Update financial_docs/vwap_atr.md
This commit is contained in:
@@ -127,10 +127,6 @@ Removed:
|
||||
- Detailed space checks
|
||||
```
|
||||
|
||||
Let me provide a bias-free, aligned version:
|
||||
|
||||
|
||||
|
||||
# 2SD VWAP Trading System Checklist
|
||||
|
||||
## Setup Process
|
||||
@@ -216,4 +212,536 @@ Example:
|
||||
5. Keep it simple
|
||||
|
||||
---
|
||||
Note: This is a complete checklist. If pattern exists, trade. If not, wait.
|
||||
Note: This is a complete checklist. If pattern exists, trade. If not, wait.
|
||||
|
||||
---
|
||||
|
||||
# 2SD/3SD VWAP Trading System
|
||||
Complete System Documentation
|
||||
|
||||
## I. System Overview
|
||||
|
||||
### Core Concept
|
||||
A mechanical mean reversion system trading rejections from statistical deviation bands back to VWAP.
|
||||
|
||||
### Statistical Foundation
|
||||
```
|
||||
Price Distribution Zones:
|
||||
- 2SD captures 95% of price movement
|
||||
- 3SD captures 99.7% of price movement
|
||||
- VWAP represents mean price path
|
||||
```
|
||||
|
||||
## II. Technical Implementation
|
||||
|
||||
### Core Calculations
|
||||
```pine
|
||||
// VWAP and Standard Deviation
|
||||
vwap = ta.vwap
|
||||
stdev = ta.stdev(vwap, 15)
|
||||
atr = ta.atr(14)
|
||||
|
||||
// Band Calculations
|
||||
upper_2sd = vwap + 2 * stdev
|
||||
lower_2sd = vwap - 2 * stdev
|
||||
upper_3sd = vwap + 3 * stdev
|
||||
lower_3sd = vwap - 3 * stdev
|
||||
|
||||
// Entry Conditions
|
||||
long_2sd = low <= lower_2sd and close > lower_2sd
|
||||
short_2sd = high >= upper_2sd and close < upper_2sd
|
||||
long_3sd = low <= lower_3sd and close > lower_3sd
|
||||
short_3sd = high >= upper_3sd and close < upper_3sd
|
||||
```
|
||||
|
||||
### Alert Conditions
|
||||
```pine
|
||||
// Primary Alerts
|
||||
alertcondition(long_2sd or short_2sd, "2SD Touch + Reject")
|
||||
alertcondition(long_3sd or short_3sd, "3SD Touch + Reject")
|
||||
|
||||
// Alert Message Format
|
||||
"{{ticker}} - Zone: {{band}} - ATR: {{atr}}"
|
||||
```
|
||||
|
||||
## III. Trading Mechanics
|
||||
|
||||
### Position Sizing
|
||||
```
|
||||
2SD Trades:
|
||||
Position = Risk ÷ ATR
|
||||
|
||||
3SD Trades:
|
||||
Position = (Risk ÷ ATR) × 0.5
|
||||
|
||||
Example:
|
||||
Risk = $100
|
||||
ATR = $2.50
|
||||
2SD Position = 40 units
|
||||
3SD Position = 20 units
|
||||
```
|
||||
|
||||
### Entry Rules
|
||||
```
|
||||
2SD Long:
|
||||
- Price touches lower 2SD band
|
||||
- Candle closes above band
|
||||
- Enter next candle open
|
||||
|
||||
2SD Short:
|
||||
- Price touches upper 2SD band
|
||||
- Candle closes below band
|
||||
- Enter next candle open
|
||||
|
||||
3SD Rules:
|
||||
- Same entry mechanics
|
||||
- Half position size
|
||||
- Wider stops typical
|
||||
```
|
||||
|
||||
### Stop Placement
|
||||
```
|
||||
All Trades:
|
||||
- Behind rejection candle
|
||||
- Account for volatility
|
||||
- No adjustments after entry
|
||||
```
|
||||
|
||||
### Target Selection
|
||||
```
|
||||
2SD Trades:
|
||||
- Target = VWAP
|
||||
- Exit on pattern break
|
||||
|
||||
3SD Trades:
|
||||
- Primary Target = VWAP
|
||||
- Secondary Target = 2SD band
|
||||
- Exit on pattern break
|
||||
```
|
||||
|
||||
## IV. Implementation Details
|
||||
|
||||
### Python Components
|
||||
```python
|
||||
class VWAPSystem:
|
||||
def __init__(self):
|
||||
self.lookback = 15
|
