So, I wanted to just give an actual example of how I use the VWAP myself, having just closed a trade this morning on the spot DAX.



What the picture above shows is the market as I just exited. Now, I made the cardinal sin of waking and immediately checking my phone and seeing a setup already forming. I guess it being a bank holiday here, I was a little too eager to take anything I saw, so please don't be impulsive like I was. It's one of my biggest personal faults in trading.

The bands should be pretty self-explanatory. You've got the VWAP and 1st, 2nd, 3rd SDs, along with their 0.5 increment bands up to 2.5 SD. All VWAP calcs come from ETH start, but because volume is negligible, this has no impact on the main action in RTH. To avoid the large spread of trading FDAX, I trade the spot market. To get around the volume issue of this, the data feed is FXCM's, which is a suitably accurate one with Oanda's being a fairly good alternative.

The volume profile shows the Point of Control, or as Jerry Perl called it for this method, Peak Volume Price. The dashed line is historic PVP. As you can see, this was at 11217 around the start of the trading session in Frankfurt, before quickly moving with gusto to the downside. Friday had been an up day in the second half of the trading session, so I figured we were due a correction judging by the composite profile of the last week.

I saw a setup after this, when price fell down to -1 SD, and where the PVP shifted down to just below the VWAP. This tells me two things: that there is a major player at this low building volume for a potential move up, and that should price break the VWAP with conviction, the likelihood of a momentum trade to at least +1 SD is a high probability trade.

Setting a buy stop at the VWAP targeting at least +1 SD, with a stop around -1 SD, I let it play out. Got filled within half an hour of this setup forming, and despite a bounce off VWAP initially, moving down to and halting at -0.5 SD, the trade played out as expected, though I moved to take a +1.5 SD profit after managing it actively, so my evolving R:R was better than 1:1 in the end.

If you check the market now, it kept going on and is now kissing the +3 SD, so I could have stayed in longer, especially as the probability of such a powerful move reaching the 2nd SD is fairly high with this skew and this early in the trading day. But alas, it was not to be.

Sometimes, if I use another chart layout that uses range bars and looks backward more, I may be able to stay in a trend better than using VWAP bands and HA candles.

For whatever reason, VWAP bands don't calculate on range bars here and I never really forced myself into looking as to why, since I figure they would still respect the calculation. Still, what I gain in less noise in range bars, I lose the momentum of the time element with the first chart layout.

That's me done for the day then. I cancel any other alerts for VWAP touches or PVP crossing VWAPs that may be on the FX majors or crude and go about my day. I hope this was useful for someone, it does help me focus when writing out trades like this, and having been the mod of a large FX Discord channel, it's nice to see some actual professionalism on display for once, rather than having to deal with a load of poseurs and clueless muppets.

Great thread.
Thanks Jonny Boy for the detailed explanation of VWAP.
Thanks everyone for the excellent information shared here.

Dear JonnyBoy many thanks for the effort you have put in sharing your knowledge and "on the field" experience with VWAP.
It took me few days to go through the entire thread and I find it really really valuable. There is no doubt I'll give it a try and will likely have VWAP in my toolbox from now on.

Thanks to Jakobe for posting your chartbook from Sierra. I used it as a base to build another one on my own. I had no idea how to create shaded areas between SDs so that was super on your side. Well done :-). I'll attach mine to this post for whoever cares. No better no worse. Just different version.

I have some questions. Some are generic some are Sierra specific.

1) In the attached snapshot, from the first part of Friday June 5th, as some may notice, VWAP is anchored to 0830 New York time. I find there seems to be some "obedient" price action even before the open. It would be nice to have your opinion Jonny.....any reasons to favour 0930 instead of 0830 ?

2) For Sierra users. Please see my chart settings and study settings. Is this what you guys are using ?
3) Is there a way to anchor VWAP every day to the start of the current trading day automatically ?

Many thanks to All.

Rgds Gio





Beginning of Day


Chart Settings


Study Settings

Freshstart17 

Dear JonnyBoy many thanks for the effort you have put in sharing your knowledge and "on the field" experience with VWAP. It took me few days to go through the entire thread and I find it really really valuable. There is no doubt I'll give it a try and will likely have VWAP in my toolbox from now on. Thanks to Jakobe for posting your chartbook from Sierra. I used it as a base to build another one on my own. I had no idea how to create shaded areas between SDs so that was super on your side. Well done :-). I'll attach mine to this post for whoever cares. No better no worse. Just different version. I have some questions. Some are generic some are Sierra specific. 1) In the attached snapshot, from the first part of Friday June 5th, as some may notice, VWAP is anchored to 0830 New York time. I find there seems to be some "obedient" price action even before the open. It would be nice to have your opinion Jonny.....any reasons to favour 0930 instead of 0830 ? 2) For Sierra users. Please see my chart settings and study settings. Is this what you guys are using ? 3) Is there a way to anchor VWAP every day to the start of the current trading day automatically ? Many thanks to All. Rgds Gio

Isn't VWAP already anchored automatically at the beginning of the day if you set the time?
This is what I have for VWAP:



(pasted screenshot)

JonnyBoy 

My intention with the charts was to depict examples. It doesn't mean the first trade of the day was the SD Continuation I marked up. Here is my chart from the same day. Remember I have a custom data series so things will look different. There were 3 trades on that spike up to ETH VWAP. A VWAP test long and two SD CONT. entries. I very likely took the VWAP test long on the same bar and held a runner until ETH VWAP. I doubt I added to my position with the SD CONT. long entries. I'll have to check. Making a read on the VWAP and their bands early on in the day is tricky as you don't have much to work with. It takes lots of practice. Equally as tricky are days with large expansion (think very wide volatile days). EDIT: the reason I developed a custom data series was essentially to make these entries easier to spot and help reduce fake outs.

