

Long: The IS and OOS data are both very consistent. Results suggest that when the VWAP is between 20-40 Ticks from the Entry, price is very likely to not only not reverse (very few stop-outs), but also to have large extensions upward in price. The trend is likely to continue very far. Even though results from 0-20 are weaker, they also indicate higher Profit-Target strength.

Above 40 Ticks from Entry, results tend to suffer. From 60-x is about as poor as 40-60, though not as evident due to lower sample size and an unlikely spike in mid 2018 (likely noise).

Short: The IS and OOS data here are less continuous than the Long side, but still demonstrate the same thematic tendencies, which are, interestingly enough, opposite to the behavior of the Long side. System performance seems to deteriorate the closer the Entry gets to the VWAP. It seems that shorting intraday lows tends to outperform when the VWAP is greater than 40 Ticks from Entry.

Due to the inconsistency of the results, it is difficult to say whether this indicates the trend will continue much longer. The OOS 2018 results suggest that, but the IS 2019 results refute that conclusion.


So, that's my analytical observations, but really I'd like to have a more comprehensive understanding of what these results mean in terms of supply/demand, Order Flow, Volume, etc. I don't really know how to explain these results from a fundamental context, but it seems clear due to the continuity of the results that this isn't a statistical fluke or noise, it must be a real, robust Edge. Could I be wrong in this assessment? How robust could this Edge be? It must be reasonably robust given it's relative consistency over two years and almost 1000 trades.

I appreciate you taking the time to read this post and very much look forward to the feedback and thoughts of other traders or researchers on the matter. Thank you.

Edit - Please bear in mind these images are not reflective of the actual system. They are from the early stages of a new iteration of a system that has been and current is traded. The only information that should be considered reflective of anything relevant is the relationship between the VWAP parameter settings. Please do not try to extrapolate any information about the actual system from these images.

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Name:	VWAP Image 2 2019 Long.PNG
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  #3 (permalink)
Milwaukee, WI, USA
 
Experience: Intermediate
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Posts: 163 since Oct 2014
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Spart248 -

I don't know how much effort goes into producing these statistics but, after looking at a multi-year chart of CL, I think you may want to extend your research to at least 5 years, if not 10, to get a better idea whether you're looking at an edge. CL's behavior between about 4-8 years ago was pretty different from the last 2 years.

That being said, I am no CL/VWAP expert, but adding more years of data might make this question of more interest to those who are.

Good luck!



Spart248 View Post
My research and trading is primarily statistical and price-based. Generally the data I use in my analyses are technical. I've never used the VWAP before, but since I heard some things about it, and it was easy enough to collect data on, I thought I'd do some light research on it for the most recent backtest analysis I've been doing for a Long/Short intraday system in CL.

I've finished the analysis on VWAP in relation to price entry and the results I have are interesting, but since I don't work with volume much, I don't really know how to interpret them. I was pretty surprised. The Edge seems very powerful, but I don't feel comfortable implementing any optimization that doesn't make logical sense to me. I would really appreciate if any more experienced volume-based traders can help me understand what is going on here from a more fundamental perspective.

The system enters trades from 9:00am to 11:00am EST on the current most liquid CL futures contract. Trades are either exited just before the day's close or when a Profit Target/Stop Loss is hit. The data and execution is done on Tradestation 10 and the VWAP is Tradestation's provided VWAP indicator. There are two setups, which I will briefly describe so you understand the general intraday market environment I am working in:

1) Long: Buy pullbacks on uptrends when price is breaking new intraday highs. Stop loss 10-15 Ticks from Entry. Entry Price is always above VWAP.

2) Short: Short pullbacks on downtrends when price is breaking new intraday lows. Stop Loss 10-15 Ticks from Entry. Entry Price is always below VWAP.

The setups are quantified and actually pretty simple, but I don't think it's terribly necessary to explain in detail what they are. I don't think that information is relevant to the content of this post.
There are 4 images I am providing. The y-axis of the charts is Net Profit in Ticks. They are, in order of appearance:

1) Long Setup: 2018 results (Out-of-Sample)

2) Long Setup: 2019 results (In Sample)

3) Short Setup: 2018 results (Out-of-Sample)

4) Short Setup: 2019 results (In Sample)

The way the VWAP is analyzed is based on its distance from the trade Entry. The information on the images should self-explain the data and results. Each year has between 150-200 trades of sample data, fairly evenly distributed between each parameter setting. Let me know if you have any questions so I can help clarify if needed.

My conclusions:

Long: The IS and OOS data are both very consistent. Results suggest that when the VWAP is between 20-40 Ticks from the Entry, price is very likely to not only not reverse (very few stop-outs), but also to have large extensions upward in price. The trend is likely to continue very far. Even though results from 0-20 are weaker, they also indicate higher Profit-Target strength.

Above 40 Ticks from Entry, results tend to suffer. From 60-x is about as poor as 40-60, though not as evident due to lower sample size and an unlikely spike in mid 2018 (likely noise).

Short: The IS and OOS data here are less continuous than the Long side, but still demonstrate the same thematic tendencies, which are, interestingly enough, opposite to the behavior of the Long side. System performance seems to deteriorate the closer the Entry gets to the VWAP. It seems that shorting intraday lows tends to outperform when the VWAP is greater than 40 Ticks from Entry.

Due to the inconsistency of the results, it is difficult to say whether this indicates the trend will continue much longer. The OOS 2018 results suggest that, but the IS 2019 results refute that conclusion.


So, that's my analytical observations, but really I'd like to have a more comprehensive understanding of what these results mean in terms of supply/demand, Order Flow, Volume, etc. I don't really know how to explain these results from a fundamental context, but it seems clear due to the continuity of the results that this isn't a statistical fluke or noise, it must be a real, robust Edge. Could I be wrong in this assessment? How robust could this Edge be? It must be reasonably robust given it's relative consistency over two years and almost 1000 trades.

I appreciate you taking the time to read this post and very much look forward to the feedback and thoughts of other traders or researchers on the matter. Thank you.

Edit - Please bear in mind these images are not reflective of the actual system. They are from the early stages of a new iteration of a system that has been and current is traded. The only information that should be considered reflective of anything relevant is the relationship between the VWAP parameter settings. Please do not try to extrapolate any information about the actual system from these images.


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