Grey1
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ian,
The entry point will be based on the price near or near enough to the lower VWAP ( I know paul uses it when price falls outside but I stick to L2 to avoid price running down the VWAP band ) .. How ever you must have a quick look at your L2 screen to make sure there is not some MM sitting there with a large bid to pull the price further down ..
Also there is an other indicator called MACCI .. MACCI is a secondary indicator which is also helpful but we donot use it as primary tool . Just a confirmation .. just like L2..
Our primary indicator is the VWAP and its MDP bands.. L2 and MACCI are the secondary too..
Once you get this system automated you will be alerted for both short and long candidates .. TS does that for you and is dead simple. .. The confirmation done by yourself on L2 is the heuristic part of the strategy .
regards
The entry point will be based on the price near or near enough to the lower VWAP ( I know paul uses it when price falls outside but I stick to L2 to avoid price running down the VWAP band ) .. How ever you must have a quick look at your L2 screen to make sure there is not some MM sitting there with a large bid to pull the price further down ..
Also there is an other indicator called MACCI .. MACCI is a secondary indicator which is also helpful but we donot use it as primary tool . Just a confirmation .. just like L2..
Our primary indicator is the VWAP and its MDP bands.. L2 and MACCI are the secondary too..
Once you get this system automated you will be alerted for both short and long candidates .. TS does that for you and is dead simple. .. The confirmation done by yourself on L2 is the heuristic part of the strategy .
regards
Trader333
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Ian,
I should have maybe clarified what I posted. Because I have automated my alert system, I do not get alerted to potential trades unless they go outside of the outer vwap bands as well as a number of other things that I have factored in including Level II and MACCI. I have done this to cut down on the number of alerts I was getting.
Paul
I should have maybe clarified what I posted. Because I have automated my alert system, I do not get alerted to potential trades unless they go outside of the outer vwap bands as well as a number of other things that I have factored in including Level II and MACCI. I have done this to cut down on the number of alerts I was getting.
Paul
I have recently been looking at pairs trading the implied vols on the more liquid cboe equity options - A kind of dispersal trading.
It is similar to the pairs trading discussed here but it seems that the vols are more likely to revert. The problem I am having is with remaining delta neutral. I am having to do a proxy hedge with index options and therefore am again subject to the instability of correlation. Hmmm...
Any thoughts anyone...?
P.S. Apologies if I have missed it on another thread but what software are you using Grey1?
It is similar to the pairs trading discussed here but it seems that the vols are more likely to revert. The problem I am having is with remaining delta neutral. I am having to do a proxy hedge with index options and therefore am again subject to the instability of correlation. Hmmm...
Any thoughts anyone...?
P.S. Apologies if I have missed it on another thread but what software are you using Grey1?
Grey1
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Volatile,
The methodology I use to pair trade is sort of unconventional and was designed for day trading ignoring the correlations between the pairs due to instability of correlated pairs in real time..
In the previous threads I have outlined the application of VWAP analysis to pair trading and various means of selecting the pairs in real time..
I use TS and real tick and am a US equity trader ..
The methodology I use to pair trade is sort of unconventional and was designed for day trading ignoring the correlations between the pairs due to instability of correlated pairs in real time..
In the previous threads I have outlined the application of VWAP analysis to pair trading and various means of selecting the pairs in real time..
I use TS and real tick and am a US equity trader ..
VolN;
Isn't delta there to tell you how many of the underlying you need to remain neutral? If you're short calls and puts and have 3 delta's outstanding, then you buy (?) 300 of the stock?
Been a while since I dipped into options. This may seem to obvious so I guess it doesn't answer your question.
Isn't delta there to tell you how many of the underlying you need to remain neutral? If you're short calls and puts and have 3 delta's outstanding, then you buy (?) 300 of the stock?
Been a while since I dipped into options. This may seem to obvious so I guess it doesn't answer your question.
BBB,
Indeed the delta is there to tell you how much of the stock you need to buy. The problem is that if you are long a basket (say 5 equities) of straddles and short the same on the premise that the implied vols will converge and you start picking up some delta (positive and negative) as the market moves, you have 10 stocks which need delta hedging.
The transaction costs when dealing frequently in small size to flatten this out eat heavily into the probability of generating a positive return.
Because the straddles are at the money there is a lot of gamma and this becomes a real issue. The cheapest way I have found to hedge the net delta exposure is to treat it as if it were equivalent to index delta and to hedge it with an index option. The problem is that 10 stocks do not the S&P 100 make! The correlation is volatile.
Any ideas on how I could flatten out my gamma a bit are probably closest to the mark...
Indeed the delta is there to tell you how much of the stock you need to buy. The problem is that if you are long a basket (say 5 equities) of straddles and short the same on the premise that the implied vols will converge and you start picking up some delta (positive and negative) as the market moves, you have 10 stocks which need delta hedging.
