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I want to start this thread by thanking @JonnyBoy and @Silvester17 for their guidance, and recommending the Drawcator VWAP tool. The monthly VWAP and SD setups can be accomplished with the NinjaTrader 8 VWAP indicator, however the Edevaay version is far superior.
Trading off the monthly VWAP and its SDs was inspired by @JonnyBoy 's
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 …
He focused on the RTH and setups based off its SD levels, and incorporated the ETH VWAP. I started playing around with the different VWAP types and found that the monthly VWAPs and its primary, half and quarter SDs acted as very serious levels of support and resistance. A break or test/rejection of one of these levels usually results in an appreciable move; and a move to another SD level.
I'm still in the process of fully developing a final system, and am using a more discretionary approach trading off these levels looking solely at price action. A level is considered 'broken' when a bar either closes past a level or the "breaking bar's"price action travels past a level.
I've attached a screenshot from this morning's pre-market and some of the RTH session. At this point, I'm not trading the 'Test' events, and only the 'Breaks'. I'm not necessarily trying to ride a move a full 0.5 SD, and usually look for a 0.25 SD move. Once my daily profit target is met however, or I feel PA is showing weakness I'll exit.
I'm taking trades at the Monthly VWAP, SD 0.5, SD 1, SD 1.5 and so on levels (solid orange lines). The SD 0.25, 0.75, 1.25 levels (red dotted lines) act more as meridians and potential conservative TP levels. I usually see resistance in a move (whether it's a break or a test/rejection) at those levels.
I'm starting to use a cumulative delta indicator when looking at these events to see where supply and demand is as a potential screen for taking trades. So far the bigger moves off levels are coupled with 'book flips' where either supply or demand becomes dominant.
@JonnyBoy's thread was far more structured and articulate, however I'm going to attempt to mirror his efforts as this thread evolves with input from members.
Due to the strength of many of these setups and moves, it's my belief that the major institutional traders and market movers use these various levels as a basis for their trading. You can see very clearly where they fight each other and the resulting outcomes. These levels either immediately or very quickly conclude in an exhaustion of either bids or offers.
I circled the time period directly before and after market open, as this period is dominated by extreme volatility that is best avoided. While it technically fits into this system, I've found that my fills and slippage makes it extremely difficult or dangerous.
This is just great. I love it when people springboard and make something their own. My intent in the VWAP thread was really to shed some light on the topic of VWAP, but many traders have written to me and said that they have incorporated it in one way shape or form to fit their own trading. I use the monthly too here you certainly do see some interesting trading situations occur.
Nice work!
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- Trade what you see. Invest in what you believe -
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I've changed the chart up a bit after speaking with the developer of the VWAP drawing tool I'm using. It became quickly apparent that the sheer quantity of VWAP instances with different SD levels rendered the chart untradable. Rather than try to use one chart for analysis, and another naked chart for order execution, we found that the data series time frame was too fine and needed to be expanded. I've since moved from using a 1 min candlestick data series to a 5 min candlestick, and the chart is usable again. One thing to note is regardless of the time interval, at least 31 days need to be loaded to reflect the most accurate VWAP calculations. This factor alone slows chart performance down considerably.
I'm experimenting with different data series intervals (all candlestick), however my order flow indicators and trading style perform better with less than or equal to 5 mins candlesticks. I considered adding additional data series to the chart, however I think I'm going to encounter similar performance issues despite the drawing tools being attached to the higher time frame.
I'm including below my current rule-set for initiating a trade. I'm purposefully not including the order flow indicator analysis, as its by and large more subjective than the drawing tools' SD levels (also most will not have them available). If you want to create a similar chart, you can use the native VWAP indicator or get the Eveday drawing tools.
Where is price in relation to the session VWAP? Not to sound remedial, but price is always trending either towards or away from the session VWAP. A relatively large daily move (e.g. about +640 ticks closing above yesterday's session open) doesn't affect the monthly VWAP or SD levels significantly. The next session VWAP will jump considerably however. Following price as it moves through or bouncing off the various monthly SD levels is the core of my method, however behavior relative to the VWAP adds context.
I'm including a screenshot below that explains this visually:
I started trading shortly before market open at 9:30. You'll see that pre-market open, price had tested and broken the +SD 1.5 (Monthly) level, but failed to really even test let alone break the +SD 1.625 level; and then returned to break back down through +SD 1.5 heading back towards session VWAP.
Price oscillated around the session VWAP shortly before market open, however quickly rebounded upwards heading back to +SD 1.5. The pre-market analysis was important, as price had just come from there. We would expect either a test/rejection or a clear break. The move off market open is usually definitive, and with price moving away and north of the session VWAP, I anticipated a break.
I've drawn a ruler line in ticks from +SD 1.5 to +SD 2 to show the expanse I'm looking at for a trade to travel. +SD 1.5 to +SD 1.75 is not shown by is 1/2 so 138. Not too shabby. I'm trading 3 contracts so just the "half" move was north of $2k, which already exceeded my profit target for the day. For me at least, it was a one and done day. Not to complicate this method, but the order flow indies showed a definitive surge in bids, which for me is excellent confirmation on how price will behave around one of these major levels.
