I (very clumsily) wrote a script here which draws envelopes around the VWAP which I prefer over MA's etc. There are two types, the first is Points-based. On this chart .15 points draws a fairly narrow band around the VWAP and I used it just to give an idea of whether it's a narrow-range day or not. The main one is the VWAP% Env, which I have defaulted to .001382, which I think is 1.382% of the price of the VWAP. I put in a couple of ATR values, long and short, to make the bands expand and contract in relation to recent volatility, but possibly I didn't pick good ones. I didn't write them in as inputs which can be changed but at that point was tired with making changes since I don't know how to code in the display I like and it defaults to lines. I would prefer to have an indicator with both points and percent and all with inputs; also possibly the bollinger algorithm would work fine around the VWAP; also nice to draw 1,2,3 standard deviations around the VWAP but I cannot do it in this language. If anyone else would like to do that, it would be great. The VWAP is a very helpful piece of real-time statistical information. Nearly all pro day-traders have it on their DOMs.
ANYWAY: I have found that on non-trend days the price often goes somewhere by around 11am EST and then reverts to the VWAP and the main point of the bands is to provide an entry level.
I have marked (in magenta) on the chart, the various signals which I recorded in real time (not afterwards). Last week was not very active which favours this type of approach. I am sure there will be some losers soon.
However note that on one day I followed a risky approach not suitable for all traders, namely I added into a position when it went against me and would have kept doing so and waited overnight if necessary for a pullback. This was the morning of the 25th. The first up magenta arrow entered one unit. The second about 30 mins later around 197.50 level was 2 units. When the position exited later at the VWAP, the initial entry was about break-even, and the second entry made 2 times 3 points = 6 points. The second entry doesn't use the band, but is simply 3 points lower than the initial entry.
Comments
AshHowes
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Wednesday Am: market gapped up on open precisely to yesterday VWAP at close, so an early short with target at lower band (4 S&P pts) below, just above yesterday's lows at close. A quick, profitable trade. This day-trade approach is done for the day.
AshHowes
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just realised that I had the % VWAP indicator up vs the Points, so in fact the profit was larger than 4 points, but anyway.
AshHowes
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11.30 EST. Down day, big bounce after report but not immediately after. Sold 1 unit, then another unit = 2 units, then a final third entry on same position 2 units = 4 total. The PT is now at the VWAP and the big two questions are: how much further will this rally go without correcting back to VWAP and maybe it won't correct at all. This would be unusual after the early morning action which saw a probe downwards to lower lows. Normally there will at least be a check back down there before a reversal of trend. Normally....
AshHowes
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That is chart of action until 2.00pm. The horizontal green lines represent break-even levels. I was hoping for retracement to VWAP so didn't exit but could have for +4 which is the daily target. (I am counting .1 as 1 point because it's the equivalent of SP500 futures action).
So adding in more on the upside it won't be long now until there are some profits again unless this is a truly unusual day.
Note the Ichi Buy after which there was a strong upmove. I don't really know why, but the Ichimoku method just seems to get certain things right. It's simple and intelligent. I am only using the Clouds on this chart because I like clean charts. In retrospect, seeing that ichi buy level with the long horizontal line which makes it much more significant than the brief crossover of the thin, rapidly descending ribbon a few bars earlier, I should have planned to exit the initial sell positions.
in terms of the indicator, when the market goes significantly outside either of the % levels, usually this means it's a strong action day, so counter-trend positions should be entered with care. At the time I first shorted today it was a down day, but it had gone way above the upper bands when it corrected, which is a caution sign.
In any case, we'll see what happens.
AshHowes
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Next day (Tue 29), market sold off sharply to the closing VWAP level. If the 12 units had been held overnight, then each unit was +2.75 = +32 points at that price. This does not always, happen of course, but it is not unusual. Note how the price sold down EXACTLY to that old VWAP level. This is not a coincidence and is why I use the VWAP instead of moving averages.
LongString
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Caper, this is a great idea. Thanks for sharing! - Chris
AshHowes
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I have an informal rule with this 'system' of sorts: no entries before 10.30, ideally 11.00 EST. Generally go for 3-4 points a day and that's it.
There is also a basic Ichi cloud system on the chart (gold and cyan arrows) but am just tracking those for fun to see if they are good at catching occasional big moves for more points without too many false signals, but in this case I exercise judgment based on market action, time of day, patterns etc. so not really important. The main thing on this chart is the Vwap indicator with the magenta arrows which relate to it.
AshHowes
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This is an easier-to-see picture showing mainly just one day.
The indicators have to manually configured to be crosses not lines otherwise they jump bizarrely with each new market day.
Wednesday Am: market gapped up on open precisely to yesterday VWAP at close, so an early short with target at lower band (4 S&P pts) below, just above yesterday's lows at close. A quick, profitable trade. This day-trade approach is done for the day.