The transaction costs when dealing frequently in small size to flatten this out eat heavily into the probability of generating a positive return.
Because the straddles are at the money there is a lot of gamma and this becomes a real issue. The cheapest way I have found to hedge the net delta exposure is to treat it as if it were equivalent to index delta and to hedge it with an index option. The problem is that 10 stocks do not the S&P 100 make! The correlation is volatile.
Any ideas on how I could flatten out my gamma a bit are probably closest to the mark...
Grey1
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Pair Trading continue,
To continue my pair selection I need to discuss the following concept with you ..
You guys as traders have to sit down and think about how you would like to trade the market before spending a single penny . As traders you face two choices..
1) you can trade the momentum and buy into strength
2) You can trade the birth of momentum and trade the weakness..
Since this issue is so vital to trading in general irrespective of time frame, I will let the members to give their views and discuss their reasons for taking either approaches,,
Awaiting your views ..
To continue my pair selection I need to discuss the following concept with you ..
You guys as traders have to sit down and think about how you would like to trade the market before spending a single penny . As traders you face two choices..
1) you can trade the momentum and buy into strength
2) You can trade the birth of momentum and trade the weakness..
Since this issue is so vital to trading in general irrespective of time frame, I will let the members to give their views and discuss their reasons for taking either approaches,,
Awaiting your views ..
TheBramble
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Trade into momentum and strength. "Go with the flow", "The trend is your friend". I know these are pretty old sayings from the market, but when I follow them, I personally have more success then when I don't.
Also, using TA indicators, it's a LOT easier to pick a move when it's already happening and signalled it's intention than to guess when/where it might.
Trading weakness (which I used to do) smacks of trying to pick tops and bottoms, which, although profitable when you get it right, you don't get right that often (or at least, I didn't).
There's room for both I imagine as long as you work the probabilities and risk assessments correctly. Otherwise, it's just gambling.
Grey1 - for you to bring this question up under the "Pair Trading" heading leads me to think there is a purpose - other than the 'obvious' one I've just responded to - which is specific to this trading strategy - so I'm very keen to find out where it's going...
Also, using TA indicators, it's a LOT easier to pick a move when it's already happening and signalled it's intention than to guess when/where it might.
Trading weakness (which I used to do) smacks of trying to pick tops and bottoms, which, although profitable when you get it right, you don't get right that often (or at least, I didn't).
There's room for both I imagine as long as you work the probabilities and risk assessments correctly. Otherwise, it's just gambling.
Grey1 - for you to bring this question up under the "Pair Trading" heading leads me to think there is a purpose - other than the 'obvious' one I've just responded to - which is specific to this trading strategy - so I'm very keen to find out where it's going...
Three months ago I would have said momentum I then started using your VWAP strategy, which combines trading the weakness of a stock and buying into the strength of the market.
I'm a convert, it is unusual for me to get more than two false entry signals once the price passes VWAP +- dh-dl/2 and with the risk management inherent in the system this is more than enough for me to trade profitably.
Actually the major difference, for me anyway, is that with VWAP as a target I find it very easy to assess my Risk Reward, with momentum trading I was never that confident of the target and would often find myself taking trades which it turned out had R/R less than 2, though I'm sure this was down to my own inexperience.
I'm a convert, it is unusual for me to get more than two false entry signals once the price passes VWAP +- dh-dl/2 and with the risk management inherent in the system this is more than enough for me to trade profitably.
Actually the major difference, for me anyway, is that with VWAP as a target I find it very easy to assess my Risk Reward, with momentum trading I was never that confident of the target and would often find myself taking trades which it turned out had R/R less than 2, though I'm sure this was down to my own inexperience.
TheBramble
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I don't currently have any product that can give me VWAP data, but on a general note, if ANY tool/event becomes so widely known/used, doesn't it tend to iron itself out?
A basic hypothetical example:- if stocks ALWAYS rise on a Monday morning, everyone would buy on a Friday before close ===> which would lead to there being no rise on a Monday morning...
MY point is, if VWAP is such a powerful tool, why is it STILL a powerful tool if all the major players are using it? OR is becuase ONLY the major players are using it (the 5%)...?
A basic hypothetical example:- if stocks ALWAYS rise on a Monday morning, everyone would buy on a Friday before close ===> which would lead to there being no rise on a Monday morning...
MY point is, if VWAP is such a powerful tool, why is it STILL a powerful tool if all the major players are using it? OR is becuase ONLY the major players are using it (the 5%)...?
Trader333
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Tony,
You can get VWAP data using Quotetracker which is FOC and can use many datafeeds the cheapest being between $13 and $20 per month.
