May 7th, VWMA (or VWAP)

I have been seeing this talked about with no real details as to what the formula is or the period used. I use Esignal and they have a Volume Weighted Moving Average but I found that it was close enough to the regular simple moving averages that the resulting line was superfluous. I have found that a 100 minute VWMA works well (equivalent to a 20 minute on a five minute chart). Even so, I am not sure that a VWMA has much more significance over a regular SMA.

The largest difference between the two averages shows up in the afterhours trading when the volume is very thin relative to the intraday trading. I think I need to look at this closer as to whether it is really of any value to me or not, compared with the SMA.

Having said that I will use the VWMA anyway. It is the purple thick line on any of the following charts.

The rest of the lines are as follows:
Red - 30SMA Blue - 50SMA Green (thick) - 200SMA Purple (thick) - 100VWMA
The horizontal lines are various support and resistance lines based on pivot points, OHLC of the prior day etc.

First off is the chart for SSO for the day. There is a bit of pre-market in there, that's just how it works out. Obviously there was not too much to trade here as everything pretty much was heading down most of the day.

Comparing the TICK chart for the day produces an interesting correlation, easier to see after the fact though. I plotted the heavy black lines as general median lines to represent the general trend of the TICK.

Notice how the TICK heads down and the price heads down steeply, then, as the TICK turns back up the price only holds it's own...that is a good sign that there is weakness in the market in general. There are other quicker indicators than this but this one can be used to determine trade entries. As the TICK reaches a high spike, in the +800 range and the price of SSO, SPY or any other S&P500 index related fund does not produce a higher high then it may be a decent time to consider an entry short, or SDS.

Should the TICK peak produce a higher high then the price may start heading back up, consider long at the next low TICK reading. Generally the TICK chart for today remained mostly below zero but did not produce many -800 readings until later...even then the -800's did not drag the price as low as might be expected in a weak market. I guess that would indicate that wholesale selloffs are not in th eworks right now, just some consolidation.

Now, on the other hand, SDS produced some really nice buying opportunites. I managed to get in on one of the earlier ones but the tone of the day at work did not let me do much other than pay cursory attention to the activity so I did not remain in any position. ECN connection troubles kept me out for most of the morning and the afternoon needed more attention to trade than I could afford.

It's hard to tell from the TICK chart but there were nice peaks that corresponded with the arrow marked possible entries based on the TICK/market correlation. I did jot down a few trades to keep my mind in the game at least and they were profitable.

One of these days...or weeks I guess, I will get to trade uninterrupted and take advantage of some of the things that I am learning.

Jeff.