Without revealing too much of your secrets stuff, what would you suggest to look for when entering in terms of bar structure? Assuming no other indicators/delta/etc.

ChartWarrior 

Without revealing too much of your secrets stuff, what would you suggest to look for when entering in terms of bar structure? Assuming no other indicators/delta/etc.

I understand your question but my answer may not seem all that intuitive.

The snapshots below are of charts spanning the same 30 minute period. The first is a 918 tick chart, the second is my data series and the third is a 2000 tick. As you can see, they appear quite different even though they are displaying the same information.

If you take a look at the lowest swing low on the 918 tick chart, as price rotated upwards from the -2SD to the -1SD band, you could certainly consider that an SD continuation is forming for another leg lower because there are lots bar closes within the -1SD band itself and price did penetrate the band lower on a couple of occasions.

If you look at my data series (second snapshot) I have managed to virtually eliminate that visual. When you look at the open of the bar following for the first bar to close within the -1SD envelope after the swing low, it opened right on the upper -1SD envelope line. The wick shows that price protruded outside the envelope (to the downside) but ultimately retraced and price headed towards VWAP for a VWAP cross. So, this (on my data series at least) was not all that convincing.

This is what I mean by my answer not being all that intuitive.

However, if you are looking for something with respect to what to look for by bar structure, I would consider the same price action requirements for a 2nd entry. On the 2000 tick chart (I always found 2000 tick charts were excellent at showing 2nd entries) this is a very clear IMO for the same location as mentioned above. In that once the swing low was made, price retraced higher into the -1SD band and closed within it. The 1st entry short failed (very common) and the second entry didn't happen at all, which would have lead me to believe price is probably heading back to VWAP, or needs more time within the -1SD band. A second entry lower would have probably worked out nicely.

As I have mentioned many times, you need to live and breathe the price action inside these envelopes and discover what works for you. Second entries are a very common method of dissecting price action. In fact the more you go back over your charts, especially on a 2000 tick, you will be amazed at how many opportunities are valid ones within these envelopes.

Second entries can also be seen on the same bar, but these are little bit tricky to spot but are nonetheless valid.

JonnyBoy 

I understand your question but my answer may not seem all that intuitive. The snapshots below are of charts spanning the same 30 minute period. The first is a 918 tick chart, the second is my data series and the third is a 2000 tick. As you can see, they appear quite different even though they are displaying the same information. If you take a look at the lowest swing low on the 918 tick chart, as price rotated upwards from the -2SD to the -1SD band, you could certainly consider that an SD continuation is forming for another leg lower because there are lots bar closes within the -1SD band itself and price did penetrate the band lower on a couple of occasions. If you look at my data series (second snapshot) I have managed to virtually eliminate that visual. When you look at the open of the bar following for the first bar to close within the -1SD envelope after the swing low, it opened right on the upper -1SD envelope line. The wick shows that price protruded outside the envelope (to the downside) but ultimately retraced and price headed towards VWAP for a VWAP cross. So, this (on my data series at least) was not all that convincing. This is what I mean by my answer not being all that intuitive. However, if you are looking for something with respect to what to look for by bar structure, I would consider the same price action requirements for a 2nd entry. On the 2000 tick chart (I always found 2000 tick charts were excellent at showing 2nd entries) this is a very clear IMO for the same location as mentioned above. In that once the swing low was made, price retraced higher into the -1SD band and closed within it. The 1st entry short failed (very common) and the second entry didn't happen at all, which would have lead me to believe price is probably heading back to VWAP, or needs more time within the -1SD band. A second entry lower would have probably worked out nicely. As I have mentioned many times, you need to live and breathe the price action inside these envelopes and discover what works for you. Second entries are a very common method of dissecting price action. In fact the more you go back over your charts, especially on a 2000 tick, you will be amazed at how many opportunities are valid ones within these envelopes. Second entries can also be seen on the same bar, but these are little bit tricky to spot but are nonetheless valid.

For some reason I can only see one attachment (301695). Can you repost them?

I have been using VWAP for a long time. But this interpretation has greatly improved the understanding of the market situation.

JonnyBoy 

I made my own. However, there is a very cool one here, that I have actually wanted to check out for some time. It has some pretty cool and neat features I perhaps haven't thought about myself. And for $97.00 it is a steal. To replicate it will cost me way more than my "hourly" rate, so I might end up buying it once I have done the trial. I know @devdas is on FIO and is the developer of it. I have no affiliation with him at all, but the fact he has a trial he gets my thumbs up! He has a cool website too.

@JonnyBoy,

if you haven't done the trial yet, there's a new version with some more cool stuff:

- self updating DrawCator VWAP, no need to manually drag end point beyond last bar to update

- provide multiple attach and roll modes for quick drawing directly from context menu

- support weekly, prior week, monthly n-th day, session, current bar mode

- support 1-click draw mode. single click on any bar make vwap up to current bar


I think this is already update no 5. I guess there's no limit when it comes to creativity


https://www.edevaay.com/tool-box/drawcator-vwap/

Silvester17 

@JonnyBoy, if you haven't done the trial yet, there's a new version with some more cool stuff: - self updating DrawCator VWAP, no need to manually drag end point beyond last bar to update - provide multiple attach and roll modes for quick drawing directly from context menu - support weekly, prior week, monthly n-th day, session, current bar mode - support 1-click draw mode. single click on any bar make vwap up to current bar I think this is already update no 5. I guess there's no limit when it comes to creativity https://www.edevaay.com/tool-box/drawcator-vwap/

Very nice. I might actually have to check this out. It is certainly "cheaper'' than coding this all by myself!