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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.
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:
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.
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!
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.