From 90c4ed486f9c3c399b157d8fe312a8282f47f16b Mon Sep 17 00:00:00 2001 From: medusa Date: Thu, 31 Oct 2024 17:57:31 +0000 Subject: [PATCH] Update financial_docs/vwap_atr.md --- financial_docs/vwap_atr.md | 299 ++++++++++--------------------------- 1 file changed, 75 insertions(+), 224 deletions(-) diff --git a/financial_docs/vwap_atr.md b/financial_docs/vwap_atr.md index 3468e00..5ea5d69 100644 --- a/financial_docs/vwap_atr.md +++ b/financial_docs/vwap_atr.md @@ -1,234 +1,85 @@ -Let me analyze the potential biases we've introduced into the system. +# 2SD VWAP Trading System Checklist +## Setup Process +### 1. Initial Setup +- [ ] Open TradingView +- [ ] Create two charts side by side +- [ ] Left: ES1! 15-minute +- [ ] Right: BTC/USDT 15-minute +- [ ] Clear all existing indicators -```markdown -# VWAP Trading System Bias Analysis +### 2. Add Indicators +- [ ] Add VWAP (standard settings) +- [ ] Add 2SD bands (using code provided) +- [ ] Add ATR (14 period) +- [ ] Make VWAP blue, upper band red, lower band green +- [ ] Verify indicators are updating correctly -## Statistical Biases +### 3. Alert Setup +- [ ] Create band touch alert (upper) +- [ ] Create band touch alert (lower) +- [ ] Set alerts to 'Once Per Bar' +- [ ] Include ATR value in alert message +- [ ] Test alerts are working -1. Normal Distribution Assumption +## Trade Process + +### Pre-Trade Checklist +- [ ] Alert received +- [ ] Check which band was touched +- [ ] Note current ATR value +- [ ] Calculate position size (Risk/ATR) +- [ ] Verify pattern exists: + - [ ] Price touched band + - [ ] Clear rejection visible + - [ ] Room to VWAP exists + +### Trade Execution +- [ ] Enter after rejection confirms +- [ ] Place stop beyond rejection point +- [ ] Set target at VWAP +- [ ] Record entry details: + - [ ] Entry price + - [ ] Position size + - [ ] Stop level + - [ ] Target level +- [ ] Monitor for pattern break + +## Quick Reference + +### Long Setup 🟢 +* → Touch lower band +* → Rejection upward +* → Target: VWAP +* → Stop: Below rejection + +### Short Setup 🔴 +* → Touch upper band +* → Rejection downward +* → Target: VWAP +* → Stop: Above rejection + +## Position Sizing Formula ``` -Current Assumption: -- 2SD captures 95% of price movement -- Price returns to VWAP reliably - -Reality Check: -- Markets aren't normally distributed -- Fat tails exist -- Black swan events occur -- VWAP reversion isn't guaranteed +Position Size = Account Risk / Current ATR +Example: +- Risk: $100 +- ATR: $2.50 +- Position = $100/$2.50 ``` -2. Sample Size Bias -``` -Current Assumption: -- 15-minute timeframe is optimal -- 15-period standard deviation is meaningful +## Pattern Requirements +1. Clean move to band +2. Clear rejection +3. Room to VWAP +4. No pattern = No trade -Reality Check: -- Timeframe choice is arbitrary -- Period selection lacks statistical validation -- Different assets may require different parameters -``` +## Remember +* Pattern exists or doesn't - no maybes +* Use ATR for position sizing only +* Exit at VWAP or pattern break +* Keep it simple -3. Look-Ahead Bias -``` -Current Assumption: -- Rejections are clearly identifiable -- Pattern completion is obvious - -Reality Check: -- Real-time pattern recognition is harder -- Clean rejections only visible after the fact -- Entry timing may vary -``` - -## Behavioral Biases - -1. Confirmation Bias -``` -Current Implementation: -- Looking for "clean" moves to bands -- Seeking "clear" rejections -- Wanting "obvious" patterns - -Risk: -- Overlooking valid setups that look messy -- Overoptimizing for perfect patterns -- Missing profitable but imperfect trades -``` - -2. Recency Bias -``` -Current Implementation: -- Assuming recent pattern success continues -- Expecting consistent behavior - -Risk: -- Market regimes change -- Pattern effectiveness varies -- Success rate fluctuates -``` - -3. Overconfidence Bias -``` -Current Implementation: -- "Pattern exists or doesn't" -- Fixed position sizing -- Predetermined targets - -Risk: -- Markets are probabilistic -- No pattern is 100% reliable -- Risk doesn't remain constant -``` - -## Suggested Bias Mitigations - -1. Statistical Adjustments: -```python -def calculate_position_size(self, atr, account_risk): - # Add market regime consideration - volatility_factor = self.get_volatility_regime() - adjusted_risk = account_risk * volatility_factor - - # Non-normal distribution adjustment - tail_risk_factor = self.calculate_tail_risk() - - return adjusted_risk / (atr * tail_risk_factor) -``` - -2. Pattern Recognition Improvements: -```python -def validate_pattern(self, df): - # Add probabilistic scoring - pattern_score = 0 - - # Price action validation (70%) - if self.validate_price_action(df): - pattern_score += 70 - - # Volume confirmation (30%) - if self.validate_volume(df): - pattern_score += 30 - - # Return confidence level instead of binary - return pattern_score / 100 -``` - -3. Risk Management Enhancements: -```python -def calculate_stop_distance(self, atr, pattern_quality): - # Dynamic stop based on pattern quality - base_stop = atr * 1.5 - - # Adjust for pattern clarity - if pattern_quality < 0.8: # Less clear pattern - return base_stop * 1.2 # Wider stop - - return base_stop -``` - -## Revised Core Principles - -1. Replace Absolute Statements: -- Old: "Pattern exists or doesn't" -- New: "Pattern shows varying degrees of quality" - -2. Acknowledge Uncertainty: -- Old: "Exit at VWAP" -- New: "VWAP is probable, not certain, target" - -3. Dynamic Position Sizing: -- Old: "Fixed risk/ATR" -- New: "Adjust size based on pattern quality and market conditions" - -4. Pattern Recognition: -- Old: "Clear rejection signals reversal" -- New: "Rejection suggests probable reversal with varying strength" - -## Implementation Changes Needed - -1. Add Pattern Quality Scoring: -``` -- Price action clarity (40%) -- Volume confirmation (30%) -- Market context (30%) -``` - -2. Dynamic Position Sizing: -``` -Position = (Account Risk * Pattern Quality) / (ATR * Market Regime Factor) -``` - -3. Flexible Targets: -``` -- Primary: VWAP (60% probability) -- Secondary: 50% retracement (30% probability) -- Extended: Full band return (10% probability) -``` - -4. Progressive Stops: -``` -- Initial: Based on pattern structure -- Trail: Adjusted for volatility -- Time: Maximum hold period -``` - -## Action Items - -1. Add Pattern Quality Metrics: - - Score each setup objectively - - Track success by score - - Adjust criteria based on results - -2. Implement Regime Detection: - - Monitor volatility changes - - Track pattern effectiveness - - Adjust parameters dynamically - -3. Improve Position Sizing: - - Consider pattern quality - - Account for market regime - - Include correlation factors - -4. Enhance Risk Management: - - Dynamic stop placement - - Multiple exit strategies - - Time-based risk reduction - -The goal is not to eliminate bias (impossible) but to acknowledge and account for it in system design and execution. - -``` - -Key Recommendations: - -1. Statistical Improvements: -- Add regime detection -- Implement dynamic sizing -- Consider non-normal distributions - -2. Pattern Recognition: -- Use quality scoring -- Remove absolute statements -- Add probability framework - -3. Risk Management: -- Dynamic stop placement -- Multiple exit strategies -- Pattern quality adjustments - -4. System Adjustments: -- Replace absolute rules with probabilities -- Add quality metrics -- Implement flexible sizing -- Consider market regimes - -Would you like me to: -1. Detail specific implementation changes? -2. Create a bias-adjusted strategy framework? -3. Develop quality scoring metrics? -4. Design regime detection logic? - -The goal is to maintain system simplicity while acknowledging and accounting for inherent biases. \ No newline at end of file +--- +Note: Check all boxes ([ ]) as you complete each step. Reset checklist for each new trading session. \ No newline at end of file