Week 7: Day Trading

Day trading compresses everything Weeks 4–6 covered into a much shorter holding period, which is why liquidity, slippage and VWAP matter here in a way they didn’t yet at swing-trading speed: a bid/ask spread that was noise over a week can be the whole trade over an hour. This week’s thesis, stated plainly: as holding periods shorten and turnover rises, execution friction stops being a rounding error and becomes a real share of expected return. This lecture also bridges into Week 8, where leverage raises the stakes on everything covered here.

The question this week answers#

What actually changes, mechanically, when a position is held for hours instead of days or weeks?

By the end of this lecture#

• explain what changes about execution costs when holding periods shrink to intraday
• define liquidity and slippage, and how they relate to the bid/ask spread from Week 2
• calculate VWAP from a simulated sequence of intraday prices and volumes
• build a structured day-trade plan and identify common beginner mistakes

Key ideas#

Liquidity describes how easily an order can be filled near the quoted price without moving it — high liquidity means large orders barely move the price; low liquidity means even modest orders can. Slippage is the gap between the price a trader expected and the price actually filled, and it grows exactly when liquidity is thin. Week 2’s few cents of spread on a 10-share order becomes a much bigger factor once the same spread is paid dozens of times in a single session.

VWAP (volume-weighted average price) is the average price a stock has traded at during the day so far, weighted by how much volume traded at each price — unlike Week 4’s moving average, it resets every day rather than running over a fixed number of days. It is used here as a reference point for where the day’s activity has clustered, not as a buy or sell signal on its own; the same observation/assumption/entry/invalidation/risk/exit structure from Weeks 5–6 still applies to any day trade built around it.

A worked example#

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 once the order actually executes — a small but real four-cent slip caused by thin liquidity at that exact moment.

The numbers#

VWAP from the three price/volume pairs above:

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

Slippage cost on the fill described above, for a 500-share order:

500 × (50.04 − 50.00) = $20

That $20 is a real cost paid on entry alone, before the trade has even had a chance to work — which is exactly why Week 8’s leverage makes the same mechanics matter even more.

What a diagram would show#

A simulated candlestick chart covering one trading session with a VWAP line overlaid, annotated to show a fill above VWAP (paid more than the session’s volume-weighted average) versus a fill below it — a comparison, not a rule about which side is “correct.”

Try it yourself#

The takeaway#

Everything that made spread and execution a minor detail in Week 2 becomes a much larger share of the outcome once the holding period compresses to hours. VWAP and intraday candlesticks describe where a session’s trading has clustered — useful context, not a standalone signal — and Week 8 is where leverage starts multiplying all of these same costs and risks.