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VWAP for stock index futures trading?


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VWAP for stock index futures trading?

  #41 (permalink)
 
wldman's Avatar
 wldman 
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Nassim is a brilliant writer. Every book he writes is a pre-order for first day delivery for me. I did not know him when he was in Chicago, but I wish I had the privilege. He is one of the rare few that have experience at the very top of both the theory world and the tangible one.

He is the person that showed me that risk is the horse in front of the team that pulls the cart. Trades are things in the cart...the cart are my specific skills, experience and hallucination of what is happening in markets.



bobwest View Post
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.

Bob.

(Reference for the Green Lumber thing is part way down this article: https://en.wikipedia.org/wiki/Antifragile )


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  #42 (permalink)
 
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 wldman 
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VWAP and equity futures. I think about who uses VWAP and why? How can I exploit what I believe to make money? Doesn't mean that what I believe is correct, but I'd rather be rich that smart...mostly because charm escapes me and I've never been called handsome.

Next, I simply view VWAP as dynamic value. So I apply the 40 plus year old value area trading principles to VWAP. Consistent with Value Area or with VWAP they are defined by a simple statistical approach. This lends itself nicely to the development of a statistical model.

It's true that what I look at is my interpretation of, at best, a quasi statistical model. My entries might be spurious. BUT my exits are not. Where you close a trade is where you get to choose how much money make...or lose. How good you get at the when of it is what makes ALL the difference in short term directional speculation.

So, people that evaluate market participants DO want to know where orders are filled relative to VWAP. Buys lower than the VWAP are considered good. Sells greater than the VWAP are also by definition, better than average.

VWAP a line of demarcation, perhaps the only line of that name not trademarked by Tom DeMark. This means VWAP is a magnet for price and an area where both sides might consider the market fairly priced. So consider that everything that trades has a range to put in. Whats the daily ATR of the thing you are trading? Visually or pragmatically check how those levels might coincide with confluences of orders. Consider that by definition, roughly 70 % of trades have occured within the bounds of the first standard deviation band. Of course Volatility, or specifically volume can and will come in to your market anytime something makes one side of the market believe that current price is not fair.

The last 6 hours of available ES data gives a pretty fair illustration:

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  #43 (permalink)
 
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 wldman 
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Damn it. Anyone want to help?



The screencast thing broken or am I a dummy?

check chat room 1 the chart that should go here is there. Anyone please get me smart on what Im doing wrong

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  #44 (permalink)
 
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 xplorer 
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wldman View Post


Damn it. Anyone want to help?



The screencast thing broken or am I a dummy?

I don't know how to use the Screencast tag, but using the Image tag it works.


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  #45 (permalink)
 
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wldman View Post


Damn it. Anyone want to help?



The screencast thing broken or am I a dummy?

check chat room 1 the chart that should go here is there. Anyone please get me smart on what Im doing wrong

Screencast tags havent been working for a while. May be @BigMike can help?

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  #46 (permalink)
 
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 wldman 
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use the image tag that @xplorer mentioned?

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  #47 (permalink)
 
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 xplorer 
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wldman View Post
use the image tag that @xplorer mentioned?

What I did
  1. Go to the address you provided that would not open on screencast ( https://www.screencast.com/t/0AaIyQzakPDI )
  2. Right-click on the image, and select "view image"
  3. copy and paste THAT address
  4. create a new post and click on the image link (circled in red in the attached pic)
  5. paste the address from point 3 inbetween tags


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  #48 (permalink)
 
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wldman View Post
@Salao

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.

Sorry, I ramble.

Dan

Like @Salao and @bobwest mentioned, I really enjoyed this anecdote as well. I really wish there was more of this kind of opportunity or, I don't know what to call it, "culture?" maybe, going on in professional trading now, though maybe there is and I'm just not looking in the right places. But thank you for sharing this "ramble" as you put it, i appreciated it and would love to hear more as I'm sure others would.

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  #49 (permalink)
 
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 Salao 
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wldman View Post
VWAP a line of demarcation, perhaps the only line of that name not trademarked by Tom DeMark. This means VWAP is a magnet for price and an area where both sides might consider the market fairly priced. So consider that everything that trades has a range to put in. Whats the daily ATR of the thing you are trading? Visually or pragmatically check how those levels might coincide with confluences of orders. Consider that by definition, roughly 70 % of trades have occured within the bounds of the first standard deviation band. Of course Volatility, or specifically volume can and will come in to your market anytime something makes one side of the market believe that current price is not fair.

The last 6 hours of available ES data gives a pretty fair illustration:


I don't know that much about VWAP, but I think this helps...So VWAP is a derivative of a distribution curve similar to market profile? If price was trending up and price got above the std. dev. line then traders would sell, returning price to the VWAP line where previous value was agreed upon (to overly simplify things)? I also read (in this thread I think) that traders are in part compensated for their executions in relation to VWAP. Is this true? Interesting stuff!


bobwest View Post
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.

If you haven't read him I would recommend it BW! Like @wldman said, the guy is brilliant. It's insane the breadth of knowledge a single dude can possess! I've read all of his books and they have definitely influenced the way I go about learning how to trade...not that that is much of endorsement...

Aside from pointing out problems with complex systems, advocating for convexity, he seems to enjoy separating the BS/charlatans from what is real. Which goes back to what we were discussing earlier. And regarding that, if you have time for a good read check this out: Understanding is a Poor Substitute for Convexity...it's an article he wrote for a website called Edge.

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  #50 (permalink)
 
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I just started reading "Fooled by Randomness" myself, I plan on going through each book in order.

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