VWAP trading patterns

ironnchef's picture
Rank: Neanderthal | 2,309

i semi-recently discovered intraday vwap as a support/resistance method...and its been amazing. I was resistant to exploring how to use vwap in the past because i was like "everybody knows about that...so it can't have value"...but clearly i was being an idiot...because vwap rocks if used correctly.

i strongly suggest you people explore ways to integrate it into your trading...free advice...take as is

Comments (92)

Jan 27, 2020

You know you can create your own VWAP calculation for execution. When I was a hedge fund, we had hundreds of open contracts on the day of expiration. We usually held the majority of the open interest. I know I shouldn't divulge this information but we would ran a VWAP algo an hour before the contract expires and we would literally move the market and the market makers would squeeze the market. If you google search January 2019 natural gas futures contract expiration and the news said the contract blew up 80bps without any fundamental backing... that was us haha. We made 1.5mm in that one day.

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Jan 27, 2020

its been a magic money machine the past 2 weeks....and the more research i do...i'm kicking myself for not discovering this earlier...its cost me millions of personal p&l not using this

Jan 27, 2020

I don't really use VWAP besides for execution. But I'm curious to know how you're interpreting this. Is it a level play or a reversion?

Jan 28, 2020

I'm checking out Sierra charts and I don't fucking get why they have a time applied renko? Makes absolutely no fucking sense. It's these little bullshit that makes me question their platform and why I pay 800 bucks for CQG cause atleast they get it.

Jan 28, 2020

wait..."time applied renko"? i've never seen that...don't see it as an option...tho i don;t use Renko...i looked at it once but it had no value to me...I use constant volume bar

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Jan 28, 2020

I see that on CQG but I never looked into it hence used it. There are people that ignorantly uses stuff without seeing the purpose behind it or what it entails but I'll look into it, thanks. Curious to know how you apply it

Jan 28, 2020

i think the key in trading (i hate to repeat Dalton...but he's right) is to think creatively trying to understand your biggest competitors...get inside their head and understand what they do and why they do it. If you have 10bl or 20bl of non-levered cash....how would you behave...

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Jan 29, 2020

VWAP strikes again!!

its pretty crazy...and of course, it doesn't always work....but it works more often than it doesn't...and the wins are bigger than the losses.
i'm sure i've heard that phrase before...

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Feb 3, 2020

Hey @ironnchef question, did you ever apply curve fitting, linear, polynomial, cubic, etc across the yield curve, spread curve, fly curve, etc... and what is your interpretation of this? Possibly longer term reversion play? I created a fly curve the NG 1mo sep fly vs NG 1 mo dec fly looks cheap and are the biggest outliers relative to polynomial fitted curve but I know it's not perfect because these fitted curve is nothing more than a line without true fundamental overlay.

FYI look up

www curveadvisor dot com

great info trading ED from former STIRs trader at JPM during pre -volcker rule days

Feb 3, 2020

sure...but it doesn't work over the long run....because when a large player does a large trade (typically a program that takes multiple days to complete because the positions are so large), the market ignores the curve fitting and runs people over. It may work in the short run...but in the long run, you always get run-over (happened to me a few times before i learned something better).

Feb 3, 2020

Not sure about the yield curve because of the regime changes but I've been thinking this related more to commodities due to seasonal factors... if I look at natural gas forward curve and construct a polynomial fitting across the spread and fly curve and see how the forward curve played out last year, two years, three years, etc etc... on top of my technical, you think this could be pretty advantageous?

Feb 5, 2020

We run analytics when we price for trades. Generally, a VWAP and TWAP (along with various other slicing and dicing approaches) comparison is used. Doesn't really make sense to consider VWAP your "support and resistance" IMO, though I do agree that it is useful as a benchmark of price. Most large trading desks will run these analytics for buy-side traders, but we add a probabilistic component to size the trade in the tick. This kind of stuff does work out in the long run to eek out a better price intraday (better arrival px), but I'm not sure if I would actually use it for entry/exit. It seems inherently risky because you do not know who you are trading against. Just my thoughts.

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Feb 5, 2020

you have got to think creatively when prop trading (thats what i do)

look at the charts i posted above...

Feb 5, 2020

I get what you're saying but what I am getting at is that you are extrapolating from a limited set of data if you are using VWAP to evaluate support and resistance. For that stuff I'd really just pay attention to order book and market depth, and tag regions with big volume at price. A lot of trading software can do this for you (I use an O/EMS but pretty sure retail and prop trading software has it too). On the street, benchmarking for VWAP was popular in the 90s and early 00s, and nowadays if you have your broker hold your order, they are using much more useful analytics to execute.

Since support and resistance is really just another way of saying "prices where orders tend to execute", knowing how size trades really matters and is useful if you're scalping or making lots of intraday trades.

