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VWAP for stock index futures trading?


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VWAP for stock index futures trading?

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  #1 (permalink)
 brakkar 
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Hello,
in the stock world, vwap is an indicator widely used in particular with big professional money managers that use it to asses the performance of traders.

Is this indicator relevant in the stock index futures world? Is it used and watched by large professionals? Should I even bother watching in when trading intraday on the ES/MES?

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 bobwest 
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brakkar View Post
Hello,
in the stock world, vwap is an indicator widely used in particular with big professional money managers that use it to asses the performance of traders.

Is this indicator relevant in the stock index futures world? Is it used and watched by large professionals? Should I even bother watching in when trading intraday on the ES/MES?

It's very widely used. Essentially, anything that works in the stock market will also have application in the stock futures market. Probably most trading platforms have it available.

Your profile says you use NinjaTrader. I believe that in NT8 VWAP is natively available in the more expensive lifetime license, although I could be wrong about that. But there is an excellent free VWAP for NT in the FIO download section, and it's what most NT users generally have used:

It is a strategic choice, though. Many use it, and many do not. It depends on what your overall approach is to the market. You can't use everything.

Bob.

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 JonnyBoy 
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brakkar View Post
Hello,
in the stock world, vwap is an indicator widely used in particular with big professional money managers that use it to asses the performance of traders.

Is this indicator relevant in the stock index futures world? Is it used and watched by large professionals? Should I even bother watching in when trading intraday on the ES/MES?

VWAP is the ONLY moving average you need on your chart. The VWAP is a key measure of execution quality for large orders used by institutional investors. There is no playing down its importance.

There is so much more to VWAP. Some traders either don't know or have undervalued its importance. It goes way beyond the VWAP for the current day. You can use static historical VWAPs, historical rolling VWAPs, static ETH VWAPs, rolling ETH VWAPs, a developing VWAPs pinned to a swing high or swing low as key reference points. You can determine a VWAP test, a VWAP cross, a VWAP reversion and of course you can apply these to the STD DEV of VWAP too. And so much more!

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 bobwest 
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JonnyBoy View Post
VWAP is the ONLY moving average you need on your chart. The VWAP is a key measure of execution quality for large orders used by institutional investors. There is no playing down its importance.

There is so much more to VWAP. Some traders either don't know or have undervalued its importance. It goes way beyond the VWAP for the current day. You can use static historical VWAPs, historical rolling VWAPs, static ETH VWAPs, rolling ETH VWAPs, a developing VWAPs pinned to a swing high or swing low as key reference points. You can determine a VWAP test, a VWAP cross, a VWAP reversion and of course you can apply these to the STD DEV of VWAP too. And so much more!

I guess you like VWAP.

Good hearing from you.

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 JonnyBoy 
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bobwest View Post
I guess you like VWAP.

Good hearing from you.

Bob.

Nah, I can take it or leave it! Seriously though, when I got enlightened with the vast possibilities of VWAP and the reasons why it is used as a benchmark, I sat up and listened. It is more important than most traders realise. It is more important than "order flow" - I only mention order flow because those words to some traders seem to hold a mystical power. But they forget that order flow is just subjective information (at best) and execution / implementation can't be quantified or related back to any market benchmark.

Traders bonuses don't get paid because they executed well using order flow. They get paid because they beat market VWAP and thus considered had good executions.

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 brakkar 
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JonnyBoy View Post

Traders bonuses don't get paid because they executed well using order flow. They get paid because they beat market VWAP and thus considered had good executions.

On stock index futures like ES also?

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 tr8er 
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Yes, particular ES

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 bobwest 
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brakkar View Post
On stock index futures like ES also?

Of course.



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 brakkar 
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tr8er View Post
Yes, particular ES

Should it be calculated including pre stock market hours, or should it be calculated on stock market hours regular session? (in the case of the ES)

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 tr8er 
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I use it on a 24h-chart because less volume means less impact, so the day-session has much more impact

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 JonnyBoy 
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brakkar View Post
Should it be calculated including pre stock market hours, or should it be calculated on stock market hours regular session? (in the case of the ES)

In the case of the ES, you can run an ETH VWAP that starts when the evening session kicks in, and let it continue to roll into the RTH session (i.e. it doesn't stop calculating when RTH starts). You can then have another VWAP that starts at the beginning of RTH. Essentially giving you 2 rolling VWAPS in the RTH session (just colour them differently to avoid confusion). You can look for reactions at both VWAPS during RTH, but note that the rolling ETH VWAP if tested a few times during RTH can be treated like a Kleenex and discarded as a point of reference.

You can also have a static ETH VWAP, meaning that at RTH open you project a static line of the ETH VWAP price (extended to the right) as well as letting one continue to roll.

Stocks are slightly different, but using regular RTH VWAP and historical RTH VWAP is the best plan of action.

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 bobwest 
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brakkar View Post
Should it be calculated including pre stock market hours, or should it be calculated on stock market hours regular session? (in the case of the ES)

There's some subtlety in this. Many traders will use one or the other, many will look at both. Trying both might be a good first idea, and then seeing what you think.

Remember that the volume before the regular session is much lower than after the RTH open, so after a fairly short time (an hour or two), the ETH and RTH VWAPs will tend to get closer, since it is volume-based.

It's a trading decision, with ES, whether and how to take into account the trading that happens before the open, and different traders have different views. Some don't even include the pre-open and post-close price on their charts. Others want to see the whole picture. Since the regular hours' trading mainly involves a different trading population than the pre-open trading (more US traders after the regular open vs. more Europeans earlier), you can make a case to use either or both ETH and RTH VWAPs, depending on how you see it.

Try and see. If there were only one way to trade, there would be no difference of opinion, and no one to trade with.

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 centaurer 
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I have personally never found much use for it because it is so dependent on when you start it and for how long it has been running.

Large hedge funds in 2019, spending millions a year on electricity for computers crunching numbers surely have more sophisticated market impact models than just transacting above or below VWAP starting at 9:30 EST. Maybe that was true 20 years ago.
I just don't think there is much human execution traders at this point. If you need to transact a large amount of a financial instrument it is going to be done by an algorithm in 2019. Then market impact modeling is a field on to itself.

Edit. I have the book Market Microstructure in Practice second edition from 2018.

It says VWAP/TWAP is still used in Asia and Europe some but in the US everything is Liquidity Seeking Algorithms?? No idea what that is.
https://www.fixglobal.com/home/liquidity-seeking-algorithms-how-can-alpha-expectations-influence-strategy-selection-optimisation/


If VWAP is useful for you I would think VWAP/TWAP divergence would be cool.

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 JonnyBoy 
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centaurer View Post
I have personally never found much use for it because it is so dependent on when you start it and for how long it has been running.

Large hedge funds in 2019, spending millions a year on electricity for computers crunching numbers surely have more sophisticated market impact models than just transacting above or below VWAP starting at 9:30 EST. Maybe that was true 20 years ago.
I just don't think there is much human execution traders at this point. If you need to transact a large amount of a financial instrument it is going to be done by an algorithm in 2019. Then market impact modeling is a field on to itself.

Edit. I have the book Market Microstructure in Practice second edition from 2018.

It says VWAP/TWAP is still used in Asia and Europe some but in the US everything is Liquidity Seeking Algorithms?? No idea what that is.
https://www.fixglobal.com/home/liquidity-seeking-algorithms-how-can-alpha-expectations-influence-strategy-selection-optimisation/


If VWAP is useful for you I would think VWAP/TWAP divergence would be cool.

VWAP is massively relevant today. It has nothing to with executions by a human or a computer, it is all about benchmarking transactions.

Algorithmic trading is rapidly becoming the preferred method for clients to acquire and liquidate positions of stock. Typically a computer based algorithm is used to buy (or sell) a position while attempting to stick to a client selected benchmark. One of the oldest and most popular of these algorithms is VWAP (volume weighted average price). The popularity of the VWAP benchmark for both brokers and clients stems from several reasons.

Firstly, it is very simple to calculate, facilitating easy post-trade reporting. Secondly, it encourages the splitting of larger orders into smaller orders, reducing demand for large liquidity and hence market impact/volatility.

