[jperl]

Originally Posted by Dogpile »

nickm,

I think unweighted price versus VWAP_H could be a useful indicator...

If you are going to use unweighted prices to compute SD, then use an unweighted average to compare it too. Be consistent. Don't compare apples to Oranges.

[Dogpile]

<<If you are going to use unweighted prices to compute SD, then use an unweighted average to compare it too. Be consistent. Don't compare apples to Oranges.>>

I already do that with Keltner Channels and Bollinger Bands.

I am looking for 'variation of price' around the point of 'value' (VWAP).... I am not looking for 'variation of volume-weighted price' around the point of value...

[nelo]

Jerry's point is that a 1 point swing from VWAP with 100 contracts is different from 1 point swing from VWAP with 10,000 contracts, during the same time period. So the formula in his first message is correct.

I suspect that treating VWAP as moving average and calculating SD as the difference between VWAP and price as in bollinger bands is incorrect. Though, I do not know how much it differs.

Jerry, one thing just wonders me, why you did not take VWAP[i] in your formula, so Variance = SUMi[Pi(pi - VWAPi)2] ? This would make more sense to me.

[jperl]

Originally Posted by nelo »

Jerry, one thing just wonders me, why you did not take VWAP[i] in your formula, so Variance = SUMi[Pi(pi - VWAPi)2] ? This would make more sense to me.

Ok let's give an example of computing variance:

Consider the 5 numbers, 1 2 3 4 5 all of equal weight for simplicity
what is their average: (1+2 + 3 +4 +5)/5 = 3.0
what's the variance: [(1-3.0)^2 + (2-3.0)^2 + (3-3.0)^2 + (4-3.0) ^2 + (5-3.0)^2]/5 = [4.0 +1.0 + 0 + 1.0 + 4.0]/5 = 2.0

Do you notice what value I use for the average in each of the squared terms? It's 3.0.

If I added another number to the series, say 6, then the new average would be (1 + 2 + 3 +4 +5 +6)/6 =3.5
I would then compute the next variance using this average in the squares.

Hope this clears up the computation method

[Dogpile]

ah yes, good point.. too bad that is a computation/coding nightmare...

[Dogpile]

Check this out...

(first note that yes, my code is a bit flawed but I don't think by much since there is little movement here in the VWAP number so the numbers are not far off...)

Look how my std dev bands compress and expand. This shows classic market behavior in that it is oscillating between 'balance' and being 'out of balance' -- a core market profile concept.... (this chart is using rolling 90-minute period for its std dev (45-period chart on a 2-min chart)-- its acting like a bollinger band does -- using rolling data -- but based on VWAP rather than a moving average).

More interesting is look how price breaks lower out of the triangle/balancing and forms a classic 'bear flag' prior to breaking lower. I used to hate coils -- but the VWAP std dev bands show a market that is doing its thing -- coming out of balance then going back into balance -- then coming out again... knowing which environment you are in is crucial.

you can see how the market shot out of the balance with a jolt down (it actually gapped). this was followed by a mini bear-flag which set up excellent location for a short... Yes, I traded this pattern today.

http://bp0.blogger.com/_5h-SWVGx6Ms/...Coil+Break.bmp

[walterw]

Originally Posted by Dogpile »

Check this out...

(first note that yes, my code is a bit flawed but I don't think by much since there is little movement here in the VWAP number so the numbers are not far off...)

Look how my std dev bands compress and expand. This shows classic market behavior in that it is oscillating between 'balance' and being 'out of balance' -- a core market profile concept.... (this chart is using rolling 90-minute period for its std dev (45-period chart on a 2-min chart)-- its acting like a bollinger band does -- using rolling data -- but based on VWAP rather than a moving average).

More interesting is look how price breaks lower out of the triangle/balancing and forms a classic 'bear flag' prior to breaking lower. I used to hate coils -- but the VWAP std dev bands show a market that is doing its thing -- coming out of balance then going back into balance -- then coming out again... knowing which environment you are in is crucial.

you can see how the market shot out of the balance with a jolt down (it actually gapped). this was followed by a mini bear-flag which set up excellent location for a short... Yes, I traded this pattern today.

http://bp0.blogger.com/_5h-SWVGx6Ms/...Coil+Break.bmp

interesting contraction expansion pattern there with vwap and bands..

[jperl]

Originally Posted by Dogpile »

this chart is using rolling 90-minute period for its std dev (45-period chart on a 2-min chart)-- its acting like a bollinger band does -- using rolling data -- but based on VWAP rather than a moving average).

Dogpile--glad to see you are using VWAP in your own way and that you find it useful. I hope it works for you.

I have a problem using rolling 90-minute periods or for that matter any N-period method for computing the SD or N-period technical analysis in general. (This is includes all moving averages, CCI's, stochastics, MACD's, RSI's and any other method that requires a period length, and yes, sad to say Market Profile Analysis which uses 30 minute periods and an arbitrarily defined value area). The period length is arbitrary and would have to be readjusted when market properties change as they do daily. This is why I am presenting this general statistical method of viewing the markets. It's independent of period length of your chart and only depends on your starting time.
As we delve deeper into this you will see the utility of using this generalized statistic.