VWAP Indicator: Volume Weighted Average Price Trading
VWAP (Volume Weighted Average Price) is one of the most used indicators by institutional traders. It combines price and volume to calculate the 'true' average price of an asset.
What is VWAP?
VWAP is the average price of an asset, weighted by volume. Instead of a simple average of high and low prices, VWAP gives more weight to prices where there was more volume.
Why is VWAP Important?
1. Institutional Benchmark
Institutions use VWAP to measure their execution performance.
2. Fair Value
VWAP represents the 'fair value' of an asset on a given day.
3. Support and Resistance
The VWAP line acts as dynamic support or resistance.
4. Trend Confirmation
When price stays above VWAP, the trend is up. Below VWAP, the trend is down.
How to Trade with VWAP
Strategy 1: VWAP Bounce
- Wait for price to return to the VWAP line
- Look for a bounce or rejection at VWAP
- Enter in the direction of the trend
Strategy 2: VWAP Breakout
- Wait for price to clearly break through VWAP
- Above VWAP = bullish signal
- Below VWAP = bearish signal
Conclusion
VWAP is one of the most useful indicators available. It gives you insight into the fair value of an asset and acts as dynamic support and resistance. By combining VWAP with price action and other indicators, you can identify high-quality trading setups.