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Feb 5, 2020

I don't solely use VWAP as measure of support or resistance as I have my own layer strategy and I think VWAP, well in my case, MVWAP is just another layer validation to increase transparency of where the market is trading relative to the bench mark.

Now if we're using VWAP for execution, we use our own proprietary formula to calc our VWAP for algo execution. This is different from putting on trades on for the purpose of making money. TWAP... I don't really see the value behind this besides unless you're busy and can't manage your execution, we never use TWAP

Feb 5, 2020

We run scenarios for multiple execution types and venues to try to get the "best price", and it includes a TWAP as an alternative benchmark to VWAP. I agree in that I also don't think anyone really uses it for actual execution.

Going back to my comments on VWAP (I assume VWAPs are weighted moving in general), I agree with you in its usefulness as a benchmark, but just that I wouldn't use it for s&r. There ae better tools for that, like super-imposing volume horizontally at price, but even then you'd need to have a theory on who you are trading against for that to work multi-period. Are you just day trading or are you using price and volume as a signal?

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Feb 5, 2020

"super-imposing volume horizontally at price"
What exactly is this? Are you referring to volume profile of each tick?

It's a bit of both.I trade intra-day distortions when putting on prop trades, outside of the market making business... so if I see a price that is offset, I would use VWAP as a second measure of validation to see how much the price deviated within a stretch of certain confidence interval. I'm actually testing this out. I've never used this so iron chef recommended it to me. I think as a trader, you have to keep an open mind, test it, validate it and most importantly be able to explain why it works. Too many wanna be traders put on random bullshit without explaining the why and the original purpose behind why it was created in the first place.

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Feb 5, 2020

Ok that makes sense. For that kind of stuff (discretionary legs based upon price movement), we will calculate the average move (variance, std) for the period (tick, minute, hour, day, week, month, etc.), subsequent returns, momentum, in order to find the probability of profit. This is actually not hard to do, just needs a solid excel sheet and a data feed/excel plugin.

For super-imposing volume, lots of software allow you to add volume to your price chart, but to flip the axis. I'm sure you have used/seen it before-- it's more useful than a VWAP to find price at volume spikes ("support and resistance").

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Feb 5, 2020

Thanks for the info.

"For that kind of stuff (discretionary legs based upon price movement), we will calculate the average move (variance, std) for the period (tick, minute, hour, day, week, month, etc.), subsequent returns, momentum, in order to find the probability of profit."

So is it a running calculation on your excel?
Also if you're calculating the variance, std, etc... What are you wrapping it around? The price itself? And if so, how far back do you look? So when you said tick, how far back in ticks? I'm guessing this is subjective?

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Most Helpful
Feb 5, 2020

Yes you can set it as a running calculation in excel. I don't do this, but the software we use (built in house unfortunately) is running those same calculations.

For the period, we will select it. Generally speaking, on any security, there is going to be an asset class determined trading profile. So you want to run analytics on your general asset class first. You then want to compare the specific security you are trading vs. the asset class -- to determine if it trades differently and why. Finally, for your periods, you want to define a time horizon. E.g. if you are trading in 5 minute intervals then run the analytics looking at sequences of 5 minutes.

For the asset class, we generally want as much data as possible. I'd say a minimum of 10 years for daily, 25 years for weekly/monthly. Intraday is more challenging. We will run analytics to discover trading day profiles for the asset class and security we are looking at. But honestly, alpha attributed to this is very very low. You can do fine by just running analytics on your overall asset class, and then running analytics on the day, and cross comparing to determine if the security is trading normal or non-normal, if normal what is the direction of the asset class? If non-normal, what is the direction of the security?

For stocks, this is easier. Here are some known exploitable tendencies:
- Institutional investors tend to buy against intraday momentum, with most orders being filled at close (partially due to how block trades are structured).
- The direction in the first half-hour of trading is significant to the direction of the last half-hour of trading.
- Stocks with high momentum (momentum is cross-sectional, so it is relative to peers!) for the past three months tend to underperform in the subsequent one month.
- Heavier volume can be a signal of more informed traders

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Feb 25, 2020

Thanks. Will look into VWAP as well. Recently been playing around with MoneyFlow

Mar 1, 2020

@ironnchef I finally got access to CME, CBOT and ICE Europe data. So let's catch up on your ZB. The guy from bluecrest prop trades 400 clips at a time for Eurodollar outright. In natural gas, that is unheard of. Is that common at a bank?

Mar 1, 2020

idk...i never worked on the energy desk. on a rates desk, avg prop trading size is 50mm-100mm 10yr notes trading outright...and larger when trading curve/fly

front end i've seen guys prop trade 1bln 2yr-3yr notes outright...and larger on curve/fly.

these are for avg trade size when prop trading...sometimes smaller...sometimes bigger.

Mar 1, 2020
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Mar 8, 2020