Wednesday, December 29, 2010

Volume weighted average price VWAP

When I started trading I followed all kinds of people online, in chat rooms, net forums, blogs, sites. One of the most consistent, with regards to message, was Brian Shannon of alphatrends. He first had a blog, alphatrends.blogspot if you are going to search for it. He explained things, shared some insight, provided some big market perspective. He talks about VWAP in the following manner at this link VWAP alphatrends

"Consider a market maker with a day order to buy 1 million shares of a stock for an institutional customer. The market maker cannot just go in and buy the full position in the first two hours of the day and then leave his desk to go play golf. Market makers are evaluated by their customers for the quality of trade execution; did they get a fair price for the customer? The most common method of used to analyze the quality of a trade execution is to compare the price the order was filled to the Volume Weighted Average Price (VWAP). The VWAP is calculated by dividing the dollar volume of a stock by the share volume over a given period of time. Simply put, the VWAP is the average price that each share was executed over the period of time being studied. There are several ways to calculate the VWAP in RealTick, the analysis and trading software I use. I prefer VWAP analysis with a moving average, in particular for shorter term day trades on a one day chart of the equity I am trading.

The VWAP is considered to be a fair benchmark for comparison of the institutional trade desks ability to execute trades on behalf of the customer. If the brokerage purchases were made at a price less than VWAP then they did a good job for the customer. If the price paid was greater than the VWAP they may lose that customer for future transactional business. The daily VWAP is a number which changes as orders are transacted at varying prices throughout the day. "

So the way I try and think of things is how I stack up against the competition be it you, Fidelity, the market makers, etc... While I do not aim to beat the VWAP, it can be used for timing of entry and exits. One such explanation again comes from the old alphatrends: VWAP strategy

Here is how I thought of a stock and VWAP today. If you click on the chart you will see larger version of VMWare chart. I have followed this stock for a while. Price went down at the open, kind of double bottomed around 1140, came back above VWAP, and is now right about there. Given the quiet market, lack of strong recent trend in the stock, don't you think it will close around the VWAP for the day? Knowing this, oculdn't it have been bought around the double bottom point, sold once above VWAP, perhaps even shorted it above the VWAP?

IMO, VWAP can be used with success for daytrading in this manner and for timing of entry and exits for trend traders and investors.

Monday, December 20, 2010

IPOs and following my own advice

I might stop following IPOs so closely or at least evaluate if I trade them. I bought one after it was out a couple of weeks, bent my loss rules as I hoped it would come back my way. Too risky.

I am back in several old and very old favorites with the idea that I could sit with them for a while. These are the kind of picks I would offer to family, not necessarily growth standards...

Thursday, December 16, 2010

Buying dip ideas

Requires regular review of stocks and ETFs.

On IBD DGO/MS, might closely resemble buying bottom of a channel.

For now, tough to decide on an exit. Holding for months might yield better than shorter term.

Better if in an overall uptrend where 50>200

Lower bollinger band touch, especially with a tail, is nice.

I'd rather stick with what I have followed, am familiar with, and is a good quality issue.

Tough to judge but it appears that after a big breakdown might need to touch upper band then the lower. When it then touches the lower band a 2nd time buy and hold is easier.

Can't ID intraday well, better to wait for end of day data or be aware of a first hour plunge/shakeout. Do not catch an intraday knife with hopeful hands.

Wednesday, December 15, 2010

Getting back in the saddle

I am kind of doing some research. I am not overly excited about it in an emotional manner so perhaps it is good stuff. When I get all worked up on an idea, ie whipped in a frenzy, I tend to make bad or brash decisions. What I am doing is looking at a lot of charts of growth stocks and deciding on better entries. I've had a tough time holding onto some great stocks when getting shaken out. I've thought about identifying leading issues, think about my own classic entries, think about when I would sell out, and then identify better entry point after that obvious shakeout. Kind of a mass market psychology observation. This involves buying when there is fear in the street.

I am trying to get some rules or guidelines together through visual back testing of charts. Really just a collection of ideas and observations.

I am not sure if I will use this to buy and hold (something I have had a tough time doing), or hit a whole bunch of singles over and over.

Click chart to see one such stock, my entry was 27.39, exit 29.7

Wednesday, December 1, 2010


Well the C trade went too far against me. It was a reminder of many good trading principles. I took some time away after that one, just watched things a little bit. My sense of the overall market a week or two ago is that we would yank some chains around but finish the year without going up or down much. We will see what the month brings, though it is not the month that matters.

I saw an option opportunity this am, took it with reasonable size and made a little.