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@bobwest
Certainly, this discussion shows a positive bias in using vwap, which was what I wanted to get the feel from the community.
Thanks to all those that answered. New to futures trading and this community I'm not disappointed.
Broker: NT Brokerage, TS, IB, RJO. Data Feed: TS, NTContinuum/CQG
Trading: ES, Gold
Posts: 10 since Apr 2014
Thanks Given: 5
Thanks Received: 9
I agree. In my own personal experience, I seen that VWAP alone can be used to trade provided one has a well defined strategy or a set of strategies with objective rules attached to it. For historical vwap multiday vwap, weekly and monthlies make a great addition. I've also found out that when you tie a vwap to a swing high or low, it becomes very, very useful. I also find that vwap compliments market/price profile very well.
There are two classes of VWAPs, anchored VWAPs and rolling VWAPs. You may easily calculate them for 10 years provided that you have minute data over that period.
Anchored VWAPs:
The anchored VWAP typically refers to a session. A daily VWAP has an anchor point at the start of the trading day. Consider the VWAP as basket that contains all trades. In the morning there are only a few trades and the VWAP is still volatility. During the day the basket gradually fills and the VWAP becomes more and more stable as new trades added will not move it as much as in the morning.
In the end of the day the VWAP is just the volume weighted average price of the day. It is a benchmark for last institutions and traders. You may front run the algorithms of those traders in the end of the day, when they try to achieve or to beat the benchmark.
Rolling VWAPs:
The concept here is different. You wish to know the volume weighted average of all trades of a moving window. The rolling VWAP is never reset, but every minute new trades are added to the basket while old trades are dropping out. You would just define the length of the window, for example 20 days. Technically when you are calculating a rolling VWAP there is a number of issues to deal with:
(a) Resolution: I have found that it is sufficient to recalculate it once per minute to get it accurate to subtick levels.
(b) Holiday problem: It is not easy to deal with holidays with an early close (CME). When you follow the concept with the moving window and you have a holiday with an early close at 1:00 PM all the trades of the period N days ago will drop out all of a sudden when the session reopens the next day. This will show as a discontinuity on your chart. To avoid that discontinuity it is best to extend the lookback period by adding the hours missed to the lookback period.
(c) When calculating a VWAP over a longer period of time, you need to deal with the rollover question. You need to use merged contracts for getting proper volume figures. However, many NinjaTrader has false rollover days preset for many instruments. This means that you will find low volume days simply because the false contract month has been charted. Therefore the first task is to adjust the rollover days such that the most liquid futures contract is displayed for the day session. The second problem is the offset. Let us take 3 different cases:
CL: monthly rolls. permanent contango over years known as Cushing contango
FDAX: quartery rolls, index future based on total return index, positive rollover offsets as long as interest rates for government bonds remain positive
ES: quarterly rolls, index future based on price index, smaller rollover offsets as impact of interest rates is balanced by dividends
CL is clearly the least suited for longer term VWAP calculations. The contract has monthly rolls and the ever positive rollover offsets between 2008 - 2013 and 2015 - 2017 distort all charts showing record highs of over $140 in May 2011 (real prices did not reach $ 115). I would say that a 10 year VWAP for CL is meaningless. ON the other hand, a futures contracts such as ES that only rolls once per quarter and has smaller rollover offests is much better suited for applying a longer term VWAP.
But coming back to your questions:
A 20 day rolling VWAP does not suffer at all from rollover offsets. You may calculate it from minute data.
Please find below the 20 day rolling VWAP for CL. It is calculated from 1-minute data and takes 10 seconds to calculate for the last 10 years.
This is the annual (anchored) VWAP for ES. You will immediately notice that prices have reached the last year's average price in the beginning of February.
Since mid-April this year's VWAP has passed the prior year's VWAP, which shows that money is still flowing into the stock markets.
Bumping up an old post - I found this conversation around VWAP very interesting and also the way you analyze your trades. Do you suggest any good resources to read up on VWAP and the nuances of trading using it as one of the tools in the arsenal.
There are plenty of “trading” videos on YouTube about VWAP, but most, if not all of them are useless. This also includes the hundreds of websites and forums that essentially just repeat the same thing. Much of it is click bait. None of it is informative.
In short, there are very few worthwhile sources regarding VWAP.
I have a suite of VWAP setups, but you need to discover these for yourself. This means hundreds, if not thousands of hours spent in front of your chart not looking at anything else.
This is the chart from yesterday. The setups are obvious (to me anyway), but in hindsight it's easy to say that. The skill is to be able to recognise them in real time.
Oh and one more very important note. Never, ever pay anybody a dime to learn about VWAP. Anybody selling information about trading VWAP IMO is out for one thing, your money.
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- Trade what you see. Invest in what you believe -
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Thanks for responding. I did post my response here after having seen a few of those videos and found that they barely added any value. Your approach seems far more well derived and researched.
That said, you've spent 1000s of hours on the screen and derived them - would simply ask that if you are so inclined, do suggest a newbie a direction / book or anything that would avoid my wasting some serious no of hours on things of no value
As far as I know there are no books or great resources to tap into. You will however probably stumble across one particular vendor who is selling a VWAP course online. I find this excruciating. I guess he has found a gap in the market that he is trying to leverage.
I would start by encompassing your VWAP (and the 1,2 and 3 standard deviations of) with a +/- 0.25 standard deviation band. You can see these in my screen shot in the prior post, each VWAP line is enveloped. It is what happens within this "band" that is the key.
The four main setups are:
VWAP: A test from above / below
SD BAND: Standard deviation continuation
VWAP: Reversion to VWAP
VWAP: Crossing of VWAP
You need to be looking at what price does within these bands. Is price stalling? Is price continuing or reverting? Is price testing?
The VWAP will look the same on every single traders chart, but your choice of time frame is key here.
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- Trade what you see. Invest in what you believe -
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