By GMT Futures
In this series of articles we are going to focus on building a system using the VWAP as our main indicator. However before we jump in and start looking at the make-up of the first of our baseline systems you should have already read the first of these articles http://www.gmtfutures.com/day-traders-the-vwap/.
Just like traders using the MACD as a momentum tool, day traders can use the VWAP in a similar fashion. Today we are going to explore the concept of a basic VWAP crossover strategy. From our earlier article we know that the VWAP is an excellent tool to indicate a change in market bias. Basic prices crosses through the VWAP is a potential indication that we have a market shift in sentiment.
A buy entry would have price crossing above the VWAP as illustrated in Figure 1.
Anytime you are constructing a trading strategy one of the key elements to your systems needs to be the exit strategy.
Some traders do use the cross of the VWAP line (price closing above the VWAP for a momentum buy entry). Conversely they will use a cross below the VWAP as confirmation of a shift in momentum and directional bias to the short side.
Exiting can come in the form of four basic types:
- Time based;
- Volatility Based;
- Price based; and
- Indicator based exit.
As we continue with our series developing a trading strategy for the VWAP we will be testing all of the stops outline above with our automated trading functions to ensure we maintain an objective approach to our results.
In the next in article we will be reviewing the stop strategies we will be using as part of our strategy testing and development.
If you would like to join our team and capture some of the profits on offer in today’s futures markets please feel free to contact email@example.com
Team GMT Futures.
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