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Indeed. When the trading day starts our job is to determine what the market is trying to do and if it is doing a good job of doing it. This is key to determining the best VWAP approach.
With respect to the anchored VWAP question, I meant to come back and edit that post with an example. The 2 snapshots below are from the trade #1 location as discussed prior. On my data series the anchored VWAP (from the swing low bar) gives much better definition vs. anchoring one from swing low on the 1234 tick chart. In that when the wick dipped for me there were 2 layers of support there, the anchored VWAP and VWAP itself.
This is just the way I have set up my data series of how it calculates the volume near the swing low etc. This doesn't mean in any way that other data series can't or shouldn't use anchored VWAPs, they just needs more care with their placement.
mydataseries
1234tickchart
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- Trade what you see. Invest in what you believe -
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Here's what I think about VWAP, I could be wrong but this is my take on it:
VWAP is simply a volume-weighted average, except that it usually starts at the beginning of a session and it's lookback gets larger and larger. So at the latest plot, over all the data in that lookback ... it's the average volume over that price-range/y-axis. So it's exactly like volume profile over that same lookback except the last plot shows you the AVERAGE volume of the entire volume profile, which sometimes is the same as the volume profile peak, which sounds cool, BUT... sometimes it isn't when there's 2 or more volume profile peaks (2 or more trends) -- in which case it shows you the average (middle) between those two (or more) peaks. Why would you want to see an average of multiple trends' volume? That doesn't give you good support/resistance levels -- instead that gives you the middle of the multiple trends' ranges. So, depending on how many trends are within the lookback period, it's showing you DIFFERENT things at different times ... so if you're trying to use VWAP as support/resistance, then this will sometimes be giving you bad information! So it seems to me you'd be much better off just looking at volume profile LOL.
This may be your reaction right now-->
I know people will say... "But even if it's showing you multiple trends, it's showing you the entire day's average volume profile peak, and that's what large companies (the big volume) uses." Yes but then you're looking at a larger scale/timeframe than the daytrading session, so you must be running a longer term system. Which is fine, so I'm just saying the VWAP is not suitable for daytraders.
Also be aware that if you calculate it the standard way where it keeps increasing the lookback then you're constantly increasing/changing it's SCALE that it's showing you, which makes it incompatible/inconsistent with any other analysis you do. Seems to me you should just pick a constant lookback, instead of the lookback increasing as the day session goes on.
Also, I don't think you even want to use a volume-weighted average anyways -- as opposed to a regular (just price) average. At reversal levels, if the market starts to go a little sideways, where some accumulation is going on, you want a price average so it shows you where the price is breaking out / getting going, whereas if you use a volume-weighted average it would make the average go closer to the middle of all of the high-volume sideways action thereby showing you a false breakout (too soon).
The CME uses it as a daily volume-weighted average to get a settlement price -- that makes sense... but for daytraders to use it -- that doesn't seem to make sense to me.
About volume in general, it's not a very useful thing, it doesn't tell you direction, nor can you really compare it to the past. So, IDK what to do with it, maybe you can qualify past strong price levels with the volume profile though. People trade the price, price is what makes the money not the volume, price can move far on low volume.
then I must ask, why do professional traders use the vwap? probably because their execution is measured by the vwap. some traders may even guarantee the vwap as the execution price. if they execute better, it's a profit. if not, then it's a loss.
anyway, some of those trades can take several days. but I'm fairly certain the majority are day trades. that alone should answer your question why the vwap is extremely important for daytraders. professional or retail, it's very useful information
@thoughtful, an interesting post. Likely it will soon get some responses.
You do realize, I hope, that others might say very similar things about just about anything.
One might ask, why are there so many opinions? I know a number of members on FIO who are profitable using many different and apparently incompatible methods. Sometimes we have interesting discussions about which is better, or right, or the "best" or the "only". These are good discussions because the best features of any method are brought out by the traders who are most committed to them.
But the bottom line always is money.
If only the traders who use price alone -- or anything else, by itself or in combination with anything else-- were profitable, that would mean something important. If some traders who use it are profitable and some who use something completely different are also profitable, that means something important too. And the latter is the actual case, just so you know.
Remember that the bottom line is always money, not what makes sense to a particular trader -- you, me or anyone else. There are things that I have never been able to make any money with, but I know others have. So I don't use them, and they do, and I have no problem with that.
Now, if anyone thinks that no one else can make any money with something they themselves don't use, well, that person needs to get out more.
This is not a criticism, just a reminder that there is more than one way to slice up anything.
Probably there will be more discussion, which is all to the good. Probably no one's opinion will be changed by it, but maybe some will. That's why we do this forum thing, or part of it anyway.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
I have been using vwap + ichimoku cloud as part of my scalping strategy. I have put a lot of research and testing into a process where I hold 4-10 contracts for 1-5 minutes.
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- Trade what you see. Invest in what you believe -
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