How Market Makers (MM) use VWAP? What candle time?
Dear Futures.io users,
First I would like to appreciate the fact that in this forum, any question is answered very quick.
I learned that Since price can be manipulated, Market Makers "MM" use VWAP to indicate their purchase point.
Lets say that MM institute want to buy an instrument, when traffic is low (less buyers and sellers, any small buy/sell will move the market), then they use VWAP, which the average is used based on Volume.
So when thy want to buy, they buy below the VWAP, and when they want to sell, they sell above VWAP.
My question, is the candle size.
Since a candle of 1 minute, has its own formed VWAP, and 5M, 10M, 1H, 1D, and even 1W.
What candle time they use when they buy or sale based on VWAP??????
I hope the question understood.
I will push another question for anyone care to respond. About trading.
If I think to use VWAP as strategy to go with the MM, when I go long, to go with them below VWAP, and vise versa.
What is your take on it?
If you could elaborate, how to trade E-Mini S&P 500, based on VWAP.
VWAP has nothing to do with chart periodicity. In most cases traders will be looking at the RTH VWAP (Regional Trading Hours VWAP), for the US equities if they are trading the US day session. If the session starts at 9.30am and it is now 11.30am and after 2 hours say 500,000 contracts have traded with an average traded price of 2060 it makes no difference whether you are looking at a 5 minute chart or a tick chart or whatever.
If an institution has a large order to sell through out the day they may want to know at the end of the day their average selling price was close to or above the day's VWAP. so they know that they didn't sell at a price below the average selling price of the day.
Or a short term contrarian trader might decide that, on a rotational day, when price moves away from the day's VWAP they will fade that move and expect price to return back to the average value.
The following user says Thank You to matthew28 for this post:
It can show sentiment of bid and offers over a period of time.
2 types: static VWAP or dynamic VWAP.
Static is fixed and remains stable for 24 hours at a specific price.
Dynamic is one that moves with the market live prices as a deviation away from the RTH open, specified time, or globex close of prior day.
They tend to be a price point where institutions move back to when a market is overbought/oversold. A type of median line and it has some statistical value accordingly.
When a trend is reversed, the VWAP will get tested for offers, and if sellers are not sufficient, the bid will exceed the VWAP or get breached. Sometimes, prices will test or settle near the VWAP.
If a true reversal is present, the VWAP is still a median aspect, yet reverses in its sentiment reading of the traders.
So if bullish, demand of the instrument price around the VWAP will be bought, supplied absorbed, bid moves higher.
If bearish, supply will enter the instrument around the VWAP, and out pacing bidders, and prices lower.
Trends tend to move away from the VWAP...until the cycle or sentiment changes.
VWAP bands are deviations of math based on the programmer values, prior day range(s).
Depending the programmer, they will vary slightly.
I hope that is kinda simple...not 100% accurate.
Last edited by Kowabunga; July 26th, 2016 at 10:25 PM.