Finally, given a time interval, it is considered a "fair" benchmark price, in the language of total cost of transactions, VWAP is a price which is an unbiased estimate of prices that could be achieved by any randomly selected nonstrategic trader.

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 centaurer 
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JonnyBoy View Post
VWAP is massively relevant today. It has nothing to with executions by a human or a computer, it is all about benchmarking transactions.

Algorithmic trading is rapidly becoming the preferred method for clients to acquire and liquidate positions of stock. Typically a computer based algorithm is used to buy (or sell) a position while attempting to stick to a client selected benchmark. One of the oldest and most popular of these algorithms is VWAP (volume weighted average price). The popularity of the VWAP benchmark for both brokers and clients stems from several reasons.

Firstly, it is very simple to calculate, facilitating easy post-trade reporting. Secondly, it encourages the splitting of larger orders into smaller orders, reducing demand for large liquidity and hence market impact/volatility.

Finally, given a time interval, it is considered a "fair" benchmark price, in the language of total cost of transactions, VWAP is a price which is an unbiased estimate of prices that could be achieved by any randomly selected nonstrategic trader.

I was just trying to read up on all this stuff.

I just mean the idea that there are human traders being evaluated on executing above or below VWAP is outdated. I feel like that gives new traders the false idea you should just short above VWAP and buy below VWAP.

VWAP/TWAP is not completely outdated but I believe the amount of fragmentation in US markets makes it less than ideal today.
Here is the options Citi offered in 2017
https://uat.citi.com/mss/products/equities/e_trading/docs/2017-EE-Algo-Quick-Guide.pdf

Dagger is Citi's "liquidity-seeking algorithm". I am sure VWAP/TWAP cost less transaction cost wise if you call Citi and get a price quote than Dagger. I am sure there are different prices for Dagger 1 to 5 too depending on the need of the trader/hedge fund.

Reuters estimates that 75% of global volume is algorithmic.

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 Trailer Guy 
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The interview with Goldman's head of corporate buybacks he said boards of directors are very interested in their performance compared to VWAP. What more do you need to know? 90% of the net long cash is being judged by this standard. Says NOTHING about execution.

Really for price action trading the most important is the 20 period EMA. But hey, FT 71 and many others have VWAP, so I do also. Usually, no matter how far away price gets they manage to tag up to it before the close. It also tells you who is running the market. When VWAP is just road kill you know it's us day traders running the show.

This afternoon when the market was sliding, where did it stop dropping (after a nice bear bar) and go into consolidation. So yes, just like yesterday's close and prior support and resistance it is a good reference, or sign post some times. Other times you wonder why you are cluttering your screen.

IF you want to quest for the Holy Grail set up look elsewhere. VWAP is a tool not a machine.

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 bobwest 
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centaurer View Post
I was just trying to read up on all this stuff.

I just mean the idea that there are human traders being evaluated on executing above or below VWAP is outdated. I feel like that gives new traders the false idea you should just short above VWAP and buy below VWAP.

VWAP/TWAP is not completely outdated but I believe the amount of fragmentation in US markets makes it less than ideal today.
Here is the options Citi offered in 2017
https://uat.citi.com/mss/products/equities/e_trading/docs/2017-EE-Algo-Quick-Guide.pdf

Dagger is Citi's "liquidity-seeking algorithm". I am sure VWAP/TWAP cost less transaction cost wise if you call Citi and get a price quote than Dagger. I am sure there are different prices for Dagger 1 to 5 too depending on the need of the trader/hedge fund.

Reuters estimates that 75% of global volume is algorithmic.

I do think that we are not talking about human traders making decisions and being evaluated by comparison to VWAP or anything else. In these kinds of large transactions, I expect that human traders are not involved at all, and they really shouldn't be. A very large buy or sell -- which would not get a good execution if placed as one trade -- will be broken into many pieces and parceled out according to algorithms that aim to achieve the best overall price. My understanding is that VWAP is considered a benchmark, often by the firm's clients, as a measure of the day's average price, and so the aim is for the average price of the entire transaction to equal or beat it.

Now for a full disclosure: while I believe this story has some truth to it and currently still applies, it is not something I know that much about directly, and I don't think this narrative matters that much anyway. I follow many of the active journals on FIO, and some traders have quite consistently made use of VWAP profitably, others have used it but not profitably, and a great many, profitable or not, have not used it at all. Everyone can have a theory of what will work (and generally, everyone does ), but trading is less a matter of theory and much more a matter of practice, execution and consistency.

Which simply means that if you can make VWAP or anything else work for you, power to you. But it's a matter of working out a strategy and making it work.

I absolutely agree with this comment: "I feel like that gives new traders the false idea you should just short above VWAP and buy below VWAP. " If trading were that simple, it would be simple to get rich, and it's not....

So to the original poster's original question,

brakkar View Post
Is this indicator relevant in the stock index futures world? Is it used and watched by large professionals? Should I even bother watching in when trading intraday on the ES/MES?

... it should work about as well for the index futures as it works for stocks. If you have success with it in one, you can expect that to carry over. Also, you don't have to try to use everything that works, nor that works for someone else (or that someone thinks works.) Putting it to use is a strategic choice. Try it and see what you can make of it.

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 brakkar 
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It seems the human role in today's market vs algos is way, way underestimated.
If algos were so dominant, trading volume on 24H instruments would be evenly distributed over 24 hours range, with algo relentlessly trading in and out. They don't need to sleep after all.

Quite on the contrary: volume is at its top on the regular trading session starting at 9:30 EST. Even more, most of the volume is consumed in the first hour of trading: traders get at their desk, attain their objective in the first hour of the day and are done.
This is universal. Even on Forex markets on European timeframe, we can notice the same pattern of the first hour.

Market rhythm seems very biological, human. And as long as it is the case, the human factor, even if built in algos is still very predominant and humand are heavily supervising those algos as proven by the circadian rhythms of the markets.

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 centaurer 
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The interview with Goldman's head of corporate buybacks he said boards of directors are very interested in their performance compared to VWAP. What more do you need to know? 90% of the net long cash is being judged by this standard. Says NOTHING about execution.

I have had great confusion though about how it is used. Johnnyboy I think clears it up though with this
"given a time interval, ...VWAP is a price which is an unbiased estimate of prices that could be achieved by any randomly selected nonstrategic trader."

So if you get a buy signal at 11am and execute until complete and that takes until 3:30pm an execution algorithm better be at least as good as VWAP starting at 11am to 3:30pm since that is basically the naive strategy price. It is a bench mark for that trade over that specific time period. It has always been presented to me that you start it at the cash open as if it is a single daily level. That would only apply if your buy/sell signal is at the cash open I believe.

I am sure Goldman has liquidity seeking algorithms like Citi Dagger that if you can't at least beat the randomly selected nonstrategic strategy that VWAP represents then it is useless and just execute at VWAP.

I can only find something from 2011 on Goldman's LSA. Sonar, Sonar Dark and Stealth.
"Sonar algorithmic strategy aggregates liquidity across multiple public and dark venues while mitigating adverse executions. Sonar Dark aggregates liquidity across multiple dark and grey venues while mitigating adverse executions.
Stealth algorithmic allows traders to capture all displayed and dark liquidity up to the order’s limit price without posting to public markets. "

So I am sure Goldman is interested to see that those algorithms can beat VWAP for the same time period or no one is going to pay for them. It would also give them a measuring stick to judge the 3 algorithms against each other by how much they beat VWAP.

That is hugely different though than starting a VWAP at 9:30 and putting std deviation bands on like I have mostly seen.

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 trendisyourfriend 
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As someone wrote in another thread, i'd say this...

I can see the VWAP useful in the overall scheme of things, but I generally look for a confluence of factors and would not take a trade strictly based on VWAP as i would not take a trade strickly based on a moving average or a Fibonacci level.

Not to take away from the topic of discussion @ centaurer, but since you're obviously an opponent of VWAP, I am legitimately interested in what you, personally, think works or outweighs the effectiveness of VWAP in the market

P.S. BTW, still waiting for a proper answer in the other Fib thread as well.

