Combining Order Book Pressure with VWAP Deviation

Summary

This note describes a daily stock factor that combines weighted order book pressure with the closing price’s deviation from intraday VWAP. It weights the five visible book levels by proximity, giving the nearest level the greatest weight, then uses trading volume to form a daily pressure measure. The VWAP component captures whether the close is above or below the session’s volume-weighted average price.

The two components are multiplied, so the score is strongest when buying pressure coincides with an upward price deviation. The note presents the factor’s rationale as a blend of order flow and price momentum. It provides no SQL implementation despite mentioning SQL, and gives no backtest, return evidence, normalization details, or guidance on handling market and liquidity differences; the factor’s predictive value is therefore unestablished here.

Key ideas

• The pressure measure weights five order book levels more heavily when they are closer to the market.
• Trading volume is used to aggregate the pressure measure over the day.
• The VWAP component measures the close relative to the intraday volume-weighted average price.
• Multiplying the components emphasizes sessions with both buying pressure and an above-VWAP close.
• The note gives no performance tests or implementation details.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.