Monday, July 06, 2009

Tracking VWAP and Range Trading Days



One thing I've been keeping an eye on with the traders is the day's volume-weighted average price (VWAP). In a range market (see bottom chart), we will often oscillate around this level, as the recent Twitter posts emphasized:


9:56 AM CT - Banks hovering at their 6/23 lows; 18 stks up from open, 22 dn; ES sectors more mixed than broad mkt. VWAP = 886.50

9:59 AM CT - Note than in range mkt, we should trade back to VWAP; XLP, XLV relatively strong (defensive sectors).


That means that fading the edges of ranges toward VWAP can be a high percentage trade, particularly when volume and TICK extremes fade near those range edges. I track VWAP with the red line in the Market Delta chart above; in general, trending markets will stay above or below this level; range markets will move around it.

12:55 PM CT - I've updated the chart to show further oscillation around VWAP (top chart), as we see strength in the ES market largely not confirmed by the broad market. Note how VWAP also represents the area where we have transacted the most volume (side histogram), as this represents our day's best estimate of value. In a range market, we want to fade moves away from this value area.
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1 comment:

bzbtrader said...

Brett,
In your example you use 15 minute bars. As a dedicated follower of the VWAP I find that toggling between 2 and 15 or 30 minute bars helps me see more clearly both the likley convergence level and of price/VWAP and the path of the momentum move to that convergence.