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 JonnyBoy 
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brakkar View Post
It seems the human role in today's market vs algos is way, way underestimated.
If algos were so dominant, trading volume on 24H instruments would be evenly distributed over 24 hours range, with algo relentlessly trading in and out. They don't need to sleep after all.

Quite on the contrary: volume is at its top on the regular trading session starting at 9:30 EST. Even more, most of the volume is consumed in the first hour of trading: traders get at their desk, attain their objective in the first hour of the day and are done.
This is universal. Even on Forex markets on European timeframe, we can notice the same pattern of the first hour.

Market rhythm seems very biological, human. And as long as it is the case, the human factor, even if built in algos is still very predominant and humand are heavily supervising those algos as proven by the circadian rhythms of the markets.

Algo's are dominant, but there are humans left too! That I agree. Volume is higher during the RTH because the markets are not accessible to all during the overnight session. So I don't agree that volume would be evenly distributed because it can't be. The ES (for example) overnight data trades based on correlated spreads and does not have the 500 stocks trading for the ES during the time. But even during the overnight session, the algo's are still there. In fact, Nanex had a brilliant article (I can't lay my hands on it now) where they hypothesized a large player/algo was driving the ES up during the overnight session in the fragile 2008/2009 period. You could set your watch by it. Thinner market = easy manipulation.

In hindsight though, it doesn't matter if it is algo or human doing the executions, you can take a chart from the 1920s and a chart from today and they would look similar (assuming you remove reference points like price etc.!)

Algo's haven't changed things all that much, but sure as hell give us liquidity. And we love liquidity!

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 bobwest 
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Algo's are dominant, but there are humans left too! That I agree. Volume is higher during the RTH because the markets are not accessible to all during the overnight session. So I don't agree that volume would be evenly distributed because it can't be. The ES (for example) overnight data trades based on correlated spreads and does not have the 500 stocks trading for the ES during the time. But even during the overnight session, the algo's are still there. In fact, Nanex had a brilliant article (I can't lay my hands on it now) where they hypothesized a large player/algo was driving the ES up during the overnight session in the fragile 2008/2009 period. You could set your watch by it. Thinner market = easy manipulation.

In hindsight though, it doesn't matter if it is algo or human doing the executions, you can take a chart from the 1920s and a chart from today and they would look similar (assuming you remove reference points like price etc.!)

Algo's haven't changed things all that much, but sure as hell give us liquidity. And we love liquidity!

Yeah. I second this.

Bob.

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  #24 (permalink)
 centaurer 
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Algorithmic volume is estimated at 75% world wide volume and 80% of US market volume.

https://seekingalpha.com/article/4230982-algo-trading-dominates-80-percent-stock-market

I would think it is like 90% for equities and more human trading in futures.

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 bobwest 
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JonnyBoy View Post

Algo's haven't changed things all that much, but sure as hell give us liquidity. And we love liquidity!


centaurer View Post
Algorithmic volume is estimated at 75% world wide volume and 80% of US market volume.

https://seekingalpha.com/article/4230982-algo-trading-dominates-80-percent-stock-market

I would think it is like 90% for equities and more human trading in futures.

A great deal of the algorithmic volume would be from high frequency trading, which involves taking advantage of tiny opportunities, essentially hyper-fast scalping, which adds to liquidity as well as reduces the opportunities for slower human trading to do the same. People do argue that it has other good or bad effects in the market, which is another question entirely.

It's an interesting topic, as is the rest of the discussion about algos, but does it say anything about the topic at hand? (Reminder: it was VWAP. )

There are profitable traders on futures.io who are using VWAP, in various ways, in their trade journals, and who would not care much if they were told it is impossible for them to be profitable because of algo trading. Most traders, of course, are not profitable (which was the case long before computers existed), but some traders using VWAP are, and sometimes substantially and consistently. (So, of course, are many who do do not use it. VWAP is not essential, but it may be useful.)

I think it's a matter of personal decision to use this or that tool. Your success or lack of it is the ultimate arbiter of whether it works for you or not. I also think it is perfectly fine to question traditional methods and the rationales for them, for any reason, including the impact of algo trading.

When there are traders who are using a particular tool profitably, the question of whether it is possible to do so has been settled by the facts. ( @JonnyBoy comes to mind . There are others.... @michaelleemoore, @Inletcap, @GruttePier, and more.) Whether it is a good tool for a particular trader to use is always another question, since most trading is not profitable, and most strategies do not work out well for most people who try them. But this is also just a fact about trading.

I think if the question were raised in its own thread, the contribution and/or effect of algo trading would be vastly interesting. (There will be many pros and cons, and some will even be well-informed, from within the industry.) Even the question of what is the predominant role and the predominate type of algo trading would be interesting. I think the subject is very large and very intriguing. It deserves an actual discussion, if anyone is willing to start one. (Yes, this is a hint.)

As to VWAP, there are traders who make good use of it, and traders who don't, and not all trading is or needs to be automated.

Bob.

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  #26 (permalink)
 centaurer 
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Sorry, I actually like understanding the tools I use that I bet my capital with.

Most people here seem to be content with slapping each other on the ass and saying "it is all order flow" and quoting things how the markets were 30 years ago. If you think the markets haven't changed much you are an idiot, plain and simple.

I have traded for 15 years and seen so much change. You just aren't paying attention or are basically full of shit.

Good luck. Place is a waste of my time.

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 wldman 
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the more experience you have, the more you have actually done, the easier it is to see the difference in who is a pundit (likes to talk) who is a player (actually does something) and who is so confused or deluded that they cant do either. This person centaurer's communication is so firmly entrenched in group three that I actually log in and search those threads just for a laugh.

The guy KNOWS EVERYTHING and has DONE NOTHING except make himself feel better about his own insecurity by CRITICIZING EVERYONE.

@Big Mike do the right thing here and excise the cancer.

Dan

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 wldman 
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still logged in as a guest, no less, "totally wasting his time" on Saturday morning like most brilliant prolific traders. Probably fixing up a weak attempt to flame me as that is what insecure fools do.

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 Big Mike 
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He has been banned. Please make sure you report posts to get the attention of mods on these cases, mentioning me isn't enough. Thank you to the member that reported the post.

Mike

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 Big Mike 
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I've also banned his duplicate accounts, each were overly negative, not Elite, and violation of our rules. Rude behavior is not tolerated. Dupe accounts are not tolerated.

Users like this that spend their time and energy just to be rude and troll, have no vested interest in the community (not Elite, which is not normal) should be reported to the mods so they can be removed from our community. Don't feed the trolls by engaging them or lowering yourself to their level with name calling or otherwise.

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 Salao 
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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'.

Which is what @bobwest said:


bobwest View Post
I think it's a matter of personal decision to use this or that tool. Your success or lack of it is the ultimate arbiter of whether it works for you or not.

And I think it's what @wldman was somewhat alluding to:


wldman View Post
the more experience you have, the more you have actually done, the easier it is to see the difference in who is a pundit (likes to talk) who is a player (actually does something) and who is so confused or deluded that they cant do either. This person centaurer's communication is so firmly entrenched in group three that I actually log in and search those threads just for a laugh.

I guess reading this thread prompted me to crack Antifragile and flip around a little bit...which was nice for a Saturday morning. Thanks guys!

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 wldman 
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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.


Big Mike View Post
I've also banned his duplicate accounts, each were overly negative, not Elite, and violation of our rules. Rude behavior is not tolerated. Dupe accounts are not tolerated.

Users like this that spend their time and energy just to be rude and troll, have no vested interest in the community (not Elite, which is not normal) should be reported to the mods so they can be removed from our community. Don't feed the trolls by engaging them or lowering yourself to their level with name calling or otherwise.

Mike


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 JonnyBoy 
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bobwest View Post
A great deal of the algorithmic volume would be from high frequency trading, which involves taking advantage of tiny opportunities, essentially hyper-fast scalping, which adds to liquidity as well as reduces the opportunities for slower human trading to do the same. People do argue that it has other good or bad effects in the market, which is another question entirely.

