VWAP Intraday Trading Strategy: Do Simple Trading Strategies Really Work? [Part4]

Do simple Trading strategies really work in Indian Markets? It is the curiosity remains among most of the traders. Does a simple technical condition bring consistent returns in the markets despite commissions and slippages?

To test this hypothesis, we took a strategy which is quite popular in social media – VWAP based intraday trading strategy. Here are the rules

VWAP is a simple day trading strategy where we use previous day’s end of day (EOD) VWAP and current day VWAP

When an instrument is trading above previous day closing VWAP, it is bullish and if it is trading below, it is bearish

Nifty Futures – VWAP Intraday Trading Strategy ( 15min Timeframe)

Chart time frame: 15 minutes

Buy entry: When instrument crosses high of Bullish 15 min candle which touched and closed above current day VWAP

Sell entry: When instrument crosses Below Low of Bearish 15 min candle which touched and closed below current day VWAP

Target: 30 Points for Nifty, 90 Points for Bank Nifty and 1.5 % stocks

SL: 20 Points for Nifty, 60 Points for Bank Nifty and 1 % stocks

We tested the trading strategy in Nifty Futures and Bank Nifty Futures right from Jan 2011 to Dec 2019. Here are the backtest results.

VWAP Based Intraday Strategy – Amibroker AFL code

_SECTION_BEGIN("Yesterdays VWAP Strategy");

TargetPrice = Param("Target Points",30,1,500,1);
StopPrice = Param("Stop Points",20,1,500,1);
N = Param("Limit Trades",1,1,10,1); //Per Symbol Trade Limit

SetPositionSize(1*RoundLotSize,spsShares); // Bactest Calculation for No of Points

marketstarttime = 091500;
sigendtime = 144449;
sqofftime = 151459;


Bars_so_far_today = 1 + BarsSince( Day() != Ref(Day(), -1));
StartBar = ValueWhen(TimeNum() == marketstarttime , BarIndex());
TodayVolume = iif(Sum(V,Bars_so_far_today) <= 0,1,Sum(V,Bars_so_far_today));
average = (H+L+C)/3;
IIf (BarIndex() >= StartBar, VWAP = Sum (average * V, Bars_so_far_today  ) / TodayVolume,0);


newday = Ref(Day(),-1) != Day();

yVWAP = ValueWhen(newday, Ref(VWAP,-1) ,1);

Plot(yVWAP,"yVWAP",colorBrown,styleDashed);
Plot(VWAP,"yVWAP",colorYellow,styleLine | styleThick);

sqoff = TimeNum() >=sqofftime;


dn = DateNum();
newDay = dn != Ref( dn,-1);

Buy = C>yVWAP AND Cross(C,VWAP) AND TimeNum()<=sigendtime;

Buy = Buy AND Sum( Buy, BarsSince( newDay) +1 ) <= N;  //Limit to one trade per day


BuyPrice = ValueWhen(Buy,Close); //Enter at Close of the candle

TargetBuy = BuyPrice + TargetPrice;
StopBuy = BuyPrice - StopPrice;


Sell = Cross(H,TargetBuy) OR Cross(StopBuy,L) OR sqoff; //Exit if Target/Stop/Square off Time reached

SellPrice = IIf(Cross(H,TargetBuy), TargetBuy, IIf(Cross(StopBuy,L), StopBuy, Close));

Buy = ExRem(Buy,Sell);
Sell = ExRem(Sell,Buy);

BuyCont = Flip(Buy,Sell);
SellCont = Flip(Sell,Buy);

Short = C< yVWAP AND Cross(VWAP,C) AND TimeNum() <= sigendtime;
Short = Short AND Sum( Short, BarsSince( newDay) +1 ) <= N;  //Limit to one trade per day


ShortPrice = ValueWhen(Short,Close);

TargetShort = ShortPrice - TargetPrice;
StopShort = ShortPrice + StopPrice;


Cover = Cross(H,StopShort) OR Cross(TargetShort,L) OR sqoff; //Exit if Target/Stop/Square off Time reached
CoverPrice = IIf(Cross(H,StopShort), StopShort, IIf(Cross(TargetShort,L), TargetShort, Close));

Short = ExRem(Short,Cover);
Cover = ExRem(Cover,Short);

ShortCont = Flip(Short,Cover);
CoverCont = Flip(Cover,Short);

PlotShapes(IIf(Buy, shapeSquare, shapeNone),colorGreen, 0, L, Offset=-40);
PlotShapes(IIf(Buy, shapeSquare, shapeNone),colorLime, 0,L, Offset=-50);                      
PlotShapes(IIf(Buy, shapeUpArrow, shapeNone),colorWhite, 0,L, Offset=-45); 
PlotShapes(IIf(Short, shapeSquare, shapeNone),colorRed, 0, H, Offset=40);
PlotShapes(IIf(Short, shapeSquare, shapeNone),colorOrange, 0,H, Offset=50);                      
PlotShapes(IIf(Short, shapeDownArrow, shapeNone),colorWhite, 0,H, Offset=-45);

PlotShapes(Sell * shapestar, colorBrightGreen, 0, High, 12);
PlotShapes(Cover * shapestar, colorRed, 0, Low, -12);

Plot(VWAP,"VWAP",colorYellow,styleLine | styleThick);
Plot(yVWAP,"yVWAP",colorYellow,styleDashed);

Plot(IIf(Buycont,TargetBuy,IIf(Shortcont,TargetShort,Null)),"Target",colorGreen,styleDashed | styleThick);
Plot(IIf(Buycont,StopBuy,IIf(Shortcont,StopShort,Null)),"Stop",colorRed,styleDashed | styleThick);


_SECTION_END();

_SECTION_BEGIN("Candlestick Charts");
SetChartOptions(0,chartShowArrows|chartShowDates);
_N(Title = StrFormat("{{NAME}} - {{INTERVAL}} {{DATE}} Open %g, Hi %g, Lo %g, Close %g (%.1f%%) {{VALUES}}", O, H, L, C, SelectedValue( ROC( C, 1 ) ) ));
Plot( C, "Close", ParamColor("Color", colorDefault ), styleNoTitle | ParamStyle("Style") | GetPriceStyle() ); 
_SECTION_END();

Conclusion

Visually strategy looks good but backtesting failed to produce impressive results. When comes to Nifty futures strategy is profitable before including reasonable trading commissions and slippages but failed to turn profitable post adding trading commissions and slippages. When comes to Banknifty futures strategy is not profitable even before including the trading cost.