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Financial & Capital Markets (Pro) > Stage 2: VWAP > Flashcards

Stage 2: VWAP Flashcards

To master Stage 2 of the G7FX course. The VWAP.

1
Q

What’s the long form for VWAP?

A

Volume Weighted Average Price

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2
Q

What drives the markets?

A

Transactions, or Transactional data

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3
Q

What’s the actual average that takes to account of every transaction that took place at every price level?

A

VWAP (Volume Weighted Average Price)

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4
Q

VWAP develops value in what ways, if Volume Profile, develop in a STATIC way?

A

Dynamically

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5
Q

In the “W” of the word VWAP. What does it actually mean?

A

It means that the Volume is more “shifted” towards that certain area. That is, more volume of transactions were executed there.

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6
Q

What does an average give us?

A

It gives us a general picture of how did we perform in a certain statistical data, be it a price, score, transaction etc.

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7
Q

What does the VWAP help us identify in an intra-day?

A
  • Shift of value (Imbalance) - Especially if it starts to shift
  • Consolidation (Balance) - Especially if it’s relatively flat
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8
Q

What is the relation of Mean reverting markets to the VWAP?

A

These markets do tend to close near the VWAP by default.

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9
Q

What is an example of a Mean reverting market?

A

ES (Standard & Poor Futures contract)

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10
Q

How does Volume Profile & VWAP resemble?

A

The Volume profile builds using Aggression (Market orders), also at the same time, the VWAP builds by measuring where are the Market orders (aggression) weighted mostly at..

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11
Q

Describe the VWAP bands…

A

The VWAP graph’s middle line is the actual VWAP itself, & the outer lines are the 1st & 2nd Standard Deviations respectively/

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12
Q

At what “PERIOD” is the VWAP measured for?

A

The VWAP measures an Intra-PERIOD Dynamic EVOLUTION of the Value of that PERIOD. And this Period can be: Day, Week, Quarter, Year etc.

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13
Q

What does the Line of the VWAP tell us?

A

Firstly, it comes from the mean of the Volume profile, & its shape can tell us whether or not the market is balanced. Example: Straight line usually means a balanced market

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14
Q

What are the Standardized PERIODS used in the VWAP evolution & why are they used so?

A

The Standardized PERIODS are: DAY, WEEK, MONTH, QUARTER & YEAR.

They are used so due to the standard way of using the Accounting Periods & firms performance periods.

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15
Q

What’s the difference between the VWAP & The Composite Market Profile?

A

You can’t make a composite out of a VWAP as the information on the VWAP is constantly updated by Market Orders.

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16
Q

Why is the VWAP execution of importance?

A

Because it gives a gauge of where the Institutions acted of in terms of buying or selling. And where are they basing their anticipations of value at.

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17
Q

How do we take orders in reference to the VWAP?

A
  • For buys, it’s usually, below the VWAP., Because we perceive the market is in the extremes of fair price (value)
  • For Sells, it’s above the VWAP, also because the Value is perceived to have shifted.
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18
Q

How is the VWAP (True Mean) Calculated?

A

It takes to account the Number of Transactions (Volume, or frequency) * Price, then lastly divides by the total Volume.

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19
Q

State the VWAP (True Mean, or Volume Weighted Mean) formulae:

A

VWAP = (Volume * Price) / (Total Volume)

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20
Q

What does the new data do to the Mean?

A

As it occurs, if it’s a large data set, it shifts the Mean up. Also, if it’s a small data set, it shifts the Mean down. And basically that’s how the VWAP works.

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21
Q

How does the Price Discovery in the Financial markets process affect the VWAP?

A

Since price discovery in the financial markets happens so frequently, hence the volume profiles & ultimately the VWAP will tend to shift so frequently.

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22
Q

Any comments on Price discovery & market orders in the financial markets?

A

Price discovery on the financial markets is done everytime, and it is because there is a constant stream of market orders.

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23
Q

Why do the VWAP bands expand/compress?