It's an interesting topic, as is the rest of the discussion about algos, but does it say anything about the topic at hand? (Reminder: it was VWAP. )

There are profitable traders on futures.io who are using VWAP, in various ways, in their trade journals, and who would not care much if they were told it is impossible for them to be profitable because of algo trading. Most traders, of course, are not profitable (which was the case long before computers existed), but some traders using VWAP are, and sometimes substantially and consistently. (So, of course, are many who do do not use it. VWAP is not essential, but it may be useful.)

I think it's a matter of personal decision to use this or that tool. Your success or lack of it is the ultimate arbiter of whether it works for you or not. I also think it is perfectly fine to question traditional methods and the rationales for them, for any reason, including the impact of algo trading.

When there are traders who are using a particular tool profitably, the question of whether it is possible to do so has been settled by the facts. ( @JonnyBoy comes to mind . There are others.... @michaelleemoore, @Inletcap, @GruttePier, and more.) Whether it is a good tool for a particular trader to use is always another question, since most trading is not profitable, and most strategies do not work out well for most people who try them. But this is also just a fact about trading.

I think if the question were raised in its own thread, the contribution and/or effect of algo trading would be vastly interesting. (There will be many pros and cons, and some will even be well-informed, from within the industry.) Even the question of what is the predominant role and the predominate type of algo trading would be interesting. I think the subject is very large and very intriguing. It deserves an actual discussion, if anyone is willing to start one. (Yes, this is a hint.)

As to VWAP, there are traders who make good use of it, and traders who don't, and not all trading is or needs to be automated.

Bob.

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

ETH VWAP is the magenta / blue hashed line.

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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  #34 (permalink)
 bobwest 
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wldman View Post
I only mentioned you because I'm not aware of how to report something to moderators.

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.

Bob.

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 wldman 
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@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

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 bobwest 
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wldman View Post


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

I wouldn't call any of this rambling. I can't think of anything more important, and not just in trading, either!

Bob.

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 Salao 
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wldman View Post

...
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

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!

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 bobwest 
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Salao View Post
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 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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 wldman 
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I think faster than I type and my wife wants all the windows washed today. D


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I wouldn't call any of this rambling. I can't think of anything more important, and not just in trading, either!

Bob.


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 wldman 
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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



Salao View Post
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!


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 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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 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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 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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 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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 Skidboot 
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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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 wldman 
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use the image tag that @xplorer mentioned?

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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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 snax 
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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)
 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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 snax 
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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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 bobwest 
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Salao View Post
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!

VWAP has a family relationship to market profile/volume profile, but is not the same. You could think of it in similar ways in terms of using it, however.

"VWAP" = "Volume Weighted Average Price." It's the average price, from the beginning of some period, usually the current day, up to the latest trade. The price of each trade is weighted by its volume and figured into the average, which simply means that big trades have more impact than small ones. It results in a curving line that updates throughout the day (or whatever the period is), and that shows essentially what the average price has been up to now. Weighting by volume means that the important transactions in terms of size are more important in terms of the average.

It is not like a moving average, since its anchor stays fixed at the start of the period, and the only part that "moves" is the end-point. When the day (or other period) is over, it resets and starts at the first trade of the new period.

Here's the VWAP for ES yesterday. I started this particular VWAP at the open of the overnight session, so it includes Globex as well as regular trading hours (RTH). On tomorrow night (Sunday), when Globex wakes up, it will start again at the first price of the overnight session. The actual VWAP is the central dashed line. Notice that it's got some bands above and below that line. These are the standard deviation bands, which people usually put on their charts as well. (This is a 10,000 volume chart, not a time-based chart, so the lower-volume overnight period is scrunched up to a smaller part of the chart, and the higher-vol RTH is more spread out. VWAP, being based only on price/vol from a particular point, is always the same, regardless of the chart type or timeframe.)




There is a tendency for price to move in fairly orderly ways within and between these lines, but this can be deceiving because it works differently in strong trending days, like this (5/7/19):




You can see that price is acting very differently, but the standard deviation bands still have relevance, acting to contain price on the way down, and, in this particular case, on the rebound at the end, where traders pretty much pushed price back to.... (ta-daa!) the VWAP. Obviously, this doesn't always happen, but the levels are often useful to know.

Here is a range day (4/25/19) followed by a trend day (4/26/19) where price just kept on going:




It's a cool tool, but there are so many....

Bob.

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  #52 (permalink)
 Salao 
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Yep I'm interested! Haha! Thanks @bobwest for putting that together! I might have to take a look at that as part of my EOD studies. It's interesting how the market will ride those Std dev lines like that. It's also interesting when the market returns to the VWAP line. I would imagine it does that often during profit taking times like EOD, EOW, EOM. I mean you probably can't set a watch to it by I imagine there are some pretty high probability setups involved there.

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  #53 (permalink)
 bobwest 
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Salao View Post
Yep I'm interested! Haha! Thanks @bobwest for putting that together! I might have to take a look at that as part of my EOD studies. It's interesting how the market will ride those Std dev lines like that. It's also interesting when the market returns to the VWAP line. I would imagine it does that often during profit taking times like EOD, EOW, EOM. I mean you probably can't set a watch to it by I imagine there are some pretty high probability setups involved there.

Yes.

The thing is, if you observe either market profile or volume profile, there are days when price stays within the profile's early boundaries and wants to go back to the value area, and there are times when it cuts loose and just goes up and up (or down and down), and never comes back. That's why I put in the last chart, which shows both.

Any day that ends on a new high will end above the VWAP, often by a lot. Also, it will end above the profile's value area, and the profile's distribution may have many humps from price working its way up (or down.)

So, in one of the charts I posted (the second one), price went back to the VWAP after a good decline. But it is wise to not expect that all the time, any more than you would expect price to always seek the POC. Different days will act differently, and traders need to scope out what is happening, and as early as they can (and be ready to change.)

Short version: if you already know price will hit a new high (yeah, I'm sure you will know that ), then you know it will finish well above the VWAP, probably at a high band. If you know price will stay in a range, then you know that price will stay... in a range.

It's not that bad, because these lines can help you figure out what's going on. But you may want to think of them more as context than prediction. @wldman referred to VWAP as "dynamic value," which is a good way to think about it all.

The bands will also often serve as support or resistance, which is worthwhile too.

As with everything else, try it out and see what you get.

Bob.

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  #54 (permalink)
 michaelleemoore 
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I don't drop into the forum as much as I did in the old days of The Scalper's Journey, but I appreciate the nod from @bobwest and find my thoughts about the VWAPs inline with him and @JonnyBoy.

I am a short-term trader looking for relatively small targets of 10 and 20 on YM and NQ, and sometimes leaving a runner to get something extra. I would put the vwaps at the center of my trading -- they are not the be-all, end-all, but they are a dang good start. I watch ES, then take trades on YM and NQ, depending on which will give me the most mileage on that particular day.

I have four vwaps on my chart -- ETH, RTH, Weekly and Monthly. I also use an indicator that shows yesterday's vwap as well as last week's vwap. Early in the RTH, I am very attentive to both ETH and RTH, but as Bob mentioned, the gap between them tends to close as the day moves on, and they're often quite close by day's end. As a scalper, I watch approaches to vwaps closely -- they quite often provide a quick reversal (could be a bounce on an uptrend day) which will be followed by the other indexes. I am not a keeper of hard statistics, but trading VWAP for a reversal (bounce) is high percentage. Does it always work? Of course not. Nothing does. Some days, I can tell it's not going to work because we are moving very erratically (usually this means the president is tweeting), so I stand aside until I see enough hesitation to get in. Because I watch the ES, which is attentive to many support/resistance levels -- OR-High and Low, value area POC and VA-H and L, etc. -- I'm always really happy to see the weekly or monthly vwap being approached. Trading a reversal at those lines is money very often.

Now, I understand that many of you will deny that scalpers can make money. I beg to differ, but I am not arguing that vwap is a trade-generator for everyone, either. I wouldn't even be qualified to comment on vwap as a trade launch for someone who looks for much larger targets. (Although @Inletcap's favorite trade is a bounce off the OR-H with vwap right there for support.)

Still, as @JonnyBoy said, it makes a difference and provides significant guidance regardless of your trading style. If, for instance, you were about to take a trade and initiated it as we came into the vwap levels, you might be sadly surprised to see your trade go in the opposite direction, at least for a little while.

