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Strategies & Market Trends : LastShadow's Position Trading -- Ignore unavailable to you. Want to Upgrade?

To: Dave Shares who wrote (3768)	12/5/1998 12:58:00 PM
From: LastShadow	Read Replies (2) \| Respond to of 43080

Value-Weighted Average Price (VWAP) Dave Shares had asked about the VWAP after Darcy noted it was now included in the Mach6 gap lists. The VWAP is the average price at which the greatest volume of stock was traded that day. The importance of this number is enormous on a heavily traded stock at both mid-morning and early afternoon. I would note that this applies to primarily mid and heavy volume average trading, and not to days with huge volume runups like wuith ONSL or EBAy recently. If an institutional trader (thoes placing orders for hedge, pension and mutual funds) has made a large buy(s) in the morning and the stock downtrends, or goes horizontal midday, the chance that they will place another well-timed but to run the price up in the afternoon is substantially higher (opposite for shorts, obviously). The VWAP by itself can be used to some extent looking merely at the gap lists early on and deciding if the price/volume trend is in front or behind you. If its still uptrending an hour after open and the volume is regular, a look at the current price, open, and yesterday's HLC against the VWAP will tell you if it is still worth getting on or waiting for the selloff to play it modified. This isn't something a novice at gaps would look at. But, if you are looking at a stock to enter at open and its on the gap lists, you can see the VWAP and decide if you should still enter. I realize this might be a little hard to digest. I'll try an example: Stock ABCD gaps at open to $22 from yesterday's close and high of $20. Lets say the price at 10:00 is now $24. There has been some improved volume in the morning (although not rocketing yet) and the VWAP is $23.25. This means that the shares traded after $23.25 are above the average of the volume for the day. If the trend is stong and looks to continue, jump on. However, lets stay the VWAP is 22.50, meaning most of the shares traded near the opening gap. Looking at the chart, btw, will tell you about how much of the action traded above/below the VWAP. This implies that mm's are running the price up even though the volume of trades is not sustaining it. The closer the current price is to the VWAP, the safer you are in general. I think it was Barbara's comment last week where she mentioned that the bulk of the ONSL volume was above $50, and therefore has some protection to that level on a tank - which was true for Monday. The one other aid in using a VWAP is in determining mental stops. If the VWAP was $22, then at $21.50 would be the threshold to exit as protective stops fro the early buys with trailing stops would be triggered at about $21 or $21.25 This is probably not the best description, as the VWAP is more useful for some stocks than others. The other use is to look at a gapping stock in the afternoon to see where the current price is to determine if it is either a good short candidate (price way too high over the VWAP) or worth buying or holding for the next day's Gap (VWAP closer to the current price). lastshadow