TWAP

Time-Weighted Average Price (TWAP) is an indicator that calculates the average price of a financial instrument weighted by time over a specific period. TWAP is widely used by institutional investors to execute large orders with minimal market impact.

To use the indicator, you need to use the TimeWeightedAveragePrice class.

Description

TWAP is one of the most common order execution algorithms that breaks a large order into a series of smaller orders evenly distributed over time. The goal of TWAP is to obtain an average price over a specific time interval while minimizing market impact.

Main applications of TWAP:

• Benchmark price for evaluating order execution quality
• Execution algorithm to minimize market impact
• Tool for market analysis and trading decision-making

Unlike VWAP (Volume Weighted Average Price), TWAP does not consider trading volumes, focusing exclusively on the time aspect.

Calculation

TWAP calculation is performed by summing prices at equal time intervals and dividing this sum by the number of time intervals:

TWAP = (P₁ + P₂ + P₃ + ... + Pₙ) / n

where:

• P₁, P₂, ..., Pₙ - prices at successive time moments
• n - number of time intervals

In practical implementation, typical prices for each period (candle) are most often used:

Typical Price = (High + Low + Close) / 3
TWAP = Sum(Typical Price) / Number of Periods

A recursive formula can also be used to determine the current TWAP value in real-time:

TWAP(current) = (TWAP(previous) * (n-1) + P(current)) / n

where n is the number of observations in the TWAP window.