I am not a big picture person when it comes to trading, though I appeciate the wisdom of folks like @JonnyBoy and @wldman. I mean, I look at the daily and a few HTF charts before the day starts, but I'm more about what's happening in the next 10 minutes than what's happening three hours or days later. I'm just not very good at that. But for scalping, let me say this: if you are not looking at the various vwaps, there might a part of you that doesn't really want to make money.

Cheers,

mlm

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  #55 (permalink)
 bobwest 
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michaelleemoore View Post
I don't drop into the forum as much as I did in the old days of The Scalper's Journey, but I appreciate the nod from @bobwest and find my thoughts about the VWAPs inline with him and @JonnyBoy.
...
Cheers,

mlm

Good to hear from you again. Come back more often....

Bob.

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  #56 (permalink)
 Big Mike 
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Please help me by posting in the changelog thread and include an example URL, I'll have to take a look.
Skidboot View Post
Screencast tags havent been working for a while. May be @BigMike can help?

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  #57 (permalink)
 bobwest 
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brakkar View Post
Hello,
in the stock world, vwap is an indicator widely used in particular with big professional money managers that use it to asses the performance of traders.

Is this indicator relevant in the stock index futures world? Is it used and watched by large professionals? Should I even bother watching in when trading intraday on the ES/MES?

@brakkar, with all the noise and dust raised in some of these discussions, have you had your original question answered to your satisfaction?

I feel things got substantially off-target, although I believe they came back near the end. I feel a little sorry for getting into some of it, and I wish I had just thought to post the charts I put up a few posts back a little sooner. I think they make clear the way that VWAP can help frame the day's price action. The tactics a trader would need to take to make use of VWAP and its bands are up to each trader, who will probably have his own ideas, but they do show real things happening in the market, and can let a trader get a better handle on what is going on.

Also, VWAP is one tool of many. Some traders use it, some do not. You can't use everything, after all.

I hope some of this has been helpful to you.

Bob.

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  #58 (permalink)
 wldman 
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@Salao Value Area is defined as the range of prices where 70% of the previous session volume has occurred. VWAP is Volume Weighted Average Price over a given period, usually ETH session measured during that session. I view one standard deviation from the VWAP as dynamic value area. Value Area is the price range boundary inside which 70% of the prior days' volume has occurred. One std dev from VWAP is the boundary within which 68% of the current session volume has occurred.

Market Profile is a little more sophisticated measuring time at price and volume. A letter is assigned to each 30 minute block of time. Price then builds a histogram showing the distribution of price over time.

Often Profile charts with have value area lines on them as well...but these are typically three different things.

Hope that helps.

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 wldman 
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I answered based on where I left of, not on where the thread was when I got back to the desk. Many posts above my previous one do a better job to answer the original question than I have.

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  #60 (permalink)
 srgtroy 
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Also, remember, just because you're paranoid doesn't mean a liquidity seeking algorithm isn't out to get you.

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 bobwest 
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srgtroy View Post
Also, remember, just because you're paranoid doesn't mean a liquidity seeking algorithm isn't out to get you.

A little intentional absurdity is good, after all the unintended absurdity that was bouncing around in this thread for a while.

Bob.

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  #62 (permalink)
 Silvester17 
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indeed a very useful tool

there're already many threads with a lot of information. the main thread would be here:




another interesting one is this one. a setup I still pay close attention to:




also I would recommend to read the posts from @Fat Tails in the mentioned threads. very informative and the best you can find about this subject.

as a side note, I wouldn't put too many vwap's on your chart. if you use eth, rth, weekly and monthly, we are talking about 28 lines on your charts (including the bands). and then you could also add yesterday's, prior week and prior month. way too many reasons or excuses to take a trade or not to take a trade. of course all of them are valuable, and this is just my personal preference

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  #63 (permalink)
 michaelleemoore 
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Silvester17 View Post
indeed a very useful tool

there're already many threads with a lot of information. the main thread would be here:




another interesting one is this one. a setup I still pay close attention to:




also I would recommend to read the posts from @Fat Tails in the mentioned threads. very informative and the best you can find about this subject.

as a side note, I wouldn't put too many vwap's on your chart. if you use eth, rth, weekly and monthly, we are talking about 28 lines on your charts (including the bands). and then you could also add yesterday's, prior week and prior month. way too many reasons or excuses to take a trade or not to take a trade. of course all of them are valuable, and this is just my personal preference

Since Silvester raised the idea of too many lines, let me clarify. I don't use SD lines. They're probably useful for traders with larger targets than I use, but for me, they're not that helpful. I do look at them on a larger timeframe chart early in the morning to get a basic idea of the day's range, but that's it. On my trading charts, I simply render all the SD lines transparent so they're unseen. Again, I am not saying this is how anyone else should use them. I am simply saying that if you a short-term trader looking for a place where there is almost a guaranteed reaction, the vwaps are it.

mlm

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 Silvester17 
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michaelleemoore View Post
Since Silvester raised the idea of too many lines, let me clarify. I don't use SD lines. They're probably useful for traders with larger targets than I use, but for me, they're not that helpful. I do look at them on a larger timeframe chart early in the morning to get a basic idea of the day's range, but that's it. On my trading charts, I simply render all the SD lines transparent so they're unseen. Again, I am not saying this is how anyone else should use them. I am simply saying that if you a short-term trader looking for a place where there is almost a guaranteed reaction, the vwaps are it.

mlm

like I said, all of them are valuable. I just don't use them all. again only personal reasons.

I only pay attention to the current day. the simple reason is because of the nature of the vwap. in short it's a benchmark for executions. at least that's the one I'm interested in. you have many orders spread over a trading day. those orders can be measured for quality by the daily vwap (or of course as long as it took to execute your order). maybe in less liquid markets you'll see orders over several days. I don't think you'll see many orders in index futures spread over weeks or even months.

but I do realize a weekly or monthly vwap can be used as a trend filter or as support and resistance. no question about that.

also would like to add, for me as a short term trader, the sd bands are as important as the vwap itself. but all of that is covered in the above mentioned threads

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  #65 (permalink)
 trendisyourfriend 
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The discussion is interesting. I do use both VWAP ETH/RTH but gives a little bit more weight to the RTH version as i find it represents the new developing value area that is emerging. As for the VWAP, i would consider it only if we are in a trending phase otherwise i use it as a target most of the time for a move back to the mean. I use the Flipchart indicator to switch from one set of VWAP quickly instead of putting every lines on one chart. Once in a while i do check the weekly VWAP charts still using the Flipchart tool. My entry chart, is pretty basic and contains the value area as a developing channel so that i can see the prior static VPOC whichprovides nice bounces too.

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 JonnyBoy 
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This has actually been a very sensible and structured conversation about VWAP. A great thread in fact, albeit it took a bit of a detour but now seems to be back on track.

I have lots to share if people are interested but that will have to come later, my daughter is pestering me to take her swimming! In the meantime I will share 2 very simple monthly charts and you can draw your own conclusions.

The first I tagged a VWAP from the month of September 2018.
The second I tagged a VWAP from the month of January 2019.

Looking at the VWAP tag from January 2019, the observed lows of Feb 2019 and March 2019 are a very clear tagging of the rolling monthly VWAP. May 2019 is almost a reversion to the mean (after April didn't tag it at all) with a current low of 2799.75 and the monthly VWAP sitting at 2787.40, so 12.35 points away. I believe we will see this monthly VWAP tagged, but of course no guarantees.

In hindsight this is all very obvious of course and I am sure somebody could come up with a random line theory that will show the same. However, institutions don't care about random lines, they care about VWAP and this is a very clear case to pay attention...for me anyway.



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 Silvester17 
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yes, there're so many different ways to use the vwap. daily, a few days, weekly, monthly, bimonthly, quarterly, prior day, rolling etc

another way is using different anchor points, like a swing high or low. very similar to the midas approach:


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 SMCJB 
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I've always been surprised VWAP isn't more available, to the extent I'm a little surprised exchanges don't publish official VWAP numbers.

