Think like a Hedge-Fund

Imagine that you are a Hedge-Fund manager, you have a lot of money to invest.

You are looking to invest in AAPL for example.

Let's assume for the debate, that you as a fund manager can buy any amount of stock that is traded that day.
This assumption is made because we want the Anchored VWAP to represent our position line.
Anchored VWAP = is a tool that you can use that calculates the average price of volume that was traded from a certain point.
In practice, since you don't have a lot of money, if you could buy 1/100M stocks each day (100M is avg volume, which means you will buy /100M), your position line will be very similar, but proportional to a private account.

You decide to grow your position line when the price is after a big correction and it moved above the EMA.
You go only LONG, you buy every stock that is traded (you are a Huge hedge fund manager, remember?)

Path 1:

You start to accumulate a position. Your position line is growing in size, but it also rises in price since you are buying stocks at a higher price.
In green, you can see your position line which is also your break-even line.
As you can see, the price is always above the green line, which means that you are in GREEN all the time while you are in this buying campaign.

Path 2:

The light blue line is where your position line will get "stuck" and will not rise if you decide to stop and not add more to your position from that point in time.

Path 3:

Path 3 is your position line given that you keep adding to your position even in the sideways action. You just keep buying and buying.

Red line:

The red line is the Anchored VWAP that will be if you want to start selling all your position. You sell every day and keep selling.
This is your average selling line.

Conclusion:

You can see that either if you choose path 2 or 3, you will all the time be in GREEN position.
If you choose to stop buying and start selling (Path 2), your average return on the position will be 32%.
You entered little by little, minimum risk in the position. You have a lot of "AIR" from path 2 to where the price is currently in.

This post is a continuation of the post about average-up strategy. The same line of thinking.

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