A

Depending on the Standard deviation from the mean:
- If the data is far from the Mean = Then, the VWAP bands shall spread out (widen)
- If the data is closer to then Mean = Then, VWAP bands shall be narrower

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24
Q

What Standard deviation Bands are the most used in VWAP & statistics?

A
  • The 1st Standard Deviation
  • the 2nd Standard Deviation
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25
Q

Where do we judge the market RYTHM?

A

When there are new market orders entering the market, causing the mean to shift & hence the Standard deviations.

As it passes through multiple Standard deviations, we say that the Market is accepting an Imbalance rhythm & visa versa.

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26
Q

What key information can the VWAP help us determine the Market RYTHM & State

A
  • The direction of the VWAP ((Flat or Slopping)
  • The VWAP Bands (Showing us on where are the market orders concentrating at).
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27
Q

What does the VWAP help us on Rythm/Market Condition?

A

Depending on how the line is, VWAP can help us gauge the Market condition/Rhythm type.

That is: Flat VWAP = mostly balanced market & raised VWAP, means an Imbalanced market.

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28
Q

Why do the Institutions look at the 1st & 2nd Standard Deviations?

A

It is mainly because of the Statistical data evaluation that, in a sample, most data (70%) will fall in the 1st S.D while 95% in the 2nd S.D

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29
Q

Interpret the Numbers exactly in the Standard Deviations.

A

Say, for example, the first Standard Deviation of 68.2%, It means that the probability of finding that data sample in the 1st S.D is 68.2%

30
Q

What can the Standard Deviation bands help us with?

A

The standard deviations (1st & 2nd) give us areas where we can trade from, since beyond those data, the probability that the market will stay for long is very low (And the Algos are fading). (All these in a Balanced market)

31
Q

Comment on the nature of the VWAP line at the start of the day & at the end of the day (in a Balanced market):

A

Early on, as market opens, the volatility causes the VWAP to rise, but as things settle (if it’s a balanced day), it starts to flatten.

32
Q

How do we judge rhythm?

A

By judging, what Standard Deviation line/Band was the price mostly at, & what suddenly changed?..e.g: on 2 SD , we fade the move

33
Q

How do you outperform Algos in these markets?

A

By applying Logic!, think!

34
Q

In an Imbalanced market, how can we categorize Slow, Normal & Fast Trend rhythms?

A

Fast trend Rythym - The value starts building around the 1.5 or 2 SD area

Normal Trend Rythym - The value starts to build a little beyond the 1 SD band

Slow Trend Rythym - The value starts developing around the VWAP or the 0.5 SD (Inside the main value area).

35
Q

What does it actually mean, in Profile types in terms of probability?

A

They tend to shift. The probability shifts to new value area in development

36
Q

How does knowing the rhythm help us?

A

It helps us know, on where to expect to take trades. Example: 1SD, then we shall focus on taking trades in the 1SD (Normal Trend)

37
Q

How are the pullbacks like in an Imbalanced market in terms of trend types (Rythyms)

A

Fast trend (1.5 SD or 2SD) - Small pullbacks
Normal trend (1SD) - Average Pullbacks
Slow trend (0.5 SD or around VWAP) - Deep pullbacks.

38
Q

Why is the 1SD being referred to as a “Normal trend”?

A

Because most institutional investors & traders like to see the 1SD as Normal, fair value of the Value area.

39
Q

How can you describe the VWAP line slope in relation to the Imbalanced day (Trend) types?

A

Slow Trend - The VWAP is relatively inclined

Normal Trend - The VWAP is gradually inclined, compared to the Slow Trend, there is a relative shift of the market orders to newer value areas.

Fast trend - The VWAP is sharply inclined., because the value is starting to shift massively now.

40
Q

Why is the fast trend (rhythm around 1.5 SD) actually fast?

A

Because the Value & the orders have already shifted much way further from the previous value area profile.

41
Q

What is Market rhythm?

A

It’s simply where are the market orders taking place.

42
Q

What is a reversal day?

A

It’s when the market goes from an IMBALANCED to a BALANCED market.

