Algorithmic Trading Strategies

lucacrebbe

Active Trader
Jun 26, 2017
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Hello I was reading about this in investitopia:

https://www.investopedia.com/articl...algorithmic-trading-concepts-and-examples.asp

I don't understand a thing, maybe because I am not native ebglish, would you please explain to me what does this mean?

I have 2 questions:

Question 1)

''Volume Weighted Average Price (VWAP)


Volume weighted average price strategy breaks up a large order and releases dynamically determined smaller chunks of the order to the market using stock-specific historical volume profiles. The aim is to execute the order close to the Volume Weighted Average Price (VWAP).''

What does it mean ''breaks uo a large order using stock specific hystorical volume profiles''?

What is this indicator ? (Historical volume profiles)? I have never heard about it. What does it shows to us?
Does it compute an average of all the volume traded in N days?

And why does it execute the order CLOSE TO the VWAP? Wouldn't it be better to execute it ABOVE, OR BELOW the VWAP?


Question number 2

Time weighted average price strategy breaks up a large order and releases dynamically determined smaller chunks of the order to the market using evenly divided time slots between a start and end time. The aim is to execute the order close to the average price between the start and end times, thereby minimizing market impact.


What does it means with ''releases dynamically determined smaller chunks of the order to the market using evenly divided time slots between a start and end time'' ?

Basically: I have a large sell order, I want to execute it above or close to the VWAP, then I split the order time to time until is it filled at my condition? Does this mean with that prhase?



 

Enivid

Administrator
Staff member
Nov 30, 2008
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www.earnforex.com
What does it mean ''breaks uo a large order using stock specific hystorical volume profiles''?
It means to maximize the efficiency of large order execution by breaking it up into smaller orders to minimize the overall resulting price.
What is this indicator ? (Historical volume profiles)? I have never heard about it. What does it shows to us? Does it compute an average of all the volume traded in N days?
That's not a specific indicator, that's just historically significant price/volume levels.

And why does it execute the order CLOSE TO the VWAP? Wouldn't it be better to execute it ABOVE, OR BELOW the VWAP?
The aim is to reduce the influence of your small order-chunks on the market, so it is better to execute them exactly at those levels.

What does it means with ''releases dynamically determined smaller chunks of the order to the market using evenly divided time slots between a start and end time'' ?

Basically: I have a large sell order, I want to execute it above or close to the VWAP, then I split the order time to time until is it filled at my condition? Does this mean with that prhase?

For example, you want to open a position of 10 million shares in a market with not so great liquidity. You divide it into 100 orders of 100k shares each and execute each 30 seconds apart.