What Does VWAP Mean?
Do you want another tool to add to your trading arsenal? The volume-weighted average price (VWAP) might be what you are looking for in your investing strategy.
Updated November 20, 2022.
Is there any measurement investors can utilize to get in and out of a position?
Why, yes, there is. It is called the volume-weighted average price (VWAP). It is one of the most widely used trading benchmarks for investors - retail and institutional - as it can provide the market crucial information pertaining to the investment security's value and trend, much like a moving average.
While this is not a guaranteed path to generating a profit, it is commonly used as a trading benchmark. If your interest has been piqued, we have more information.
What Are VWAP Stocks?
A VWAP stock is when the price goes above this indicator, suggesting that the bullish sentiment of the security's movement is strong because it broke above its average value on the VWAP chart.
What Does VWAP Indicate?
VWAP is popular because it provides traders with the average price of a stock throughout the trading session by using both volume and price. This can give an indication as to what direction the stock, exchange-traded fund (ETF), commodity, or even cryptocurrency is headed in intraday trading.
A VWAP trading system consists of using the moving volume-weighted average price formula when moving in and out of stocks and establishing a broader VWAP intraday strategy. The calculation is essentially the sum of price multiplied by volume and divided by total volume.
When you are combing through an intraday VWAP chart, this piece of information will appear as a single line (one minute, 15 minutes, one hour, etc.).
What is a VWAP Trading Strategy?
Are you interested in employing a VWAP intraday strategy? Well, there are many different plans to consider when using this indicator. But let's consider two options.
1. Find When the Selling Pressure Took Place
The first element is watching the price action as it approaches the VWAP. So, you wait until there is a break of the VWAP and then gape at the ticker for the time and sales. Ultimately, you want to find when the selling pressure took place and dissipated. This is when you enter a position.
2. Sell At the Daily High
The second course of action is to sell at the daily high. As time goes by, you will begin to notice that most of the action and price breakout transpire close to the opening minutes of the session.
Another Tool in Your Arsenal
While an anchored VWAP can be of great assistance in your overall trading endeavors, it is just another tool to add to your arsenal when buying and selling stocks, ETFs, commodities, and cryptocurrencies. When you are engaged in short- or long-term investing, it is always important to have as much information as possible to make an informed decision.