Welcome to NexusFi: the best trading community on the planet, with over 150,000 members Sign Up Now for Free
Genuine reviews from real traders, not fake reviews from stealth vendors
Quality education from leading professional traders
We are a friendly, helpful, and positive community
We do not tolerate rude behavior, trolling, or vendors advertising in posts
We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community. It's free for basic access, or support us by becoming an Elite Member -- see if you qualify for a discount below.
-- Big Mike, Site Administrator
(If you already have an account, login at the top of the page)
I notice something today. This might be a good setup to fade an extended move.
Look at the two screenshots (CL & TF), when the price extended beyond the 2SD, into the 3SD, enter trade at the first break and exit after it moved back to the 1 SD.
Almost note on TF: it completed the AB = CD move and then price broke.
The mean reversion trade - outside in from the outer VWAP bands - only works with the trend. The multi-day trend is still up, so I would be careful shorting. Chart below, which shows that there was no short at that stage.
As small individual traders, we try to enter and exit at one precise "near perfect" point in the price action. So we are mostly looking at an arbitrary VWAP period, most likely, intraday- RTH only. We tend to forget that large market makers and other large actors are trying to enter and exit the market discreetly, for their own positions, monitoring their own specific durations of the VWAP.
The important VWAP to monitor is different for each participant and is dynamic. If large players plan to accumulate/distribute a security over x number of days (as determined by their liquidity algorithms), they will try to buy below the x-days VWAP and to sell above the x-days VWAP.
As relatively small players, the best we can do is to consider the proper VWAP for our own trading horizon. For example, in a trending market, swing traders like to buy weakness on a rising 5-day VWAP and sell strength below a declining 5-day VWAP. In a range market, where the VWAP is horizontal, traders can trade counter to the trend, and profit from fading moves to the plus or minus, 2nd standard deviations.
Therefore, when looking for an extended move, you should be considering a longer time-frame for your VWAP. The chart below illustrates the weekly VWAP for the ESZ, where a failure from the +2SD, when the VWAP is slope-less, not only works, but turns out to be the recent high of the move.
