Trading with Market Statistics III. Basics of VWAP Trading

[jperl]

In this thread, we will present several videos to demonstrate how to use the volume distribution function and its associated Peak Volume Price (PVP) and its Volume Weighted Average Price (VWAP) as a trading tool. This thread will concentrate on entries and stops only for new traders. Our trader for this is named NEWBIE. We will show how NEWBIE should use the relationship between the PVP discussed in Part I and the VWAP discussed in Part II to determine a) the region of the price action where he could be trading, b)the direction of his trade (long or short) and c)a possible entry point for the trade.

So lets get started. Below is the first video. We have a very raw newbie, who knows nothing about market statistics. He's trading the Emini Russell 2000 index futures by the seat of his pants. He thinks he knows the market direction from the premarket open and the first half hour of trading. He's heard something about trend lines and "The Trend is your Friend" , so he enters a long trade, sets a profit target and a stop loss. Watch the video and see what happens. If you are a newbie yourself, see if you recognize any of NEWBIE's traits in yourself. The video ends with a short discussion of what NEWBIE could have done if he had used market statistics instead of the seat of his pants.


Enjoy,
JERRY

[cooter]

	Quote:	jperl
	NOTE: To view this video you will have to go through some contortions to get to it as follows: a)click on the link below b)enter the code shown on the Megaupload page in the space provided c)wait 25 seconds, when the count down completes, click on free download d)your browser will download the file, after which you should be able to view it. If you don't see it, make sure your browser is not blocking popup windows for the megaupload site. NEWBIE'S FIRST TRADE Enjoy, JERRY

Sorry, but few of us will download an executable file ending in .exe.

You can go to filefront.com and upload your full video file there instead.

Thanks.

[Soultrader]

Hi Jerry,

Im going to download it and upload it into my server so it stays permanent. Then I will edit your post to include the server url instead. Thanks

Update: I posted the direct link to the file. However, as Cooter mentioned it would be best to save it in a format other than .exe. Perhaps .swf or .avi would work. EXE files are known to contain viruses so users may not want to download the file. I have scanned the file and has absolutely no problems but it would be great if you could re-upload it for security reasons. Thanks Jerry.

[scoter]

hello jerry I have a lot appreciated yours post, they are much instructive but unfortunately I am Italian and I do not understand English spoken. You can make a post with reassuming of the video that I have seen? thanks.

[jperl]

Here is a swf version of the video for those of you who do not wish to download an exe file. Thanks to cooter for the filefront.com recommendation.

http://www.traderslaboratory.com/Tra...irst_Trade.swf

JERRY

[jperl]

NEWBIE is now ready to take trading a little more seriously. After a minor disaster trading with the trend and getting stopped out, he's decided to look at the "Trading with Market Statistics" Threads and has read Part I and Part II at least a half a dozen times. He doesn't know much about statistics but he is willing to learn if it will help him with his trading.

What he has learned so far or at least should have learned is that market direction is reflected in the relation of price to the VWAP AND the relation of the VWAP to the PVP. Market data is skewed to the upside when the VWAP is above the PVP, skewed to the downside when VWAP is less than the PVP and symmetric when VWAP ~= PVP.

NEWBIE should be trading only in the high volume region of the price action
so for NEWBIE to enter a trade, the following conditions should prevail:

Long Entry:

VWAP > PVP and price action above the VWAP

Short Entry:

VWAP< PVP and price action below VWAP

No Trade:

VWAP~= PVP

NEWBIE is going to embed this in his brain so that it becomes second nature.

Download the following video and see how NEWBIE fairs by following market statistics.


ER2VWAPTrade


In the next thread, part IV, our newbie will learn about other points where he can trade

[Nvesta81]

Nice Videos.

I'm a newbie, so I will ask my newbie question. Regarding ...

	Quote:
	Short entry : VWAP< PVP and price action below VWAP

What would you consider doing when VWAP is below PVP and price action is above PVP and thus above VWAP as well? On the chart I am looking at now VWAP is slightly below PVP but price action is quite above PVP, is this still considered a short entry?

If I must post a pic of the chart I will but I'm hoping you can answer this one fairly easy as you are clearly not a newbie.

[jperl]

	Quote:	Unleashed
	What would you consider doing when VWAP is below PVP and price action is above PVP and thus above VWAP as well? On the chart I am looking at now VWAP is slightly below PVP but price action is quite above PVP, is this still considered a short entry?

Unleashed---good question. If you looked at the first video in this thread, you saw exactly that situation. If you are a newbie, you stand aside. Do nothing. In that video, NEWBIE took a long trade based on perceived market trend and was stopped out. Trading in the low volume region is dangerous and requires more advanced analysis. We'll get to that in future threads.
In your chart, from what you describe, it sounds like VWAP ~= PVP. Again do nothing.

It's imperative that you understand the logic of the basic VWAP trade. It forms the foundation of everything that is to follow.

JERRY

[Nick1984]

Liked your first vid. One question now that your uploading on filefront...how do i watch the new one?

[jperl]

	Quote:	Nick1984
	Liked your first vid. One question now that your uploading on filefront...how do i watch the new one?

Click on the link which will take you to filefront. Then click on download, which will download the file to your computer. If you get a message that says something like "Windows can't open this file", it should give you choices of what software to use to open it. Just choose your browser, either IE or Firefox to open it.
Any problems, let me know. (Soultrader is working on ways to make this easier)

JERRY