43
Q

How is a reversal useful?

A

We can manage to exit our trades, or entering new positions in the opposite direction.

44
Q

What is a Breakout day?

A

It’s when the market goes from a BALANCED to an IMBALANCED market.

45
Q

How is a Breakout useful?

A

We can use it to take trades at the direction of the Breakout.

46
Q

Why does NV think that only the VWAP & the 2 S.D is enough for Intraday?

A

because the amount of statistical data (market orders) in intraday is less than the data set say in a Week, Quarter, Month or Annual (Where we’ll be deploying all S.D Bands)

47
Q

What to do if the Price comes past the VWAP or its SD Bands?

A

Judge whether the Volume is also building up, in the profile, so as to start making decisions early on.

48
Q

What encompasses a Typical Market Prep?

A

We shall check the:
- Market Condition (Balanced or Imbalanced)
- Rythym & Acceptance (At what SDs)

49
Q

When checking the market condition of the day, before the RTH, you check the??

A

ETH (Overnight) session. What was its Condition & rhythm like…

49
Q

When checking the market condition of the day, before the RTH, you check the??

A

ETH (Overnight) session. What was its Condition & rhythm like…

50
Q

How can you visually, and quickly judge the Market condition?

A

By using the VWAP line

51
Q

How can we quantitatively judge the rhythm?

A

The Line has to be touched at least 2 times

52
Q

Which markets are popular for buy & hold?

A

The indices.

53
Q

What’s the overall foundation when checking the Market condition & Rhythm?

A

The VWAP slope

54
Q

Is Imbalance (ETH) to Imbalance (RTH) common?

A

No, since mostly, we expect to have some value building up before taking a base off of it.

55
Q

Can market conditions & rhythm change over the day?

A

Yes, the market conditions & rhythm can change over the day. At times, multiple times.

56
Q

What is the key issue on HTF VWAPs?

A

They do take a decent amount of time to build orders.

57
Q

VWAP & POC relation in a balanced market?

A

They are equal!

58
Q

What is Static Value?

A

It’s the Value which was already established in the past., when we mark Composite Profile. VAL, VAH & POC are fixed.

59
Q

How do we better conduct our Hypothesis?

A

We combine STATIC VALUE & DYNAMIC values. What are they both trying to convey.

60
Q

What’s true confluence?

A

When Contextual levels do match with Intra-day value. A slight variation can mean to wait.

61
Q

What’s Dynamic Value?

A

It’s the Fair value in the process of being developed. (Through descriptive statistics of market orders by a VWAP)

62
Q

What drives Market value?

A

New Market information entering.

63
Q

What’s true confluence?

A

When Contextual levels do match with Intra-day value. A slight variation can mean waiting.

64
Q

What’s the relationship between the two Value types? (Dynamic & Static)?

A

A Static value was once a dynamic value (VWAP)

65
Q

What do we do when the Values are in conflict with each other?

A

We have to wait for a condition change & confluence before making a trading decision.

66
Q

What’s CVA Hypothesis?

A

It means Compiste Value Area Hypothesis, which they are hypothetical levels we believe the price is valuable, marked using Market profiles.

67
Q

In comparing DVA & CVA, what’s the key thing you have to look at?

A

What happened at the ETH (Overnight) session

68
Q

What’s DVA?

A

It’s the Developing Area of Value, which marks the orders are being entered in the live market, sowing the most recent Investors perception of Value.

69
Q

What is the Acceptance of a Level in CVA? (What are we actually looking at)?

A

The Acceptance of a level is when we see orders developing beyond the CVA., meaning the price is leaving the Value Area. (When we see some decent clear air, then we can say that the level is accepted)

70
Q

What gives us conviction of whether our CVA, or DVA has really been broken?

A

There is a decent space of span on how price broke. (Kale ka-delta flani hivi)

71
Q

Why HeikinAshi candle over the Candlesticks in the Order flow analysis?

A

The Swings are clear (The Calculations smoothens it out)

Financial & Capital Markets (Pro) (5 decks)

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