Moving Mean Strategy

As an investor and trader, you've likely heard of VWAP. Volume Weighted Average Price (VWAP) is an intraday benchmark that calculates the average price, weighted by the total trading volume. It helps traders assess whether the price is trading above or below the day's average.

The Volume Weighted Average Price (VWAP) is a crucial tool in execution strategies, particularly for institutional traders and large investors. Its use in execution strategies primarily revolves around ensuring that large orders are filled without significantly impacting the market while aiming to achieve a price that's close to or better than the day's average trading price.

The Moving Mean Strategy

The Moving Mean Strategy works in a similar way to VWAP, with the key difference being that the Moving Mean can be applied across all timeframes, not just on an intraday basis. The core premise is to use the Moving Mean as a benchmark. Additionally, the Moving Mean strategy has the ability to show benchmarks for any timeframe, enabling traders to understand both short-term and long-term moving mean prices. This can significantly help traders align their trading decisions with the underlying execution trend.

What is an execution trend?

An execution trend in trading refers to the overall direction or behavior of how orders are being executed in the market over time. It reflects the flow of trades, either towards buying or selling, and helps traders gauge market sentiment and liquidity. Aligning with the execution trend means making trading decisions that follow the dominant flow of executed orders, ensuring smoother trade execution and reducing slippage.

How the Moving Mean Works (Similar to VWAP)

The Moving Mean operates similarly to VWAP but incorporates a more advanced mathematical framework, allowing it to provide a highly refined and adaptive price level. Unlike traditional methods, the Moving Mean focuses on smoothing and weighting price data in a way that better captures significant market movements without reacting excessively to minor fluctuations. This results in a more reliable and consistent benchmark, usable across multiple timeframes, offering greater flexibility and precision in trading decisions.

Concept Similar to VWAP

Fair Value Zone: Much like VWAP, the Moving Mean identifies a fair value zone, but its enhanced mathematical structure makes it particularly responsive to both recent and historical price data. This creates a stable benchmark that reflects key market dynamics like key levels and mid-range prices while smoothly accounting for the most relevant market information.

Dynamic

Static

Price Benchmark: The Moving Mean acts as a precise and adaptive price benchmark. Traders can use it to evaluate whether the current price is above or below fair value, helping to identify overbought or oversold conditions. Its unique calculation ensures that this benchmark is more accurate, offering a better sense of where the market is heading by factoring in the most critical price action without being overly influenced by short-term market noise.

Usage in Trading (Compared to VWAP)

Trend Following: Just as with VWAP, if the price is consistently trading above the Moving Mean, it suggests bullish momentum, while staying below it indicates bearish sentiment. However, the Moving Mean’s ability to filter out short-term fluctuations and focus on the most relevant price data across timeframes makes it exceptionally effective in identifying and following longer-lasting trends. This gives traders more confidence in aligning their trades with the true underlying market direction.

Reversion to the Mean: The Moving Mean serves as a central reference point for mean-reversion strategies. It provides a balanced level toward which prices are likely to revert after deviating. Traders can use this mean to anticipate reversals, as the calculation ensures that it reflects both recent and broader market trends, reducing the likelihood of false signals from sudden price spikes or dips.

Dynamic

Static

‍Support and Resistance: Due to its smooth and refined calculation, the Moving Mean acts as a reliable support or resistance level. Traders can expect price to react to the Moving Mean, either bouncing off it or breaking through it, depending on the market's strength. Its enhanced approach to smoothing ensures that these levels are more stable and trustworthy, especially across varying timeframes.

Support

Resistance

Strategy overview

This strategy focuses on identifying long-term fair value areas. When comparing the Dynamic Moving Mean to VWAP, we notice that the price comes back to retest the dynamic moving line far less frequently. This is the strength of the strategy—it allows us to filter out significant fair value areas rather than the numerous touches that a regular VWAP may generate. This makes it more precise for traders looking to capture key price levels.

Strategy Idea

The idea is to look for entries when the market makes a significant impulse toward the dynamic or static mean. A strong impulse toward the fair value suggests that the mean will act as a support or resistance area.

The strategy is simple: enter the market when the price makes a significant impulse toward the moving mean.

Indicators to Detect Significant Price Impulses

Bellcurves

Volatility Impulse (VI)

Strength cycle (candles) within the Trend & Pullback Toolkit

Reversal/Exit points in Reversal Algo

We offer several indicators that detect significant market impulses in real-time. Choose the one that resonates with you and fits your trading style. (Everyone prefers different indicators based on how they analyze the market.)

‍Strategy Rules - 15 min timeframe & below

Long Entry

Enter when the price closes above the moving mean. Use any of the impulse indicators for confirmation. In this example, we use the Bellcurves with default settings to confirm that the impulse is significant enough.

Target

Set your target at the high  where the impulse move began.

Stop Loss (SL)

Set a tight stop loss, allowing for slight fluctuations but minimizing how much the price moves against you.

This setup generally provides a great risk-reward ratio, with at least 1:4.

Short Entry

Enter when the price closes below the moving mean. Use any of the impulse indicators for confirmation. In this example, we use the Volatility Impulse with default settings to confirm that the impulse is significant enough.

Target

Set your target at the low where the impulse move began.

Stop Loss (SL)

Set a tight stop loss, allowing for slight fluctuations but minimizing how much the price moves against you.

This setup generally provides a great risk-reward ratio, with at least 1:4.

Settings for the Mean Expansion Indicator

When using the indicator on timeframes under 15 minutes, the default settings are recommended.

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Indicator Used

YOU FIND THE FEATURES IN THIS INDICATOR

Intelligent Price Action - Positive Close (Expo)

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