From a3a28debcfe5032c63dc87815ee4eaf1c28fd2c8 Mon Sep 17 00:00:00 2001 From: medusa Date: Thu, 31 Oct 2024 18:29:41 +0000 Subject: [PATCH] Update financial_docs/vwap_atr.md --- financial_docs/vwap_atr.md | 538 ++++++++++++++++++++++++++++++++++++- 1 file changed, 533 insertions(+), 5 deletions(-) diff --git a/financial_docs/vwap_atr.md b/financial_docs/vwap_atr.md index 015a988..e93fb12 100644 --- a/financial_docs/vwap_atr.md +++ b/financial_docs/vwap_atr.md @@ -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. \ No newline at end of file +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 ( +
+ + + 2SD/3SD VWAP Trading System Checklist + + +
+

Pre-Session Setup

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TradingView Charts

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  • ☐ ES1! 15-minute
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  • ☐ BTC/USDT 15-minute
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Indicators

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  • ☐ VWAP (blue)
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  • ☐ 2SD bands (red upper, green lower)
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  • ☐ 3SD bands (visible)
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  • ☐ ATR (14 period)
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Alerts

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  • ☐ 2SD touches
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  • ☐ 3SD touches
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  • ☐ Once per bar
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  • ☐ ATR value included
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Trading Process

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On Alert

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  • ☐ Identify zone hit (2SD or 3SD)
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  • ☐ Verify rejection candle
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  • ☐ Note current ATR
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Position Sizing

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  • ☐ 2SD: Risk ÷ ATR
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  • ☐ 3SD: (Risk ÷ ATR) × 0.5
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Pattern Reference

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2SD Long

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  • ☐ Price touches lower 2SD
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  • ☐ Candle closes above band
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  • ☐ Clear path to VWAP
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  • ☐ Full position size
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2SD Short

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  • ☐ Price touches upper 2SD
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  • ☐ Candle closes below band
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  • ☐ Clear path to VWAP
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  • ☐ Full position size
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3SD Long

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  • ☐ Price touches lower 3SD
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  • ☐ Candle closes above band
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  • ☐ Path to VWAP/2SD clear
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  • ☐ Half position size
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3SD Short

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  • ☐ Price touches upper 3SD
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  • ☐ Candle closes below band
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  • ☐ Path to VWAP/2SD clear
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  • ☐ Half position size
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Exit Rules

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2SD Trades

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  • ☐ Hit VWAP = Take profit
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  • ☐ Pattern breaks = Exit
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  • ☐ Stop hit = Exit
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3SD Trades

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  • ☐ Hit VWAP/2SD = Take profit
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  • ☐ Pattern breaks = Exit
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  • ☐ Stop hit = Exit
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Key Reminders

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  • • No additional filters
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  • • No timeframe restrictions
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  • • No extra indicators
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  • • Pattern exists or doesn't
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  • • Next setup always comes
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+ Alert → Pattern → Size → Trade → Exit +
Everything else is noise.
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+ + +
+ ); +}; + +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. \ No newline at end of file