Thursday, December 17, 2009
Playing Moves Back to VWAP
Note how volume at offer has exceeded volume at the bid since the market open, turning Cumulative Delta positive on the day. We've also moved back to the volume-weighted average price (VWAP; red line), and my quoteboard shows half of the stocks in my basket trading above their individual VWAPs. The inability of Cumulative Delta to make and sustain new lows, even as we traded lower early in the morning was a nice tell for the move back to those average price levels.
When we see a market making low or high prices, the most important call a trader can make is whether the move represents a genuine breakout vs. a failure to establish new levels of value. It's in the latter situation that playing for moves back to VWAP levels can be quite profitable.