I've included analysis beyond my trade, as price continued to move higher. It's not difficult to see the dance around the 'major' monthly SD levels (0.5, 1, 1.5, 2, 2.75 and 3 for those playing at home). Past 1:00 PM EST, I only marked the events with arrows for members to fill in the blank.
Posting chart with annotations from this morning's session:
I began trading pre-market around 8:00. Pre-Market open, price had broken through M.+SD2, but failed to even test M.+SD1.75 and flirted aruond M.+SD1.875. I took my first (and only) trade for 3 contracts when price broke M.+SD2. We already saw price break this level, however quickly retraced; failing to break any significant additional levels.
Immediate level for profit target was M.+SD2.25 for 138 ticks. Price initially tested/bounced from M.+SD2.25, but failed to break through M.+SD2.125 after the test, and retraced higher to break M.+SD2.25 and trigger my profit target (~$2k).
I've included additional analysis past my trade, but it's easy to see how price reacted around the subsequent levels. Price hovered close to the session VWAP for a bit, but action was showing a clear bias to the upside. The continued tests and failures to close below the session VWAP was indicative of buying pressure. The order flow indicators never showed significant offers being hit to flip the book.
Price would go on to break +SD2.5 to span the full 0.5 standard deviation that is ideal in these setups. I'm planning on staggering my profit targets next week, to close 2 contracts at the middle '0.25' SD level, and leave a single runner to potentially hit the full 0.5 SD. Since the full 0.5 SD move is double that of the 0.25 SD move, I would essentlally double my profit while minimizing risk if price was clearly trending back towards the previously broken SD level after touching the 0.25 SD.
I have also been using drawcator vwap. Thanks also to @JonnyBoy and @Silvester17. It does seem to slow my system a bit if I anchor many vwaps 30 days back. What I have been doing is making multiple templates that have the sd bands .125 apart. ie I have one template that is called 1.0 that has its upper bands at .875, 1.0 and 1.25(and lower negative bands). I just use one 30 day vwap and I switch to the template that is most relevant to where the price is.
Here's today's session. I traded the RTH, as there wasn't much activity pre-market. The pre-market activity however was an excellent indicator of what was to come:
From about 8:00 AM EST to market open at 9:30, we saw sellers continuously testing M.+SD3. Three standard deviations from the mean is definitely extended territory, regardless of whether you're using an RTH, ETH or monthly VWAP. While these relatively short intervals of testing were important, the 'bounce' or result is equally important. Price failed to even approach to test M.+SD3.125 (not drawn on chart). Pre-market, I developed a bearish sentiment due to this behavior.
I took my first trade @ 9:40 as price extended above M.+SD3, but took a quick profit as the minutes following open are usually tumultuous. Price did test M.+SD3.125 but failed to break, yet another indicator that sellers were about to take control. I purposefully left my order flow indicators off this chart, as they've rendered the chart not only untradable but slow to update when coupled with so many drawing objects. I've taken @doobietr4ader 's advice and started to chop everything up into different charts to optimize order execution.
The downward break of M.+SD3 is the largest move I've seen so far since adopting this trading method. In the span of 5 minutes, price moved down a full 0.5 standard deviation (monthly VWAP). My target was of course M.+SD2.75, however I left the runner this time to see if it would extend to M.+SD2.5. I expected that potential move to take the better part of 30 minutes, not 5. With that, I was done for the day. ~166 ticks from short trade taken @ M.+SD3 to M.+SD2.75 and ~334 ticks to M.+SD2.5.
I've included additional analysis past my trade, as I was interested where the market would go after such a move. Not surprisingly, price bounced up off M.+SD2.5 and broke M.+2.625. Here is where I started to notice something that I'm going to integrate into this method.
When price fails to move/test the next 0.125 standard deviations from wherever it just came from, the resulting failure sees a reversal that moves 0.125 - 0.25 standard deviations in the opposite direction.
While I didn't take the trades signaled in the above screenshot, they were just as viable as the trades taken on breaks of whole (e.g. SD+1, SD+2) and half (e.g. SD+1.5, SD+2.5) levels. I drew a ruler from the approximate entries to how far the move extended. These are significant moves, with the majority approaching or far exceeding 100 ticks each. The common factor in all these events is that price failed to reach/test/break the next 0.125 SD level after the last move. The rejection then moves anywhere from 0.125 to 0.3125 SDs in the opposite direction.
I am in Madrid (Spain), (GMT+2), but, regardless of the time, what does not coincide are the lines +SD. In my case the +SD 2 is close to your +SD 2.375. That is, my VWAP's are more displaced upwards than yours.
I use 3500 days in my data series.
Great work! I did some research into this, today I actually took a trade based on this strategy after the 1.5 SD rejection on NQ. around 13543 this AM. Question typically what's your stop for NQ after you see a rejection of one of the VWAP SD bands.
