Lets discuss some of the best VWAP strategy for a profitable trading.
WHAT IS VWAP?
(VWAP) Volume Weighted Average Price is the ratio of value traded to entire volume traded over a certain time period. VWAP indicator is one the mostly used Intraday Indicators.
It is frequently applied as a trading standard by traders who intends to be as yielding as feasible in their accomplishment. The intention of using VWAP trading goal is to make sure that the trader is able to perform the trade in-check with volume on the market.
CALCULATION OF VWAP
Considering the opening price, real time price will be updated. This continues till the closing of the session. Formula for calculating VWAP:
VWAP = (Cumulative typical price x Volume)/Cumulative volume
Typical Price is the sum of high, low and close prices divided by 3. When we multiply this value with the volume, we get TPV. Cumulative TPV is attained by adding up the consecutive TPVs.
SEVERAL WAYS TO TRADE WITH VWAP
1. A bullish sentiment is reflected when the price is over the VWAP.
- Bullish trend is indicated when the price is above VWAP.
- There is above average volume verifying the positive trend during the retracement.
- At the retracement, buy in the direction of the trend.
2. A bearish sentiment is reflected when the price is under the VWAP.
- Bearish trend is indicated when the price is under VWAP.
- There is above average volume verifying the negative trend during the retracement.
- After the retracement, sell in the direction of the trend.
3. VWAP (trading strategy) performs as a Resistance or Support, contingent to the direction of the trade.
- When the stock is in bearish trend, price takes support at VWAP. Price cannot close over the VWAP.
- Therefore, VWAP operates as a resistance.
- At the retracement, sell in the direction of the trend.
4. Breakout strategy while the price breaks the VWAP and shuts over or under.
- When the stock is in uptrend, price breaks the VWAP and shuts over it. This indicates strong uptrend.
- Breakout is supported by the volume.
- Buy at the spot where the price has closed over the VWAP.
IMPORTANCE OF VWAP
VWAP represents true average price of stocks as it combines volume and price together. Determination of VWAP does not directly affect the closing price of the stock. Significantly, VWAP can measure the suitable resistance and support levels for the Intraday. Generally, VWAP price levels are really persuasive in Intraday price action.
As traders, your focus must always be on the price. Using these indicators, you can accomplish your trading strategies.