VWAP
What is the VWAP and how can we use the VWAP?
VWAP stands for Volume Weighted Average Price. VWAP is the average price during a trading day. It is based on the price and corresponding volume, hence the name ‘Volume weighted Average Price’.
It’s the most important average price indicator since it gives traders also a view on the trend besides just the average value.
VWAP Properties
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The VWAP is displayed as a line
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It’s recalculated during every minute of the day
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It visualizes the average trading price since the start of the day
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Unlike the moving average, it’s the same on all time frames
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VWAP Formula
VWAP= (∑Price∗Volume) / (∑Volume)
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Interpretation Formula VWAP
the VWAP is calculated by taking the sum of all the money used in every transaction during a particular trading day and then divide this number with the total of shares traded during that day.
This way this average price keeps into account the volume each price traded. Hence the name Volume weighted average price.
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How to use the VWAP?
The way to use the VWAP differs for a day trader and for a long term investor.
How to use the VWAP as a day trader?
If you are a day trader you should follow these rules:
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Price goes up and breaks the VWAP: Buy signal
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Price goes down and breaks the VWAP: Sell signal
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VWAP is potentially a support or a resistance
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How to use the VWAP as a long term trader?
If you are a long term investor you should follow these rules:
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Buy below the VWAP to do a good deal
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Has no further information on the long run
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