||||
self.atr_period = 14
|
||||
|
||||
def calculate_bands(self, data):
|
||||
# VWAP calculation
|
||||
data['vwap'] = self.calculate_vwap(data)
|
||||
|
||||
# Standard deviation
|
||||
data['stdev'] = data['vwap'].rolling(self.lookback).std()
|
||||
|
||||
# Band calculations
|
||||
data['upper_2sd'] = data['vwap'] + 2 * data['stdev']
|
||||
data['lower_2sd'] = data['vwap'] - 2 * data['stdev']
|
||||
data['upper_3sd'] = data['vwap'] + 3 * data['stdev']
|
||||
data['lower_3sd'] = data['vwap'] - 3 * data['stdev']
|
||||
|
||||
return data
|
||||
|
||||
def check_signals(self, data):
|
||||
# Entry conditions
|
||||
data['long_2sd'] = (data['low'] <= data['lower_2sd']) &
|
||||
(data['close'] > data['lower_2sd'])
|
||||
data['short_2sd'] = (data['high'] >= data['upper_2sd']) &
|
||||
(data['close'] < data['upper_2sd'])
|
||||
data['long_3sd'] = (data['low'] <= data['lower_3sd']) &
|
||||
(data['close'] > data['lower_3sd'])
|
||||
data['short_3sd'] = (data['high'] >= data['upper_3sd']) &
|
||||
(data['close'] < data['upper_3sd'])
|
||||
|
||||
return data
|
||||
```
|
||||
|
||||
### Pine Script Structure
|
||||
```pine
|
||||
//@version=5
|
||||
indicator("2SD/3SD VWAP System")
|
||||
|
||||
// Core calculations
|
||||
vwap = ta.vwap
|
||||
stdev = ta.stdev(vwap, 15)
|
||||
atr = ta.atr(14)
|
||||
|
||||
// Bands
|
||||
var float[] bands = calculate_bands(vwap, stdev)
|
||||
var float[] signals = check_signals(bands)
|
||||
|
||||
// Plotting
|
||||
plot(vwap, "VWAP", color=color.blue)
|
||||
plot(bands[0], "Upper 2SD", color=color.red)
|
||||
plot(bands[1], "Lower 2SD", color=color.green)
|
||||
```
|
||||
|
||||
## V. Process Flow
|
||||
|
||||
### Trading Session Flow
|
||||
```
|
||||
1. Setup Phase:
|
||||
→ Load charts (ES 15min, BTC 15min)
|
||||
→ Verify indicators
|
||||
→ Activate alerts
|
||||
|
||||
2. Monitoring Phase:
|
||||
→ Wait for alerts
|
||||
→ Identify band touch
|
||||
→ Confirm rejection
|
||||
|
||||
3. Execution Phase:
|
||||
→ Calculate position size
|
||||
→ Place entry order
|
||||
→ Set stop loss
|
||||
→ Set target
|
||||
|
||||
4. Management Phase:
|
||||
→ Monitor for target hit
|
||||
→ Watch for pattern break
|
||||
→ Exit on either condition
|
||||
```
|
||||
|
||||
### Decision Tree
|
||||
```
|
||||
Alert Received
|
||||
↓
|
||||
Check Zone (2SD or 3SD)
|
||||
↓
|
||||
Verify Rejection
|
||||
↓
|
||||
Calculate Position
|
||||
↓
|
||||
Execute Trade
|
||||
↓
|
||||
Monitor to Exit
|
||||
```
|
||||
|
||||
## VI. System Rules Summary
|
||||
|
||||
### Core Rules
|
||||
1. Trade rejections only
|
||||
2. Size by ATR
|
||||
3. Enter after rejection
|
||||
4. Exit at target or break
|
||||
5. No exceptions
|
||||
|
||||
### Position Rules
|
||||
1. 2SD = full size
|
||||
2. 3SD = half size
|
||||
3. No averaging
|
||||
4. No scaling
|
||||
|
||||
### Exit Rules
|
||||
1. Hit VWAP = win
|
||||
2. Pattern breaks = exit
|
||||
3. Stop hit = exit
|
||||
4. No adjustments
|
||||
|
||||
## VII. Implementation Checklist
|
||||
|
||||
### Setup
|
||||
- [ ] Install indicators
|
||||
- [ ] Configure alerts
|
||||
- [ ] Test calculations
|
||||
- [ ] Verify data feed
|
||||
|
||||
### Trading
|
||||
- [ ] Monitor alerts
|
||||
- [ ] Check zone
|
||||
- [ ] Calculate position
|
||||
- [ ] Execute mechanically
|
||||
- [ ] Record results
|
||||
|
||||
---
|
||||
End of Documentation.
