The volume weighted average price (VWAP) is a trading benchmark used by traders that gives the average price a security has traded at throughout the day, based on both volume and price. It is important because it provides traders with insight into both the trend and value of a security.
VWAP Indicator is available in almost all trading terminal. VWAP is intraday only indicator that means it is useful only on intraday timeframes (1 mins, 5 mins, 15 mins, 1 hours, 4 hours etc.). It will work only on stock charts (both spot and future) and future charts of Indices. It will not appear on the spot charts of Indices as volume is not available on Indices charts.
It is said that Big institutional investors always attempt to buy or sell near VWAP price.
Chart Type: Japanese Candle Sticks
Indicators to be used: Volume Weighted Moving Average (VWAP)
Setting Up Charts and Indicators
For this strategy, I will be using Investing.com's charting to demonstrate this setup. We will be using a time frame of 5 mins and a VWAP indicator to generate buy or sell signals. See the below video which demonstrates how to add a VWAP indicator to your chart.
People buy when generally price crosses or closes above VWAP but we will not do that we will wait for the price to retrace back to VWAP level now wait and buy above the high of the previous candle which crossed above the VWAP. See the below images for the examples of this strategy:
Stop Loss: Initial Stop Loss can be below the low of candle closing above VWAP or previous swing low. Trail SL according to VWAP value. Keep SL and Target Ration minimum 1:2.
The rules for selling stock using VWAP are exactly opposite to the buying setup above. People sell generally when the price crosses or closes below VWAP but we will not do that we will wait for the price to retrace back to VWAP level now wait and sell below the low of the previous candle which crossed below the VWAP. See the below image for the examples of this strategy:
Stop Loss: Initial Stop Loss can be above the low of candle closing above VWAP or previous swing high. Trail SL according to VWAP value. Keep SL and Target Ration minimum 1:2.
Disclaimer: Any information provided here is for educational purposes only. We are not responsible for any profit or loss incurred due to the use of this information. Please consult your financial adviser.