Volume Weighted Average

Price – VWAP

What is the 'Volume Weighted Average Price - VWAP'

The volume weighted average price (VWAP) is a trading benchmark used
especially by institutions. VWAP is calculated by adding up the rupees traded for
every transaction (price multiplied by number of shares traded) and then dividing
by the total shares traded for the day.

BREAKING DOWN 'Volume Weighted Average Price -

VWAP'
Volume-weighted average price (VWAP) is a ratio generally used by institutional
investors and mutual funds to make buys and sells so as not to disturb
the market prices with large orders. It is the average share price of a stock
weighted against its trading volume within a particular time frame, generally one
day.

WAP Explained
Large institutional investors or investment houses that use VWAP base their
calculations off every tick of data during a trading day. In essence every closed
transaction is recorded. However, most charting websites and individual
investors may prefer to use one-minute or five-minute trading prices in order to
cut down on the sheer volume of data required to keep track of VWAP in a day.
For a five-minute VWAP calculation you would take the low, plus the high, plus
the closing within the five-minute period and divide the total by three. This gives
you a time-weighted average price (TWAP) that is fairly accurate, and you can
multiply this number by the volume traded in the same period to achieve a
weighted price.
Why Use VWAP
Large institutional buyers and mutual funds use the VWAP ratio to be able to
move into stocks in a way that will not disturb the natural market dynamics of a
stock price. If these buyers were to move into a stock position all at once, it
would unnaturally elevate the stock price. Yet buying purchasing shares under
the intraday VWAP moving average, these buyers can move into a stock over the
course of a day or two without too much price disruption.

However, there are other uses for the VWAP, and one such strategy is to
purchase a stock for individual investors just as the VWAP pierces the intraday
VWAP moving average, as this can indicate a momentum shift in the share price.
It is also used in algorithmic trading and allows brokers to guarantee the
execution of a trade near a certain price volume for clients.

V_Scalper – The VWAP and V_Stop based scalping

strategy
( No trading before 9.20 , No new trades after 3pm ( a
trade running from before 3pm can continue till 3.25)

Setup :
1.Plot the daily VWAP and the V_Stop on one chart
2. Plot the ScalperX3 on another chart

BUY Setup :
1. Stock is above daily VWAP and V_Stop ( GREEN)
2. ScalperX3 gives an oversold signal

ENTRY :
1. Buy 2 contracts or in multiple of 2 contracts
2. Stoploss is the V_Stop
3. Mark the stoploss amount as Risk = R
 4. Target 1: Exit 1 contract at minimum 1.7R (
depending upon security) For Nifty fut, it’s1.7R, for
stocks minimum 2R
5. DO NOT EXIT UNLESS MINIMUM minimum R
multiple profits is there
6. Continue another contract by modifying the V_Stop
7. If another oversold signal comes on the V_scalper,
sell 1 contract
8. Repeat process from step 2

SELL Setup :
1. Stock is below daily VWAP and V_Stop(RED)
2. ScalperX3 gives an overbought signal

ENTRY :
1. Sell 2 contracts or in multiple of 2 contracts
2. Stoploss is the V_Stop(RED)
3. Mark the stoploss amount as Risk = R
4. Target 1: Exit 1 contract at minimum1.7R (
depending upon security) For Nifty fut, it’s 1.7R for
stocks it’s minimum 2R
5. DO NOT EXIT UNLESS MINIMUM R multiple profits
is there
6. Continue another contract by modifying the V_Stop
7. If another overbought signal comes on the
V_scalper, sell 1 contract
8. Repeat process from step 2
Stock Selection :
1. The stock must be a liquid/future stock
2. Look for stocks which is a news play for that day
3. Trade stocks from the EMP/EMP_redux universe
4. Generally stick to one stock/future and trade it day-
in day out
5. In Nifty or BankNifty, better to trade ATM options
rather than futures from a cost perspective
6. Nifty minimum 1:2 RR , BankNifty minimum 1:2.5
RR

Concepts used :
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V_Stop Trailing Stops Formula

Trailing stops are normally calculated relative to closing price:

1. 10 period ATR is taken

2. Multiply ATR by selected multiple — in our case 4 x ATR
3. In an up-trend, subtract 4 x ATR from Closing Price and plot the result as the stop for the
following bar
4. If price closes below the ATR stop, add 4 x ATR to Closing Price — to track a Short trade
 5. Otherwise, continue subtracting 4 x ATR for each subsequent bar until price reverses below
the V_Stop
6. I have also coded in a way so that ATR stops cannot move lower during a Long trade nor rise
during a Short trade.

Next Bar Bias Formula

We are trying to gauge whether the security is overbought or oversold in the short term:

1. We calculate the EMA of highs of the last 3 periods, we take the highest value of 3 such values
(HA)
2. We calculate the EMA of lows of the last 3 periods, we take the lowest value of 3 such
values(LA)
3. We calculate the EMA of closes of the last 3 periods, we take the EMA value (CA)
4. NextBarBias = ((CA-LA)/(HA-LA))*100
5. Now we construct a 12 period Bollinger Band of the NextBarBias
6. If NDB is above the upper BB, we consider overbought
7. If NDB is below lower BB, we consider oversold

ScalperX3 simply marks the overbought and oversold regions on the chart