|
||||
|
||||
---
|
||||
|
||||
Let me create a React component version of the checklist that will render properly.
|
||||
|
||||
|
||||
|
||||
```tsx
|
||||
import React from 'react';
|
||||
import { Card, CardHeader, CardTitle, CardContent } from '@/components/ui/card';
|
||||
|
||||
const TradingChecklist = () => {
|
||||
return (
|
||||
<div className="max-w-4xl mx-auto space-y-6 p-6">
|
||||
<Card className="border border-gray-200">
|
||||
<CardHeader className="bg-gray-50 border-b border-gray-200">
|
||||
<CardTitle className="text-lg font-semibold">2SD/3SD VWAP Trading System Checklist</CardTitle>
|
||||
</CardHeader>
|
||||
<CardContent className="p-4 space-y-6">
|
||||
<div>
|
||||
<h2 className="text-lg font-semibold mb-3">Pre-Session Setup</h2>
|
||||
<div className="space-y-2">
|
||||
<div>
|
||||
<h3 className="font-medium">TradingView Charts</h3>
|
||||
<ul className="ml-4 space-y-1">
|
||||
<li>☐ ES1! 15-minute</li>
|
||||
<li>☐ BTC/USDT 15-minute</li>
|
||||
</ul>
|
||||
</div>
|
||||
<div>
|
||||
<h3 className="font-medium">Indicators</h3>
|
||||
<ul className="ml-4 space-y-1">
|
||||
<li>☐ VWAP (blue)</li>
|
||||
<li>☐ 2SD bands (red upper, green lower)</li>
|
||||
<li>☐ 3SD bands (visible)</li>
|
||||
<li>☐ ATR (14 period)</li>
|
||||
</ul>
|
||||
</div>
|
||||
<div>
|
||||
<h3 className="font-medium">Alerts</h3>
|
||||
<ul className="ml-4 space-y-1">
|
||||
<li>☐ 2SD touches</li>
|
||||
<li>☐ 3SD touches</li>
|
||||
<li>☐ Once per bar</li>
|
||||
<li>☐ ATR value included</li>
|
||||
</ul>
|
||||
</div>
|
||||
</div>
|
||||
</div>
|
||||
|
||||
<div>
|
||||
<h2 className="text-lg font-semibold mb-3">Trading Process</h2>
|
||||
<div className="space-y-4">
|
||||
<div>
|
||||
<h3 className="font-medium">On Alert</h3>
|
||||
<ul className="ml-4 space-y-1">
|
||||
<li>☐ Identify zone hit (2SD or 3SD)</li>
|
||||
<li>☐ Verify rejection candle</li>
|
||||
<li>☐ Note current ATR</li>
|
||||
</ul>
|
||||
</div>
|
||||
<div>
|
||||
<h3 className="font-medium">Position Sizing</h3>
|
||||
<ul className="ml-4 space-y-1">
|
||||
<li>☐ 2SD: Risk ÷ ATR</li>
|
||||
<li>☐ 3SD: (Risk ÷ ATR) × 0.5</li>
|
||||
</ul>
|
||||
</div>
|
||||
</div>
|
||||
</div>
|
||||
|
||||
<div>
|
||||
<h2 className="text-lg font-semibold mb-3">Pattern Reference</h2>
|
||||
<div className="grid grid-cols-1 md:grid-cols-2 gap-4">
|
||||
<div className="p-3 bg-green-50 rounded-lg">
|
||||
<h3 className="font-medium text-green-700">2SD Long</h3>
|
||||
<ul className="ml-4 space-y-1">
|
||||
<li>☐ Price touches lower 2SD</li>
|
||||
<li>☐ Candle closes above band</li>
|
||||
<li>☐ Clear path to VWAP</li>
|
||||
