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This discussion brings Taleb's Green Lumber Fallacy to mind. If a tool like VWAP works for a trader then understanding why it works isn't important because success in trading is measured in the 'most non-narrative manner', the P/L line...'nice arguments don't make much difference'.
I only mentioned you because I'm not aware of how to report something to moderators. Generally I'm not offended by much. Often guys have strong opinions and are vociferous in their communication. I'm cool with that as long as the presentation is constructive...meaning beneficial to members. I apologize for the personal comment directed at a visitor. Correct I should know better. I get aggressive when respected long time contributors and genuine people that don't deserve to be flamed get flamed.
I agree that VWAP is just a tool. I certainly wouldn't fall on a sword and say that I only trade VWAP (because that isn't true), but I have incorporated it into my trading and my algorithms.
When I look at the market I want to see the structure exactly as every other trader sees it. VWAP allows me to do that because it is identical for every other trader on the planet. The dynamics of the market might be different every time VWAP is visited, but that is for the trader to determine.
I have attached my chart from yesterday as a case in point. The trade entries shown are generated as part of my custom algorithms. They take into account the structure of the market from many different aspects including price and volume relationship to VWAP.
The RTH VWAP is the green / red hashed line. The thin solid blue lines are standard deviation bands +1 +2 +3 and -1, -2 and -3 of RTH VWAP
Trade 1 - an early pullback to VWAP generating a long pullback trade. Yes, not an exact touch of VWAP but close enough.
Trade 2 - a long volume stop entry launch from VWAP SD-1
Trade 3 - a long pullback and launch from VWAP SD+1
Trade 4 - a long pullback and launch from VWAP SD+2. Keep tight profits as nearing yVAH.
Trade 5 - a short pullback (below SD+1 and below yesterday's RTH rolling VWAP [dashed pink line] so expect a test of RTH VWAP.
Trade 6 - a short pullback but as sandwiched in between RTH and ETH VWAP you should skip this or reverse position if you are wrong.
Trade 7 - a long pullback launch from rolling vwap from yesterday. Target would be a test of VWAP SD+1 which it did.
Trade 8 - a short pullback from VWAP SD+1, expecting a re-test of RTH VWAP.
Trade 9 - Ugly location but a failed attempt to re-test RTH VWAP without a small correction first.
Trade 10 - Under both VWAPS (RTH & ETH) and a re-test of both of them coinciding with the RTH IB HIGH test for a volume stop / pullback short.
After that the market just gyrated around probably due to OPEX, so no VWAP associated trades.
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- Trade what you see. Invest in what you believe -
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Dan, good on you for defending the forum. Here's the trick to notifying the moderators about a questionable post. Look in the upper right corner of every post for a little exclamation point in a yellow triangle:
Click on that and you will go to a screen where you can enter what you think the mods need to know in order to decide what to do about that post. This way they will see it pretty quickly and can decide what to do, if anything. You won't get a direct response; you'll just see whether they have acted or not.
This way conflicts are held down and your blood pressure is too, and the problem gets addressed.
Anyone else who didn't know this, take note too. It works and is easier on your nerves.
People use all kinds of things as edge in their approach to trading. Some of those things are real some are not. Some people that don't understand the math or how items may be related can and do make consistent money. Of course the legitimacy or authenticity of an approach are only a part of the game.
Points can be made and defended concerning all kinds of methods...but the bottom line is, in fact, the bottom line. Lots of things "work" for all kinds of reasons. The "best way" is not universal and the best "method" depends completely on the individual. We do not trade in a vacuum.
Of course, I think that each person should constantly learn and revise their approach. Great understanding of all the elements, IMO, does increase the odds of losing less....so does being "lucky".
To illustrate: Back when I used to hire people that wanted to be traders I'd insist on two items being completely accepted before giving anyone a shot assisting with an active deck. First, understand and agree to the firms established trading procedures and risk protocols. Second, understand and agree to the established method for communication and resolution of any items that will piss me off or get my butt called on to the carpet.
A favorite situation was to give a new person a random position, sometimes untenable, that would see how well they acted on the two MUST items. A winning trader often made money on a random position because they applied what they were taught in terms of risk and position management. But nobody got a deck of their own because they had a PhD. from University of Chicago or had mastered the material in a couple dozen books. Perhaps the most legendary trader in the history of the Chicago community is a guy that admits that it was be a clerk and figure it out or become a plumber.
Lots of things work, the key is to find what works for you and never stop developing as a professional. Avoid and quickly move on from things that do not resonate with you. This field is not for people that are not flexible or unable to learn and adapt. Be honest with yourself. Kill losers little. Press the hell out of winners.
That was the most awesome rambling ever. I didn't want that post to end! Apologies for the geek out...but I think I may speak for alot of others when I say I really appreciate you sharing those experiences and the wisdom earned from your career!
I was interested enough in this "Green Lumber Fallacy" reference to look it up.
I thought it was pretty cool. It has to do with a story about a guy who trades "green lumber," and thinks "green" means the color it's painted... it's not: it means it isn't dry yet. But he can trade the absolute hell out of it and makes a fortune, which has nothing to do with the color, but everything to do with knowing how to trade it.
Meanwhile another guy knew many grand theories about commodities but couldn't trade for shit and went broke. (I expect he did know why they called it green lumber, though.)
Theories are great and I like them; everyone should have a few. Feed them, water them, treat them as pets, give them a nice home. Don't mistake them for knowing how to actually do something.
Also, someone's theoretical knowledge may do him very well in one context, and may indeed make him a lot of money -- how would I or anyone know? But it can't be mistaken for knowledge or skill or ability or just doing well in another. So if a person has a theory about, say, the role of algos in trading (to take a non-random example ), it is entirely possible that this knowledge can stand him well in his actual trading, which may make it seem to him that he knows all about everything else, including whether someone else's trading has a chance of success.
It's a similar fallacy, and it is entirely human, but it's also wrong.
There have been and are a few guys in the forum who I seek to read their every post. I try to relate posts that share things I think are meaningful or interesting. D