JonnyBoy View Post
Firstly, it is very simple to calculate

The problem is it's actually not. It's easy to put on a real time chart but that's the only way it can be calculated. If I pull up a CL daily chart how do I add the the 20 day average of the VWAP? I can't because the only way to know the VWAP is to have calculated it already. Sure I could actually have 20 days of 1 min buys and estimate the VWAP for each day from that. But what about when I'm pulling 10 years of daily bars to perform some calculations? I can calculate most (all?) indicators, but not the VWAP.

Maybe I'm in the minority but in several of the threads I follow @centaurer has, sorry had, been a nice addition. I don't know what he's said in other threads, or what his alts have said, but I didn't think he was that out of line in this thread.

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 bobwest 
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JonnyBoy View Post
This has actually been a very sensible and structured conversation about VWAP. A great thread in fact, albeit it took a bit of a detour but now seems to be back on track.

Looking at the VWAP tag from January 2019, the observed lows of Feb 2019 and March 2019 are a very clear tagging of the rolling monthly VWAP. May 2019 is almost a reversion to the mean (after April didn't tag it at all) with a current low of 2799.75 and the monthly VWAP sitting at 2787.40, so 12.35 points away. I believe we will see this monthly VWAP tagged, but of course no guarantees.


Silvester17 View Post
yes, there're so many different ways to use the vwap. daily, a few days, weekly, monthly, bimonthly, quarterly, prior day, rolling etc

another way is using different anchor points, like a swing high or low. very similar to the midas approach:

The conventional thing is to anchor the VWAP at the start of the day. We like this because we're trading in the day's timeframe, and there's always the argument about big orders being benchmarked for performance against the daily VWAP, which is probably true.

But it's also a little arbitrary to prefer the current day (and, as has been discussed, there's the question of which "day" we mean -- regular hours, RTH, or Globex hours, ETH?) When we talk about anchoring in a weekly or monthly timeframe, the anchor point is a little more arbitrary. It's true that weeks and months are periods that matter, but it's still partly just a matter of convenience -- we like weekly and monthly periods.

When you start a VWAP, you start computing the average of the trading that begins at your starting point. Even if there were no significance to, say, starting at the beginning of the month, after a short while you would have a curve that is just telling you the best calculation of the average recent price. This is likely to be something that is worth knowing. If you started further away, like the beginning of the year, you would have the average price for a longer period, also probably worth knowing.

Also, while it's not really clear to me why it would be so, but -- as @JonnyBoy and @Silvester17 have pointed out -- if you anchor your curve at a significant past turning point or other feature of price, you will often get (I actually think you will usually get) a curve that subsequently interacts with price in interesting ways. It is hardly random, because it happens all the time. For whatever reason(s), an average price that begins at a significant point also is often significant.

One could always say something like, "I don't understand it so it isn't true," but we've already discussed that fallacy in this thread. ( ) I prefer to say, "I don't understand it (at least not completely), but it appears to be true," and then see if something can be done with it.

I've played with with this enough to be convinced of it, but eventually got cross-eyed from all the possibilities. You can, after all, only use so many things at one time....

Bob.

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 JonnyBoy 
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SMCJB View Post
I've always been surprised VWAP isn't more available, to the extent I'm a little surprised exchanges don't publish official VWAP numbers.
The problem is it's actually not. It's easy to put on a real time chart but that's the only way it can be calculated. If I pull up a CL daily chart how do I add the the 20 day average of the VWAP? I can't because the only way to know the VWAP is to have calculated it already. Sure I could actually have 20 days of 1 min buys and estimate the VWAP for each day from that. But what about when I'm pulling 10 years of daily bars to perform some calculations? I can calculate most (all?) indicators, but not the VWAP.

Maybe I'm in the minority but in several of the threads I follow @centaurer has, sorry had, been a nice addition. I don't know what he's said in other threads, or what his alts have said, but I didn't think he was that out of line in this thread.

I think I understand what you are saying about the placement of VWAP at intervals other than the data series specified on the chart. For that very reason I coded myself a VWAP anchor indicator. I can place a VWAP anywhere on the chart and it will forward project it for me. For example, attached is the 20 day VWAP for CL.

This may or may not be what you are referring to, but I use it in the ES to anchor at LOD, HOD, month, week etc. or as you said a specified period in time you are interested in.


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 bobwest 
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JonnyBoy View Post
Firstly, it is very simple to calculate


SMCJB View Post
The problem is it's actually not. It's easy to put on a real time chart but that's the only way it can be calculated. If I pull up a CL daily chart how do I add the the 20 day average of the VWAP? I can't because the only way to know the VWAP is to have calculated it already. Sure I could actually have 20 days of 1 min buys and estimate the VWAP for each day from that. But what about when I'm pulling 10 years of daily bars to perform some calculations? I can calculate most (all?) indicators, but not the VWAP.

While VWAP should technically be an average at the level of single trades, as a practical matter I think it is usually computed by taking fairly small time intervals (such as the 1-minute data you mentioned), often averaging something like OHLC to get a more representative price, and basically using that as your price and the volume of the bar in your calculation. This means it's not exactly an "average trade," but the question is whether it is a close enough approximation.

I recall reading something like that in @Fat Tails' NT version of the indicator, although the details temporarily escape me. Approximating the calculation this way would be good enough, at least it seems so to me.

A multi-day VWAP -- say, a weekly VWAP -- would not compute the separate VWAPs for each day, which I think is what you are saying, but would just run the weighted average for the underlying bar series straight through beginning on Monday and ending on Friday, then start over on Monday again.

I don't know if I understood you, but I don't think you would need to calculate individual days' VWAPs. Perhaps I missed your point.

If you wanted to do a 10-year VWAP you would need a rougher approximation than 1-minute bars unless you wanted to be overwhelmed by the volume of computations. But if you're using a large timeframe you can have a large allowance, I would say.

I'm not sure I quite got you point. Does this address it or am I simply confused about what you said?

Bob.

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 bobwest 
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JonnyBoy View Post
I think I understand what you are saying about the placement of VWAP at intervals other than the data series specified on the chart. For that very reason I coded myself a VWAP anchor indicator. I can place a VWAP anywhere on the chart and it will forward project it for me. For example, attached is the 20 day VWAP for CL.

This may or may not be what you are referring to, but I use it in the ES to anchor at LOD, HOD, month, week etc. or as you said a specified period in time you are interested in.

I've done this too. Simple, and you get a VWAP from any arbitrary start point.

Bob.

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 kashmiami 
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Anchoring a VWAP at market turns makes much more sense as others have mentioned. The buy/sell group responsible for turning the market usually defends the VWAP levels.
I have tried to anchor it at market pullback to mixed results. It does give a good picture of a tiring trend though.
Also, I have seen people use it as a trade evaluation at eod, by anchoring it at entry price.
Great points everyone.
Cheers.

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 amoeba 
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Just wanted to put some different thoughts into this thread too, I did a study back a few years, which is probably still much the same today;



It looked at ES RTH difference between Session Mid and VWAP; 75% of the time it is less than 4ticks difference, 97% is less than 3pts difference. (this was for 2015)

It's not making a conclusion in any direction, but you could perhaps go further and look into times where VWAP is extended away from Mid, what does this mean, etc..

But in the discussion of execution, you could for all purposes just look at above/below session Mid and be mostly the same as VWAP for execution performance.

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 SMCJB 
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Thanks @JonnyBoy and @bobwest

To clarify I think VWAP would be like the ultimate daily pivot calculation hence why I would like to be able to use it. When I say 20 day average of the VWAP I specifically mean average(Daily VWAP, 20) and not a VWAP calculation over 20 days. When I talk about 10 years of data, I don't want a 10 year VWAP calculation, I would like 10 years of data with daily OHLC AND daily VWAP. (Be interesting to feed daily VWAP into machine learning algos).

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 bobwest 
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SMCJB View Post
Thanks @JonnyBoy and @bobwest

To clarify I think VWAP would be like the ultimate daily pivot calculation hence why I would like to be able to use it. When I say 20 day average of the VWAP I specifically mean average(Daily VWAP, 20) and not a VWAP calculation over 20 days. When I talk about 10 years of data, I don't want a 10 year VWAP calculation, I would like 10 years of data with daily OHLC AND daily VWAP. (Be interesting to feed daily VWAP into machine learning algos).