<li>☐ Full position size</li>
|
||||
</ul>
|
||||
</div>
|
||||
<div className="p-3 bg-red-50 rounded-lg">
|
||||
<h3 className="font-medium text-red-700">2SD Short</h3>
|
||||
<ul className="ml-4 space-y-1">
|
||||
<li>☐ Price touches upper 2SD</li>
|
||||
<li>☐ Candle closes below band</li>
|
||||
<li>☐ Clear path to VWAP</li>
|
||||
<li>☐ Full position size</li>
|
||||
</ul>
|
||||
</div>
|
||||
<div className="p-3 bg-green-50 rounded-lg">
|
||||
<h3 className="font-medium text-green-700">3SD Long</h3>
|
||||
<ul className="ml-4 space-y-1">
|
||||
<li>☐ Price touches lower 3SD</li>
|
||||
<li>☐ Candle closes above band</li>
|
||||
<li>☐ Path to VWAP/2SD clear</li>
|
||||
<li>☐ Half position size</li>
|
||||
</ul>
|
||||
</div>
|
||||
<div className="p-3 bg-red-50 rounded-lg">
|
||||
<h3 className="font-medium text-red-700">3SD Short</h3>
|
||||
<ul className="ml-4 space-y-1">
|
||||
<li>☐ Price touches upper 3SD</li>
|
||||
<li>☐ Candle closes below band</li>
|
||||
<li>☐ Path to VWAP/2SD clear</li>
|
||||
<li>☐ Half position size</li>
|
||||
</ul>
|
||||
</div>
|
||||
</div>
|
||||
</div>
|
||||
|
||||
<div>
|
||||
<h2 className="text-lg font-semibold mb-3">Exit Rules</h2>
|
||||
<div className="grid grid-cols-1 md:grid-cols-2 gap-4">
|
||||
<div>
|
||||
<h3 className="font-medium">2SD Trades</h3>
|
||||
<ul className="ml-4 space-y-1">
|
||||
<li>☐ Hit VWAP = Take profit</li>
|
||||
<li>☐ Pattern breaks = Exit</li>
|
||||
<li>☐ Stop hit = Exit</li>
|
||||
</ul>
|
||||
</div>
|
||||
<div>
|
||||
<h3 className="font-medium">3SD Trades</h3>
|
||||
<ul className="ml-4 space-y-1">
|
||||
<li>☐ Hit VWAP/2SD = Take profit</li>
|
||||
<li>☐ Pattern breaks = Exit</li>
|
||||
<li>☐ Stop hit = Exit</li>
|
||||
</ul>
|
||||
</div>
|
||||
</div>
|
||||
</div>
|
||||
|
||||
<div className="p-4 bg-gray-50 rounded-lg">
|
||||
<h2 className="text-lg font-semibold mb-3">Key Reminders</h2>
|
||||
<ul className="space-y-1">
|
||||
<li>• No additional filters</li>
|
||||
<li>• No timeframe restrictions</li>
|
||||
<li>• No extra indicators</li>
|
||||
<li>• Pattern exists or doesn't</li>
|
||||
<li>• Next setup always comes</li>
|
||||
</ul>
|
||||
</div>
|
||||
|
||||
<div className="text-center font-medium">
|
||||
Alert → Pattern → Size → Trade → Exit
|
||||
<div className="mt-2 text-gray-600">Everything else is noise.</div>
|
||||
</div>
|
||||
</CardContent>
|
||||
</Card>
|
||||
</div>
|
||||
);
|
||||
};
|
||||
|
||||
export default TradingChecklist;
|
||||
|
||||
```
|
||||
|
||||
---
|
||||
|
||||
The half position size at 3SD is based on statistical principles and risk management, but let me analyze this in detail.
