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03/08/2022 |

Software Update: Time Weighted Average Price (TWAP)

Hello Everyone! Another day, another software update. In this one, we’re introducing a brand new indicator to the platform called Time Weighted Average Price (TWAP). This is a special indicator with a long history on Wall Street. More after the jump!

If you are a TrendSpider user, you are probably already familiar with Volume Weighted Average Price (VWAP) and it’s cousin, the Anchored VWAP (aVWAP). These indicators are cumulative in nature and provide a volume-weighted average price from a particular starting point. In many ways, TWAP is similar – but also very different.

The first thing to understand about TWAP is that it is primarily used within the order execution algorithms of large institutional investors. Its purpose is to help minimize the impact on the market when said institutions place large orders. For example, if an institution wants to buy 10 million shares of GME, they would push the price up if they put a single market order in for that many shares. Doing so would cause the stock price to increase, potentially dramatically, so obviously they look for ways to keep that from happening. Using an order execution algorithm based on TWAP is one way to accomplish this goal. The trick is to spread the orders out over time, and attempt to fill as close to the TWAP at that time as possible. In some scenarios, VWAP is used this way as well. To see it in action, check out this video.

This indicator has one input parameter: the source of the price. All other parameters are merely cosmetic, allowing you to change the colors and look of the indicator. The calculation does not take in any user supplied variables.

The TWAP draws two lines on your chart:

  1. Moving TWAP (this is a moving line that looks like an average, but is reset at the start of each trading day)
  2. Horizontal TWAP (this indicates the TWAP value at the close of the previous trading session as a horizontal line over the current trading session)

When TWAP is used on Raindrop Charts, it can be volume-weighted;

We hope you find this new indicator helpful to your analysis! As always, if you have any questions, feel free to reach out to us in chat using the ‘Contact Us’ button in the bottom right-hand corner of your chart.