Algorithmic Trading Strategies VWAP Dynamic Prediction Based On Trading Volume

With the rapid development and extensive use of algorithmic trading in the financial sector, researches of trading algorithms are increasingly active. And as the most widely used algorithmic trading strategy, VWAP (volume weighted average price) strategy will become one of the hotspot. In VWAP trading strategy, the key issue is to predicting the distribution of trading volume; and the accuracy of the forecast is directly related to the effectiveness of the trading strategy. In the history of VWAP trading strategy, the methods to predict the distribution of trading volume by historical data is static, which does not reflect the real-time information of the market to the forecasting process. In this paper, with the introduction of real-time price information to the trading volume distribution predicting, we achieve the dynamic prediction of the trading volume distribution.Based on the character of the single day trading volume which is usually characterized by the distribution of a "U", in this paper, we use time series factor decomposition method to decompose the transaction volume of historical data into cyclical factor, trends factor and fluctuations factor, then predicting each of these factors and the obtaining the predicted value initially. And then through the introduction of real-time stock price information, we adjust the initial predicted values dynamically to obtain a final prediction value. Through numerical experiments, the results of the prediction method in this paper was closer to the actual market trading volume distribution than static prediction method, confirming the accuracy of prediction methods in this article.With the forecast of the trading volume distribution, this paper designed a VWAP algorithmic trading strategy based on the dynamic prediction, the strategy including selling strategy and buying strategy. Through numerical experiments, paper the designed VWAP trading strategy can obtain better gains than historical VWAP trading strategy, confirming the validity of this trading strategy.