If you click on this screenshot, you'll see the 40 stocks that make up my basket of highly weighted S&P stocks across the eight sectors that I routinely track. It was a strong day on many counts: the market was up from Monday's close; many more stocks were advancing than declining; and we had only 12 stocks of the 40 down from their opening prices.
Interestingly, however, when we look at each stock's volume-weighted average price (VWAP; columns at furthest right), we can see that only 16 of the 40 closed above their VWAPs. That sounds more like range trading than an uptrend, and it will have me looking closely at those VWAP levels early tomorrow.
It's true that understanding the broad market can illuminate the action of individual stocks and stock sectors. It's equally true, however, that tracking the behavior of the stocks and sectors can illuminate the broader market.
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5 comments:
Hi Brett,
What time periods do you use with VWAP? Do they change when you are looking at, say 1hr charts vs daily charts?
I use ninja trader and they have a few different type of VWAP indicators and VWAP settings, and am little confused when I see my VWAP lines and try to compare them to your's.
Appreciate the help, if you get a chance
Sean
i have a quote board with all the sector etf's (xlb,xle,xlf etc.) i look at the percentage changes from the open and the collective red or greens to determine what the market feels like today.
along with the cumulative tick, it really gives me a nice idea of whats going on
If you're talking about the daily VWAP then that just means that above average volume traded above the close. Could mean many things, but is mostly meaningless...
Thanks for posting your thoughts. Would you have any links on where I can find information on the calculation of VWAP and/or best ways to set up a VWAP indicator for 5/15/1hr charts?
Appreciate the help!
How to calculate VWAP: if p is price, and v is volume at that price and the number denotes the trade. Then the VWAP of the last 3 trades is: (p1*v1 + p2*v2 + p3*v3) / 3. So the VWAP is exactly what it means, the price is weighted by volume.
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