|
||||
|
||||
|
||||
|
||||
|
||||
|
||||
# 3SD Position Size Analysis
|
||||
|
||||
## Statistical Context
|
||||
```
|
||||
Price Distribution:
|
||||
2SD = 95% of moves (1 in 20 events)
|
||||
3SD = 99.7% of moves (1 in 370 events)
|
||||
|
||||
Current Rule:
|
||||
2SD = Full size (Risk/ATR)
|
||||
3SD = Half size (Risk/ATR × 0.5)
|
||||
```
|
||||
|
||||
## Examining The Logic
|
||||
|
||||
### Arguments FOR Half Size
|
||||
1. Volatility Consideration
|
||||
- 3SD moves indicate higher volatility
|
||||
- May need wider stops
|
||||
- Higher ATR during these moves
|
||||
|
||||
2. Statistical Rarity
|
||||
- Much rarer events
|
||||
- Less historical precedent
|
||||
- Harder to validate pattern
|
||||
|
||||
3. Risk of Continuation
|
||||
- Strong momentum to reach 3SD
|
||||
- Could signal trend change
|
||||
- Higher probability of continuation
|
||||
|
||||
### Arguments AGAINST Half Size
|
||||
1. Violates System Mechanics
|
||||
- Adds complexity
|
||||
- Introduces discretion
|
||||
- Breaks ATR sizing logic
|
||||
|
||||
2. Statistical Edge
|
||||
- Stronger mean reversion potential
|
||||
- Clearer extreme condition
|
||||
- More defined edge
|
||||
|
||||
3. ATR Already Adjusts
|
||||
- Higher volatility = Higher ATR
|
||||
- Position size naturally reduces
|
||||
- Built-in risk management
|
||||
|
||||
## Position Sizing Reality
|
||||
```
|
||||
Example with $100 Risk:
|
||||
|
||||
Normal Market:
|
||||
ATR = $2.50
|
||||
2SD Position = $100/$2.50 = 40 units
|
||||
3SD Position = $100/$2.50 × 0.5 = 20 units
|
||||
|
||||
High Volatility Market:
|
||||
ATR = $5.00
|
||||
2SD Position = $100/$5.00 = 20 units
|
||||
3SD Position = $100/$5.00 × 0.5 = 10 units
|
||||
|
||||
BUT: ATR is likely already higher at 3SD!
|
||||
If ATR = $5.00 at 3SD naturally:
|
||||
Position = $100/$5.00 = 20 units
|
||||
(Natural reduction without arbitrary halving)
|
||||
```
|
||||
|
||||
## Recommendation
|
||||
|
||||
### Remove Half-Size Rule
|
||||
```
|
||||
New Rule: Position = Risk ÷ ATR
|
||||
Reasoning:
|
||||
1. ATR captures volatility
|
||||
2. Keeps system mechanical
|
||||
3. Removes complexity
|
||||
4. Maintains consistency
|
||||
```
|
||||
|
||||
### Updated Position Logic
|
||||
```
|
||||
ALL Trades (2SD and 3SD):
|
||||
1. Note current ATR
|
||||
2. Calculate Position = Risk ÷ ATR
|
||||
3. Place trade
|
||||
4. No additional adjustments
|
||||
```
|
||||
|
||||
## Key Points
|
||||
1. ATR naturally adapts to volatility
|
||||
2. System should remain mechanical
|
||||
3. Arbitrary adjustments add bias
|
||||
4. Consistency breeds confidence
|
||||
|
||||
## Conclusion
|
||||
The half-size rule at 3SD appears to be:
|
||||
1. Redundant (ATR already adjusts)
|
||||
2. Adds complexity
|
||||
3. Breaks mechanical nature
|
||||
4. Introduces bias
|
||||
|
||||
Recommendation: Remove the half-size rule and maintain pure ATR-based sizing for all trades.
|
||||
|
||||
---
|
||||
Remember: The best trading system is one you can execute consistently. Adding rules needs strong justification.
|
||||
|
||||
|
||||
After this analysis, I believe we should:
|
||||
|
||||
1. Remove the half-size rule
|
||||
2. Let ATR handle volatility naturally
|
||||
3. Maintain system simplicity
|
||||
4. Keep position sizing mechanical
|
||||
|
||||
Would you like me to:
|
||||
1. Update the system documentation?
|
||||
2. Provide example calculations?
|
||||
3. Add risk analysis metrics?
|
||||
4. Detail volatility adjustments?
|
||||
|
||||
The goal is to keep the system purely mechanical while letting the ATR handle position sizing naturally.
|
||||
Reference in New Issue
Block a user