Hedging US stocks using VWAP as a vehicle

[Grey]

Those of you who are familiar with hedging techniques often use various other means of arbitrage trading of two stocks against each other to reduce risk.. I just finished trading the US Market with the use of VWAP technique. This is a pretty old technique which is both practical and easy to implement on most commercial platforms including Tradestation.. It is a statistical fact that price seldom falls beyond the two Standard Deviation ( in fact 95% of action is within these limits) of the mean and should regress back to its VWAP ( or near enough) before the close of the day.
Today while DOW was consolidating I hedged GENZ against EBAY with 52 points gain using this strategy. I recommend all members to look at this methodology to improve performance.
The chart below is an automated real time implementation of the above concept with stocks to be shorted marked in red and long in green, using IRD platform.

 

[ChartMan]

Excellent, but for us technofreaks, how do you get an RT feed into Excel????

 

[Grey]

VWAP

Provided the real time platform offers VWAP , you would not need Excel. You can write small routine to do this calculation for you. VWAP is a broker level feed and is available on IRD with a link to EXCEL. One only has to write his strategy in EXCEL format for IRD to execute the instructions.
We are currently implementing the time frame analysis on complete NAS , DOW stocks using Excel as the vehicle.

 

[flea]

Grey, probably being a total idiot here but could you tell me what the numbers are in each column I'm presuming the last number to the right is the VWAP.

Thanks for your patience

Steve

 

[Sharky]

Martin, with regards to getting an IRD Feed into excel. Theres a link in the IRD platform called IRD-Excel, this downloads a file to your PC, which when installed automatically sets Excel up with the link. I've included a picture of the example Excel spreadsheet you get with it. But as you can see I'm still strugling to get the feed working, hence all the #REF!s

Here's the overview as included in the help file:

TA_SRV uses the Windows DDE protocol to provide live quotes and historical data to Windows spreadsheet programs. This feature makes real time portfolio tracking and proprietary pricing possible. Users can write macros to further analyze and display data with their spreadsheet program.
The DDE link between TA_SRV and Microsoft Excel 5.0 is very powerful, and offers capabilities not found in other environments. The server provides real-time updates to worksheets containing requests for current quotes or historical tick, intraday and daily data. You can also return options information from the server to your worksheet.

The TAL Trading Tools toolbar is a custom Excel 5.0 toolbar supplied with your TAL Trading Tools software. The buttons on the TAL Trading Tools toolbar run macros that display current quote information and historical data in your Excel worksheets. Information on manual entry of DDE formulas is also included with this manual chapter and help file.

 

[Grey]

Fibonnacci Peak

Fibonnacci Peak trading system (not to be confused by the Fib Levels)is what I have been using to trade the market for a while. This strategy been written into Macro to be executed by IRD.
An example of this system is shown below with long and short signals on FTSE stocks..

 

[Grey]

Real time portfolio

Sharky,
The real time portfolio manager works OK..

 

[Sharky]

Thanks Grey,

Can you tell us any more about the Fibonnacci Peak trading system? Sounds interesting and I'd like very much to start programming a system to generate buy and sell signals, particularly the ftse/dow/spoo indices. Of course you can't do this with IRD directly buy via excel it would be possible. Be interested to know how easy it is to setup a system, and what alternatives to Excel there are, for example AIQ r/t triggers.

Cheers,
Sharky.

 

[Morris]

More on VWAP

Grey, thanks for your post, interesting stuff.

I have been using VWAP in my trading of UK FTSE 100 stocks for the last couple of months, using the VWAP as an indication of the likely direction and target for the trade.

What I am doing is trading support & resistance levels, but using VWAP as an additional filter on the trade.

Have to say the results have been reasonably good, but there are times when the price remains at some distance from the VWAP at the end of the trading session.

Seems to me that this is better for longer term trades (several hours, maybe even o/night holds) and it will keep you out of short term momentum trades (which of course can be very profitable too.)

Any more thoughts on VWAP would be much appreciated.

MO

 

[Grey]

Fibonnaci Peak trading system

Fibonnaci Peak trading system.. The concept revolves around the idea that market cycles around the Fibonnaci numbers of 8,13,21 …where every number is the sum of two previous ones.. We apply this concept to RSI (Close of each bar and not RSI WILDER which uses high/low to calculate OB/OS levels.. ) in these different time frames. ( RSI 8, 13,21) As soon as these three RSI turn direction from OB/OS levels at the same time we get the REVERSAL in the price.. It is important to make sure these three RSI,s turn at the same time and from Ob/OS levels.

 

[Dai]

IRD_EXCEL

Sharky,

You will not get the live updating figrues unlwss you subscribe.

Dai

Martin, with regards to getting an IRD Feed into excel. Theres a link in the IRD platform called IRD-Excel, this downloads a file to your PC, which when installed automatically sets Excel up with the link. I've included a picture of the example Excel spreadsheet you get with it. But as you can see I'm still strugling to get the feed working, hence all the #REF!s

Here's the overview as included in the help file:

TA_SRV uses the Windows DDE protocol to provide live quotes and historical data to Windows spreadsheet programs. This feature makes real time portfolio tracking and proprietary pricing possible. Users can write macros to further analyze and display data with their spreadsheet program.
The DDE link between TA_SRV and Microsoft Excel 5.0 is very powerful, and offers capabilities not found in other environments. The server provides real-time updates to worksheets containing requests for current quotes or historical tick, intraday and daily data. You can also return options information from the server to your worksheet.

The TAL Trading Tools toolbar is a custom Excel 5.0 toolbar supplied with your TAL Trading Tools software. The buttons on the TAL Trading Tools toolbar run macros that display current quote information and historical data in your Excel worksheets. Information on manual entry of DDE formulas is also included with this manual chapter and help file.

 

[Dai]

VWAP

The Columns in the table are as follows, from left to right:-

TICKER PRICE BID ASK VWAP ACTION (Buy/Sell)

You can have these arranged so the stronges Buy or Sell is at the top of the list ranked downwards in order.

Off course in real time the order of the tickers changes every minute or two. I have been using this system with great success.

Hope this helps,

Dai

Grey, probably being a total idiot here but could you tell me what the numbers are in each column I'm presuming the last number to the right is the VWAP.

Thanks for your patience

Steve

 

[Dai]

Re: More on VWAP

Morris,

I find that this setup is far more effective on Nasdaq stocks than on UK stocks as the Bid / VWAP differential is much greater and the market moves faster.

Dai

Grey, thanks for your post, interesting stuff.

I have been using VWAP in my trading of UK FTSE 100 stocks for the last couple of months, using the VWAP as an indication of the likely direction and target for the trade.

What I am doing is trading support & resistance levels, but using VWAP as an additional filter on the trade.

Have to say the results have been reasonably good, but there are times when the price remains at some distance from the VWAP at the end of the trading session.

Seems to me that this is better for longer term trades (several hours, maybe even o/night holds) and it will keep you out of short term momentum trades (which of course can be very profitable too.)

Any more thoughts on VWAP would be much appreciated.

MO

 

[PippinL]

Any here still using Vwap after all this time??

 

[Trader333]

Leovirgo still uses vwap.


Paul