DOW and VWAP

[Grey1]

I donot trade the cosolidation so thought to contribute some thing to my fellow traders and that is the concept of VWAP ..

Basicaly VWAP is the average price paid by average trader on any given day ..

(Some real time platforms such as IRD offers intra day VWAP as standard but others such as IB do not and one needs to caluclate that in real time using an extrenal routine.. )

you can get VWAP of stocks but for indecies you can not as you need to have the volume to calculate the VWAP figure.. So one thing you can do is to superimpose a stock which shadows DOW such as MSFT and draw a straight line through its VWAP and watch when MSFT crosses to either above or below to get a feel of where DOW might be heading .. You can do the same for NASDAQ by using QQQ as the bench mark,,

For those of you who are skilled at writing interfaces to IB , you can take this a bit further by shortlisting those stocks that are at 2SD away from their VWAP and long them when MSFT crosses its vwap to above... Statistically there are 95% chance that prices donot exceed these limits and if they do they often have no Volume back up and sooner or later go back to their VWAP..

There are other advantages in VWAP trading and that is the quantifying the risk element of each trade..

PS:--VWAP trading is done by institutions and you use no technical indicators ,, just volume and price..

 

[stevet]

grey, hi

price and volume are key and volume does get overlooked - but institutions have the best trade access to markets and no fees - so their trade algorythms are gonna be well different to even a prop company needs - let alone a private investor - and once those anomlies pop up and they are in the trade - and institutions will go in for a cent and then u folllow - u can get dumped on - again you definetly can profit from this - but u better make sure u have your running shoes on to keep up

nice post by the way - and glad u are not going on about technical indicators - i guess u do not plan to write a book or train people!

 

[Grey1]

Steve,

The good news is that to move VWAP to either direction even by 1 C, needs a huge volume which can hardly be faked... Traders need to understand the correlation between Volume and price action to be able to make money from the market.. I think price/volume and risk managment is the minimum tools for successful day trading ..

The post above was for the benefit of our DOW traders...

 

[stevet]

risk management is a term that has so many defintions in trading - mostly aberations - that it is as dangerous as it is useful - but price is king, and volume is not far behind, but it does lag, and in there is the opportunity and when price is moving your way with volume - you know u r having a good day!

 

[Grey1]

Yes totally agree.. most people think of money management and the risk management as the same.. Money management controls the bet amount where risk management takes care of the stop loss and Entry.. I have been insisting on why entry is such an important issue in trading and why random entry does not help traders in real time trading .. Those who support random entry can only support their argument with back tested result which mathematically can be optimised should traders take an acceptable level of reward/risk and as we all know day trader take profit as soon as they feel the dynamic of stock is changing than stick to the LAW of Exit..
Chartman’s Dow strategy has an excellent entry criteria reflecting his skill in trading ..

 

[stevet]

grey

frankly i have not heard of anyone who has promoted random entry - obviously that is nonsense - and even if they had some sort of proof from a back tested system - for sure they would get blown out real quick so never get to talk about their idea twice

but that sort of nonsense is why i steer well away from any sort of trading which has so called risk analysis - even money management - you need a defined and consistent way of trading and u need to pretty much make money each day - if u r not making money each day - your methodolgy is wrong and u need to find a new one

for outright positions, u need to pick the right entry and exit points, always trade with the trend and only increase size when volume is so strong that it provides a real momentum to underpin your positons

arbing is a different game with a different set of rules - but thats another story!