The Complete Vwap Strategy

These are the rules of engagement in a VWAP trade..

Market is strong with DOW open + 50..

1) We don’t pair trade when market is strong .. We only take a directional trade
2) We only go long ..
3) We go long when price approaches Lower band
4) We fine tune with MACCI ( MACCI is slowed down version of CCI and eliminates much noise those with TS please PM me for the code ).. MACCI is a secondary tool
5) Further fine tuning with L2.. Make sure there is not a series of bidders sitting much further than your entry
6) Deduct the lower VWAP price from the VWAP and make sure there is enough meat in the trade.. For example if the VWAP is 30 $ and lower VWAP is only 29.80 then your max gain will be 20C.. is this what you want ? .. Make sure your possible reward ( the max gain ) is much greater than your risk ( stop loss). No point to get only 20C from a trade if you only trading 100 shares..

Reverse above for short position .. Short ONLY from the upper band VWAP when market is – 50 .



Market is oscillating 50 > DOW > -50

You can take both directional and pair trade positions.

1) Short a stock with price near its upper VWAPO and simultaneously long another stock with the price near the lower band .. This should result in a market neutral position ..
2) If you can not find two good candidates then directional trade.. Since the market is oscillating you can go both short or long on the day .

3) Follow rule 4 above
4) Follow rule 5 above
5) Follow rule 6 above

If you pair trading always put your short trade first.

Stick to these rules and for get about predicting the market direction .. Don not bring any other rules of trading you know from the past into this strategy.. Once you totally know and understand the strategy then test drive it for 3 days.. and post your results on this thread.. All trades . GOOD . BAD , UGLY

Exit :-- We exit when price hits the VWAP

Money managment :- Sell @ VWAP or if you prefer sell ¾ @ VWAP and let ¼ to run.

Risk management :-

a) Stop loss = calculate the possible reward ( Lower VWAP price _ VWAP price ) * 2/3 for each position . ( upper VWPp for going short )

b) Avoid open .. let the VWAP to settle.. pro’s don’t trade the open .. Avoid news driven stocks at all costs..

Tips for trading US stocks.

1) don’t trade very volatile stocks .. These stocks are for mugs..

2) trade stocks with price range around 20$-40 $
3) trade stocks with daily volume not less than 1.5 mil

Guys,

This strategy is simple and can be automated ( except the l2 fine tunning. This is the heuristic part of the strategy )..

Once automated you only fine tune your entry and that is all..

Any questions let me know.. May i ask members to post all trades.. We are not in the business of kidding ourselves.. lets be honest and have your trades.. No one will blame you ,, However you can all blame me if things went wrong .. ( all paper trades welcome .. Please post it in real time .. it makes more sence )

There is not such a thing as holly grail but a profitable strategy should be just that .. PROFITABLE..

Grey1,

1) We don’t not pair trade when market is strong .. We only take a directional trade

Click to expand...

Shouldn't this read:

1) We don’t pair trade when market is strong .. We only take a directional trade

The way you have written it says that we do pair trade when market is strong and I believe you meant the opposite ?



Paul

If stop loss in all cases = 2/3 potential gain, this gives 1.5:1 reward: risk ratio? is this correct?

Also, can you indicate the expected win rate of this strategy?

In a Long trade the risk is usually the Low of the day and the target is VWAP. In my own case the reward to risk is usually greater than 3 to 1 and sometimes as high as 8 or even 10 to 1.


Paul

oppps trader333.. thanks for the correction , did not see the not .. going blind I am .

darrenf,

yes The reward/risk of 1.5 is correct..

It is difficult to give win % because the fine tuning bit needs L2 and that will affect the result.. You should be profitable straight away from day 1..

Crikey, I have to admit to not risking that much at all maybe I am losing out.


Paul

Paul,

The figure 1.5 is the minimum .. As long as we are not trading with less 1.5 we should be safe.. In most cases R/R will be much higher.. in fact the higher the better.

regards

Grey 1

Avoid open .. let the VWAP to settle

Click to expand...

How long do you suggest leaving things to settle down?

I generally work on the basis that there are 2 solid trading sessions in the NASDAQ day, ie 10.00 a.m. until 12.30 p.m. and 2.00 p.m. to 3.30 p.m. all EST.

Are these times appropriate to VWAP strategy?

Regards and thanks.

LevII

just ignore the first 30 minutes..

regards

darrenf

I have been trading Gray1's VWAP strategy since November, the only differences are that I havn't used MACCI because I have no way of getting it, my Risk Reward is never less than 2:1 and I tend to trail my stop. My win percentage is 64% over 279 trades, all of them directional, my R/R is 2.4 over that period.

DaveGos,

Wow!

Feed those figures into the Monte Carlo simulation.

Long may it continue.

LII

L11
I aught to add that I only traded 100 lots in November, 200 in December and am moving to 400 this month, I'm cautious by nature, and would rather move in this incramental way until I am fully confident that I have the strategy correct. For example, I traded the first two and a half months using the underlying index as my reference point until I posted a trade and Gray1 pointed out I should use the DOW. I also need to understand Level 2 better.

Dave,

What software are you using ?


Paul

ProphetScan, Quotetracker and Moneynet, I'm looking to buy TS but they are not so easy to get hold of at a reasonable price.
I have the scanner set for current price within 10 cents of the days high/low with a daily h/l spread of min $1.20 but it provides way to many alerts, hence the need for TS.

I've just re read my posting and that should read 179 trades.

DaveGos,

Some good results there. Does your approach broadly follow that outlined by Grey1?

Grey1:

I followed some stocks on Friday just to check that I had the vwap alerts working correctly in TS2000i. SYMC gave several alerts when it sank bleow the lower band, but if you look at the chart you will see that most of these were false, and the price sank even lower. Does this happen often, and is this where I would have seen the true price intentions on L2?

Having said that, setting a stop at lod would have provided reasonable cover if a position has been taken.

Paul

On a strongly trending day for the Dow, (Let's say upwards), it is inevitable that you will get a large number of "Short" Alert trading signals which you just have to ignore and when you then get a "Long" alert you take it.

On days when you get no real trend (ie the Dow not reaching + / - 50 points) such as Friday then I would be looking for Pair trades only.

Make sure when pair trading you place your Short trade first as sometimes you cannot Short a stock and this would then leave you with one half of a pair trade that you cannot get the second half.


Paul

DaveGos said:

I have the scanner set for current price within 10 cents of the days high/low ...

Click to expand...

Does this mean you get alerts for stocks making a new high/low for the day or just in relation to a previous high/low of the day?

Trader333 said:

Make sure when pair trading you place your Short trade first as sometimes you cannot Short a stock

Click to expand...

Why is this Paul?

Beacuase of short trade rule (which I'm a little unclear on) or broker limitation?