Ah, OK now I got it. A completely different idea, to use the daily final VWAP as an input for an average of x days.

I can see how this would be useful. A little complicated to figure, because you'd have to run the VWAP calculation for each day and store the values, then take the average.

Light slowly dawns....

Bob.

------------------

Edit: Now I get this part too:


SMCJB View Post
I've always been surprised VWAP isn't more available, to the extent I'm a little surprised exchanges don't publish official VWAP numbers.

It would be a lot simpler if they just did that, so you could just grab them up. It is strange they don't... I guess you've checked for it, but are you sure? Seems like a simple, basic statistic that should just be there.

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 srgtroy 
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SMCJB View Post
Thanks @JonnyBoy and @bobwest

To clarify I think VWAP would be like the ultimate daily pivot calculation hence why I would like to be able to use it. When I say 20 day average of the VWAP I specifically mean average(Daily VWAP, 20) and not a VWAP calculation over 20 days. When I talk about 10 years of data, I don't want a 10 year VWAP calculation, I would like 10 years of data with daily OHLC AND daily VWAP. (Be interesting to feed daily VWAP into machine learning algos).

Constructed in 5 minutes on Sierra Chart:


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 Silvester17 
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srgtroy View Post
Constructed in 5 minutes on Sierra Chart:

reviewed in less than 1 minute with ninjatrader. conclusion > not the desired outcome



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 bobwest 
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Dueling platforms?

Explanations might be more helpful....

Bob.

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 Silvester17 
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bobwest View Post
Dueling platforms?

Explanations might be more helpful....

Bob.

indeed.

but you know I had to make a smart remark. otherwise @srgtroy would be really disappointed

anyway I just replicated his chart. but I have no clue what the logic behind is.

if I would try to find a solution, I probably would try something with the vwma instead of the vwap. maybe @Fat Tails has a better idea?

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 bobwest 
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Silvester17 View Post
indeed.

but you know I had to make a smart remark. otherwise @srgtroy would be really disappointed

anyway I just replicated his chart. but I have no clue what the logic behind is.

Now I understand.

OK, Roy, what's the logic then? Inquiring minds want to know.

Bob.

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 brakkar 
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bobwest View Post
@brakkar, with all the noise and dust raised in some of these discussions, have you had your original question answered to your satisfaction?

I feel things got substantially off-target, although I believe they came back near the end. I feel a little sorry for getting into some of it, and I wish I had just thought to post the charts I put up a few posts back a little sooner. I think they make clear the way that VWAP can help frame the day's price action. The tactics a trader would need to take to make use of VWAP and its bands are up to each trader, who will probably have his own ideas, but they do show real things happening in the market, and can let a trader get a better handle on what is going on.

Also, VWAP is one tool of many. Some traders use it, some do not. You can't use everything, after all.

I hope some of this has been helpful to you.

Bob.

@bobwest
Certainly, this discussion shows a positive bias in using vwap, which was what I wanted to get the feel from the community.
Thanks to all those that answered. New to futures trading and this community I'm not disappointed.

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 Number 1 
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JonnyBoy View Post
VWAP is the ONLY moving average you need on your chart. The VWAP is a key measure of execution quality for large orders used by institutional investors. There is no playing down its importance.

There is so much more to VWAP. Some traders either don't know or have undervalued its importance. It goes way beyond the VWAP for the current day. You can use static historical VWAPs, historical rolling VWAPs, static ETH VWAPs, rolling ETH VWAPs, a developing VWAPs pinned to a swing high or swing low as key reference points. You can determine a VWAP test, a VWAP cross, a VWAP reversion and of course you can apply these to the STD DEV of VWAP too. And so much more!

I agree. In my own personal experience, I seen that VWAP alone can be used to trade provided one has a well defined strategy or a set of strategies with objective rules attached to it. For historical vwap multiday vwap, weekly and monthlies make a great addition. I've also found out that when you tie a vwap to a swing high or low, it becomes very, very useful. I also find that vwap compliments market/price profile very well.

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 srgtroy 
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bobwest View Post
Now I understand.

OK, Roy, what's the logic then? Inquiring minds want to know.

Bob.

@SMCJB just said he would like to be able to see Average(DailyVwap, 20) so I charted it. It might have taken me 4 minutes less than I said, though

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 Fat Tails 
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SMCJB View Post
I've always been surprised VWAP isn't more available, to the extent I'm a little surprised exchanges don't publish official VWAP numbers.
The problem is it's actually not. It's easy to put on a real time chart but that's the only way it can be calculated. If I pull up a CL daily chart how do I add the the 20 day average of the VWAP? I can't because the only way to know the VWAP is to have calculated it already. Sure I could actually have 20 days of 1 min buys and estimate the VWAP for each day from that. But what about when I'm pulling 10 years of daily bars to perform some calculations? I can calculate most (all?) indicators, but not the VWAP.

Maybe I'm in the minority but in several of the threads I follow @centaurer has, sorry had, been a nice addition. I don't know what he's said in other threads, or what his alts have said, but I didn't think he was that out of line in this thread.


Answering your question:

There are two classes of VWAPs, anchored VWAPs and rolling VWAPs. You may easily calculate them for 10 years provided that you have minute data over that period.


Anchored VWAPs:

The anchored VWAP typically refers to a session. A daily VWAP has an anchor point at the start of the trading day. Consider the VWAP as basket that contains all trades. In the morning there are only a few trades and the VWAP is still volatility. During the day the basket gradually fills and the VWAP becomes more and more stable as new trades added will not move it as much as in the morning.

In the end of the day the VWAP is just the volume weighted average price of the day. It is a benchmark for last institutions and traders. You may front run the algorithms of those traders in the end of the day, when they try to achieve or to beat the benchmark.


Rolling VWAPs:

The concept here is different. You wish to know the volume weighted average of all trades of a moving window. The rolling VWAP is never reset, but every minute new trades are added to the basket while old trades are dropping out. You would just define the length of the window, for example 20 days. Technically when you are calculating a rolling VWAP there is a number of issues to deal with:

(a) Resolution: I have found that it is sufficient to recalculate it once per minute to get it accurate to subtick levels.

(b) Holiday problem: It is not easy to deal with holidays with an early close (CME). When you follow the concept with the moving window and you have a holiday with an early close at 1:00 PM all the trades of the period N days ago will drop out all of a sudden when the session reopens the next day. This will show as a discontinuity on your chart. To avoid that discontinuity it is best to extend the lookback period by adding the hours missed to the lookback period.

(c) When calculating a VWAP over a longer period of time, you need to deal with the rollover question. You need to use merged contracts for getting proper volume figures. However, many NinjaTrader has false rollover days preset for many instruments. This means that you will find low volume days simply because the false contract month has been charted. Therefore the first task is to adjust the rollover days such that the most liquid futures contract is displayed for the day session. The second problem is the offset. Let us take 3 different cases:

CL: monthly rolls. permanent contango over years known as Cushing contango
FDAX: quartery rolls, index future based on total return index, positive rollover offsets as long as interest rates for government bonds remain positive
ES: quarterly rolls, index future based on price index, smaller rollover offsets as impact of interest rates is balanced by dividends

CL is clearly the least suited for longer term VWAP calculations. The contract has monthly rolls and the ever positive rollover offsets between 2008 - 2013 and 2015 - 2017 distort all charts showing record highs of over $140 in May 2011 (real prices did not reach $ 115). I would say that a 10 year VWAP for CL is meaningless. ON the other hand, a futures contracts such as ES that only rolls once per quarter and has smaller rollover offests is much better suited for applying a longer term VWAP.


But coming back to your questions:

A 20 day rolling VWAP does not suffer at all from rollover offsets. You may calculate it from minute data.

Please find below the 20 day rolling VWAP for CL. It is calculated from 1-minute data and takes 10 seconds to calculate for the last 10 years.



This is the annual (anchored) VWAP for ES. You will immediately notice that prices have reached the last year's average price in the beginning of February.

Since mid-April this year's VWAP has passed the prior year's VWAP, which shows that money is still flowing into the stock markets.


