JonnyBoy 

You are not wrong here. There are many moving pieces that establish an individual traders success (and overall the institutions success) and VWAP is an important piece but not the only piece. A friend of mine is an ex-institution VWAP trader. Whilst I can't divulge detailed specifics of how all these things work (or used to work at his institution), what your cousin could have been referring to are the trading and KPI tools available to them that can be used for liquidity aggregation. This is especially relevant where high volume positions must be hedged as a result of adverse moves in security prices. What he could be meaning (and I am trying to pick up on some things you referred to) here is that the traders are also measured against their efficiency in maximizing the volume that can be hedged against his/her position. What I mean by that is that they can offset some volume from what might be considered an "expensive" position at the cost of the price that is saved when acquiring "cheaper" positions. This isn't any simple hedge, this is a carefully crafted calculation. They achieve this by building their position using their own calculated spread using VWAP as the price calculation, remembering at the same time that this type of execution should also have minimal price movement. They never want to been "seen'' accumulating or distributing to give away their positional intent. This could or it could not be what your cousin was referring too but it is one of a handful of benchmarks.

Very interesting Jonnyboy, thanks for the reply. Are you essentially saying that the overall price is simply averaged throughout the day? am assuming it's not as simple as that!

Keab 

Very interesting Jonnyboy, thanks for the reply. Are you essentially saying that the overall price is simply averaged throughout the day? am assuming it's not as simple as that!

No. Not even close to being as simple as that. I was attempting to simplify that particular aspect, but that doesn't mean it is simple.

While VWAP and their associated strategies are relatively straightforward in concept, their implementation is anything but.

EDIT: The attachment here is the document that started my VWAP journey.

MiamiTrader 

I quickly threw together a strategy on NinjaTrader with only the VWAP test long/short and so far with a risk/reward of 1:1 it's just above a third win rate. I'm trying several things but so far a 1:1.5 has a positive net expectancy.

Did you really come up with a strategy that consistently generates a third win rate with 1:1 r/r? If so, why not just flip the entries and exits and you will have a winning strategy?

sheldonxp 

Did you really come up with a strategy that consistently generates a third win rate with 1:1 r/r? If so, why not just flip the entries and exits and you will have a winning strategy?

I have a habit of programming trading ideas into NinjaTrader to see if it has potential in a strategy I can adapt for my discretionary or algorithmic trading. I use a modified version of this strategy for discretionary and it works well. I haven't put in the time to make something work algorithmically (if you will) because I've been swamped with other more important tasks. My algorithmic strategy that is not related to VWAP does well so I'm focused on improving it currently.

sheldonxp 

Did you really come up with a strategy that consistently generates a third win rate with 1:1 r/r? If so, why not just flip the entries and exits and you will have a winning strategy?

Find a losing strategy and then do the opposite.

This subject has been debated (and tested to death) certainly in the forex market.

No one has ever proven that such a strategy would work (discretionary or algo).

View below interesting youtube video:

Anyway, apologies for digressing from the purpose of this thread.

Lfx987 

Find a losing strategy and then do the opposite. This subject has been debated (and tested to death) certainly in the forex market. No one has ever proven that such a strategy would work (discretionary or algo). View below interesting youtube video: Anyway, apologies for digressing from the purpose of this thread.

You are correct. Taking a poor performing strategy and just reversing it won't magically make it profitable. It just doesn't work like that. I have reversed only a handful of strategies I have tested, but this was more out of frustration than anything else and the results were no better. And yes, back on topic now! If anybody wants to comment more we can always create a new thread.

@JonnyBoy, Its been couple of months but I just wanted to leave update here since you were the inspiration for this


chartCapture


Basic idea behind this is to have weekly anchored vwap with stdvs and then have daily anchored vwap with 2.5 stdv (sometimes changes as per security). Its fascinating how price enteracts with this basic mapping, I've been following the rules you have mentioned previously, while I generally avoid mean reversion trades, I do find this quite useful to ride out moves much more comfortably. It keeps my anxiety down.lol

I must say because of you and this thread my ability to read market has improved considerably.

LastDino 

@JonnyBoy, Its been couple of months but I just wanted to leave update here since you were the inspiration for this chartCapture Basic idea behind this is to have weekly anchored vwap with stdvs and then have daily anchored vwap with 2.5 stdv (sometimes changes as per security). Its fascinating how price enteracts with this basic mapping, I've been following the rules you have mentioned previously, while I generally avoid mean reversion trades, I do find this quite useful to ride out moves much more comfortably. It keeps my anxiety down.lol I must say because of you and this thread my ability to read market has improved considerably.

That is great to know. I planned to do another flurry of VWAP stuff when I get the chance. There has been enough soak time for traders to discover VWAP just like you have and make it their own.

You mentioned the weekly VWAP and it was active today with some beautiful entries. In the chart below the orange lines are the weekly VWAP SDs. The blue/red line is the weekly VWAP. The grey dotted lines are today's SDs and the yellow/magenta is today's VWAP.

The white box is price movement from the weekly SDs and weekly VWAP. The yellow box is price movement from today's SDs and VWAP. The double box shows the cross over of the weekly +1SD and today's VWAP. It was like poetry.

Of course this is so easy to show after the fact, but I'll try and put some more VWAP posts together about these types of locations.

JonnyBoy 

That is great to know. I planned to do another flurry of VWAP stuff when I get the chance. There has been enough soak time for traders to discover VWAP just like you have and make it their own. You mentioned the weekly VWAP and it was active today with some beautiful entries. In the chart below the orange lines are the weekly VWAP SDs. The blue/red line is the weekly VWAP. The grey dotted lines are today's SDs and the yellow/magenta is today's VWAP. The white box is price movement from the weekly SDs and weekly VWAP. The yellow box is price movement from today's SDs and VWAP. The double box shows the cross over of the weekly +1SD and today's VWAP. It was like poetry. Of course this is so easy to show after the fact, but I'll try and put some more VWAP posts together about these types of locations.

Indeed, that's a greate chart and will look forward to more posts from you

JonnyBoy 

That is great to know. I planned to do another flurry of VWAP stuff when I get the chance. There has been enough soak time for traders to discover VWAP just like you have and make it their own. You mentioned the weekly VWAP and it was active today with some beautiful entries. In the chart below the orange lines are the weekly VWAP SDs. The blue/red line is the weekly VWAP. The grey dotted lines are today's SDs and the yellow/magenta is today's VWAP. The white box is price movement from the weekly SDs and weekly VWAP. The yellow box is price movement from today's SDs and VWAP. The double box shows the cross over of the weekly +1SD and today's VWAP. It was like poetry. Of course this is so easy to show after the fact, but I'll try and put some more VWAP posts together about these types of locations.

@JonnyBoy

Where exactly is the starting point for the weekly VWAP? Do you take the last rotating 5 trading days? Or is it just the current week, ie; starting from the Sunday globex session?

Thank you.