I'm trying to calculate the 'true value' of a stock listed on an exchange. I have access to the limit order-book (containing all bid/ask quotes) and also all trades which have taken place (which contain price, amount, date etc).
The context is from the POV of designing a market-making algorithm with positive expected profit.
I've tried taking:
- The VWAP of recent trades
- The mid-point of the bid-ask spread
- The SMA of the mid-point of the bid-ask spread
- The mean over all prices in the order-book
All these attempts have resulted in an overall loss, or no-trading taking place at all. I must be approaching this from the wrong angle and I think the primary suspect is incorrect true value calculation.
Does anyone have any advice, or good reference to read-up on?