Also your logic as to why you think that VWAP should become less effective is precisely why it will always work. The reason is that the VWAP figure is the price at which "MOST" of the buying or selling has been done. So the majority of trading is done at VWAP and when the price moves away from it and we enter a trade we know that we are in a minority of those trading at the 2SD price.
If we take your scenario of everyone starting to use VWAP then all that would happen is that there would be much fewer stocks exhibiting price deviation from VWAP which in turn would not give us a signal to trade. I just dont see that ever happening.
Paul
You can get VWAP data using Quotetracker which is FOC and can use many datafeeds the cheapest being between $13 and $20 per month.
Also your logic as to why you think that VWAP should become less effective is precisely why it will always work. The reason is that the VWAP figure is the price at which "MOST" of the buying or selling has been done. So the majority of trading is done at VWAP and when the price moves away from it and we enter a trade we know that we are in a minority of those trading at the 2SD price.
If we take your scenario of everyone starting to use VWAP then all that would happen is that there would be much fewer stocks exhibiting price deviation from VWAP which in turn would not give us a signal to trade. I just dont see that ever happening.
Paul
Wherever there is a VWAP there must be prices at 2SD because statistically there has to be. The question is will the gap between VWAP and 2SD become so small that it is untradeable. I don't think so because that would mean volatility so low that it would be difficult to see how a market could be sustained and the MM are not going to let that happen.
I don't use VWAP either, but from the posts, it seems that VWAP is calculated on a TRUTH. Something that you can actually prove, rather that a FICTION such as ob/os which is only perceived in the eyes of the beholder. i.e. Jack uses a 14 bar RSI and doesn't see Mr Market as OB, Jill uses a 5 bar Stochastic and does. Who is right? Neither of them! They are kidding themselves.
This VWAP concept looks interesting to me. It seems to be doing a similar thing to Market Profile in the futures markets in that it identifies areas of value. (?)
This VWAP concept looks interesting to me. It seems to be doing a similar thing to Market Profile in the futures markets in that it identifies areas of value. (?)
TheBramble
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BBB - I'm taking Paul's advice and will be looking at VWAP in QuoteTracker this afternoon.
As for Market Profile, I haven't seen any product/supplier/feed that provides this in real-time. Do you know of one?
As for Market Profile, I haven't seen any product/supplier/feed that provides this in real-time. Do you know of one?
Grey1
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Guys,
Last past few month few traders have been using the VWAP strategy with success.. some of them now are profitable day in and out including myself.. I gain nothing by promoting this strategy except that my attitude toward life has always been to help others and the reward will come to me through the guy who created us all..
If you want to make money from the market , you have to understand that there is not such a thing as holy grail but there are systems with statistical edge.. VWAP is one of them ..
There is a good amount of knowledge in this strategy but i have made it as simple as possible.. The actual VWAP band use MontaCarlo Simulation to gauge the Max/Min permisible deviation from the VWAP but I did modify it to ( high_low)/2 as this approximation is not much far from the simulation run .
The strategy buys into weakness ( birth or trend ) than strength ( trend ) and follows the main market direction .
The VWAP bands allow you to measure the risk you are exposing yourself to and that is another advantage of this strategy .
I have technically defended this strategy on this BB and am prepared to explain any part of it where there is some doubt ..
There are a lot of junk about.,, The sort of the junk most coaches talk about..
If you want to play this game , behave like a player and a business man .. VALUE trading is the name of this game.. You must be buying when every body else is selling and not the other way round..
A VWAP trader shadows the Dominant market maker and becomes one.. He sells to those who are sitting there with their MA and ADX waiting for the silly crossovers..
Get real , get into VWAP ..
Last past few month few traders have been using the VWAP strategy with success.. some of them now are profitable day in and out including myself.. I gain nothing by promoting this strategy except that my attitude toward life has always been to help others and the reward will come to me through the guy who created us all..
If you want to make money from the market , you have to understand that there is not such a thing as holy grail but there are systems with statistical edge.. VWAP is one of them ..
There is a good amount of knowledge in this strategy but i have made it as simple as possible.. The actual VWAP band use MontaCarlo Simulation to gauge the Max/Min permisible deviation from the VWAP but I did modify it to ( high_low)/2 as this approximation is not much far from the simulation run .
The strategy buys into weakness ( birth or trend ) than strength ( trend ) and follows the main market direction .
The VWAP bands allow you to measure the risk you are exposing yourself to and that is another advantage of this strategy .
I have technically defended this strategy on this BB and am prepared to explain any part of it where there is some doubt ..
There are a lot of junk about.,, The sort of the junk most coaches talk about..
If you want to play this game , behave like a player and a business man .. VALUE trading is the name of this game.. You must be buying when every body else is selling and not the other way round..
A VWAP trader shadows the Dominant market maker and becomes one.. He sells to those who are sitting there with their MA and ADX waiting for the silly crossovers..
Get real , get into VWAP ..
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