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 maverhick 
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JonnyBoy View Post
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

ETH VWAP is the magenta / blue hashed line.

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.




Bumping up an old post - I found this conversation around VWAP very interesting and also the way you analyze your trades. Do you suggest any good resources to read up on VWAP and the nuances of trading using it as one of the tools in the arsenal.

Thanks!

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 JonnyBoy 
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maverhick View Post
Bumping up an old post - I found this conversation around VWAP very interesting and also the way you analyze your trades. Do you suggest any good resources to read up on VWAP and the nuances of trading using it as one of the tools in the arsenal.

Thanks!

There are plenty of “trading” videos on YouTube about VWAP, but most, if not all of them are useless. This also includes the hundreds of websites and forums that essentially just repeat the same thing. Much of it is click bait. None of it is informative.

In short, there are very few worthwhile sources regarding VWAP.

I have a suite of VWAP setups, but you need to discover these for yourself. This means hundreds, if not thousands of hours spent in front of your chart not looking at anything else.

This is the chart from yesterday. The setups are obvious (to me anyway), but in hindsight it's easy to say that. The skill is to be able to recognise them in real time.

Oh and one more very important note. Never, ever pay anybody a dime to learn about VWAP. Anybody selling information about trading VWAP IMO is out for one thing, your money.


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 maverhick 
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Thanks for responding. I did post my response here after having seen a few of those videos and found that they barely added any value. Your approach seems far more well derived and researched.

That said, you've spent 1000s of hours on the screen and derived them - would simply ask that if you are so inclined, do suggest a newbie a direction / book or anything that would avoid my wasting some serious no of hours on things of no value

Have a great day!





JonnyBoy View Post
There are plenty of “trading” videos on YouTube about VWAP, but most, if not all of them are useless. This also includes the hundreds of websites and forums that essentially just repeat the same thing. Much of it is click bait. None of it is informative.

In short, there are very few worthwhile sources regarding VWAP.

I have a suite of VWAP setups, but you need to discover these for yourself. This means hundreds, if not thousands of hours spent in front of your chart not looking at anything else.

This is the chart from yesterday. The setups are obvious (to me anyway), but in hindsight it's easy to say that. The skill is to be able to recognise them in real time.

Oh and one more very important note. Never, ever pay anybody a dime to learn about VWAP. Anybody selling information about trading VWAP IMO is out for one thing, your money.



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 JonnyBoy 
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maverhick View Post
Thanks for responding. I did post my response here after having seen a few of those videos and found that they barely added any value. Your approach seems far more well derived and researched.

That said, you've spent 1000s of hours on the screen and derived them - would simply ask that if you are so inclined, do suggest a newbie a direction / book or anything that would avoid my wasting some serious no of hours on things of no value

Have a great day!

As far as I know there are no books or great resources to tap into. You will however probably stumble across one particular vendor who is selling a VWAP course online. I find this excruciating. I guess he has found a gap in the market that he is trying to leverage.

I would start by encompassing your VWAP (and the 1,2 and 3 standard deviations of) with a +/- 0.25 standard deviation band. You can see these in my screen shot in the prior post, each VWAP line is enveloped. It is what happens within this "band" that is the key.

The four main setups are:

VWAP: A test from above / below
SD BAND: Standard deviation continuation
VWAP: Reversion to VWAP
VWAP: Crossing of VWAP

You need to be looking at what price does within these bands. Is price stalling? Is price continuing or reverting? Is price testing?

The VWAP will look the same on every single traders chart, but your choice of time frame is key here.

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 maverhick 
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Thanks. Do you scan for volatility? Does the setup work better in higher volatility environments vis a vis a low volatility environment?



JonnyBoy View Post
As far as I know there are no books or great resources to tap into. You will however probably stumble across one particular vendor who is selling a VWAP course online. I find this excruciating. I guess he has found a gap in the market that he is trying to leverage.

I would start by encompassing your VWAP (and the 1,2 and 3 standard deviations of) with a +/- 0.25 standard deviation band. You can see these in my screen shot in the prior post, each VWAP line is enveloped. It is what happens within this "band" that is the key.

The four main setups are:

VWAP: A test from above / below
SD BAND: Standard deviation continuation
VWAP: Reversion to VWAP
VWAP: Crossing of VWAP

You need to be looking at what price does within these bands. Is price stalling? Is price continuing or reverting? Is price testing?

The VWAP will look the same on every single traders chart, but your choice of time frame is key here.


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 JonnyBoy 
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maverhick View Post
Thanks. Do you scan for volatility? Does the setup work better in higher volatility environments vis a vis a low volatility environment?

You just asked a very valid question. The higher the volatility in the market (larger swings) the more expansion you will see in the VWAP bands. This is what takes the time to study. Tighter bands (at the beginning of the day) means it's much easier to spot a trade.

In the following chart, the first 2 green lines were entry locations from a VWAP test. The 3rd and 4th green lines were SD entry locations for an SD continuation trade. The 5th and 6th green lines were entry locations from a VWAP test. I generally don't like taking SD continuation trades from the 2nd SD band unless it was an Open Drive type of day.

It gets more difficult to define entries when the band expansion becomes very large. You will take "fake" VWAP tests and "fake'' SD continuations, but this is why you need to educate yourself with hours in front of the chart.

If I was a beginner, I would start with VWAP tests and move on to SD continuations. If it isn't a VWAP test it is a VWAP Cross, which is an entirely different setup.

So, look at what price does when it ventures into the VWAP zone. It is within this zone that magic happens. Study it. Feel it. Exhaust it. Look at every conceivable thing that price does in that zone. Use cumulative delta to help if required. Record your screen. Play it back over and over, slow the playback down. Study it. Feel it. Exhaust it.

Hint: It is much easier trading stocks using VWAP than futures, so perhaps start there.


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 mtzimmer1 
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JonnyBoy View Post

Hint: It is much easier trading stocks using VWAP than futures, so perhaps start there.

Thanks for sharing your knowledge of VWAP and its uses in this thread. Why do you feel trading stocks using VWAP is easier than futures? Higher probability of a setup resulting in a profitable trade?

Thanks!

-Zimmer

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 SMCJB 
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JonnyBoy View Post
Hint: It is much easier trading stocks using VWAP than futures, so perhaps start there.

Random Comment :- Always been surprised that futures exchanges don't publish end of day VWAP numbers. If you have ICE's front end WebICE you can see the VWAP of every contract, but no way to retrieve it historically!

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 Zondor 
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Beats me why anyone would trade anything without watching VWAP. The VWAP bands are probably the only trendlines that really matter.




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mtzimmer1 View Post
Thanks for sharing your knowledge of VWAP and its uses in this thread. Why do you feel trading stocks using VWAP is easier than futures? Higher probability of a setup resulting in a profitable trade?

Thanks!

-Zimmer

The main advantage of VWAP is its simplicity. Because of this, the use of VWAP as a measurement tool and execution strategy is both easy to compute and understand.

At any one time, there could be hundreds of stocks that sit within the parameters of a VWAP setup, although VWAP on an illiquid stock is less than ideal and not recommended. You can set up a scanner to evaluate price against VWAP on every stock in the DOW or SP500 and be notified very easily by your platform, but don't get carried away. In general the heavy hitter stocks are good enough.

In my experience, stocks appear to conform to the VWAP setups ''better'' than any futures instrument does. I don't have any evidence per se to prove this, but I guess experience has taught me that.

I find that trading the VWAP of futures instruments is a little more challenging but IMO it is an essential thing to be able to do. Since VWAP is an uncomplicated benchmark, most VWAP trading strategies are simple and relatively quick to execute.

Here is the chart for the first hour or so on ES today. These are just simple setups. Remember this is on my own data series as time based data series just didn't do it for me.

Having said that, it doesn't mean you won't get caught out intrabar thinking a setup has begun when it hasn't, but in general;

- if price is trading above VWAP and beyond +1st SD you can expect price to continue up trending
- if price is trading between VWAP and +1st SD you can expect price to oscillate around VWAP
- if price is trading between VWAP and -1st SD you can expect price to continue down trending
- if price is trading below VWAP and beyond -1st SD you can expect price to oscillate around VWAP


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