Day Trading

Week 7 · Liquidity, slippage and VWAP

Course lens

How can a small retail trading account survive execution friction, drawdowns, leverage, and increasingly complex instruments?

The question this week answers

When a position is held for hours instead of days, how large a share of the outcome can spread, liquidity and slippage consume?

By the end of this lecture

  1. explain what changes about execution costs when holding periods shrink to intraday
  2. define liquidity and slippage, and how they relate to Week 2’s bid/ask spread
  3. calculate VWAP from a simulated sequence of intraday prices and volumes
  4. keep the same six-part risk plan intact as turnover increases

Liquidity and slippage

Liquidity — how easily an order fills near the quoted price without moving it. High liquidity: large orders barely move price. Low liquidity: even modest ones can.

Slippage — the gap between the expected price and the price actually filled. It grows exactly when liquidity is thin.

Day trading avoids overnight gaps, but it pays for that immediacy through more frequent execution and greater sensitivity to liquidity.

Week 2’s few cents of spread can become the whole economics of a trade once the target move is small and turnover is high

VWAP: a reference, not a signal

VWAP (volume-weighted average price) — the average price traded so far today, weighted by volume. Unlike Week 4’s moving average, it resets every day.

Used here as a reference point for where the day’s activity has clustered — not a buy or sell signal on its own.

A worked morning

A simulated stock trades three price/volume pairs in the first hour:

$50.00 at 1,000 shares


$50.10 at 1,500 shares


$49.90 at 2,000 shares

A trader who bought at the day’s open quoted at $50.00 gets filled at $50.04 — a four-cent slip from thin liquidity at that exact moment.

The numbers: VWAP

VWAP = [(50.00×1,000) + (50.10×1,500) + (49.90×2,000)] ÷ (1,000+1,500+2,000)



= (50,000 + 75,150 + 99,800) ÷ 4,500 = 224,950 ÷ 4,500 ≈ $49.99

The numbers: slippage cost

On a 500-share order

500 × ($50.04 − $50.00) = $20

A real cost paid on entry alone, before the trade has had any chance to work.

Exactly why Week 8’s leverage makes the same mechanics matter even more.

Above VWAP, below VWAP

Simulated one-session candles — price drifting from below VWAP to above it

A fill above VWAP paid more than the session’s volume-weighted average so far. A fill below it paid less — a comparison, not a rule about which side is “correct.”

Try it yourself

Critique a plan

A simulated day-trade plan enters purely because “price is above the 20-day moving average” — with no liquidity check, no invalidation, no stated size, and no execution assumption.

Using this week’s concepts, identify what’s missing before this counts as a complete plan.

The takeaway

  1. Liquidity and slippage turn Week 2’s minor spread into a much larger share of the outcome intraday.
  2. VWAP resets daily and describes where trading has clustered — context, not a signal.
  3. A day-trade plan still needs all six of Week 5’s parts, just compressed to hours.
  4. Week 8 is where leverage starts multiplying all of these same costs and risks.

Next week

Week 8 — short selling, margin and leverage, on the simplest instrument leverage will ever apply to.