By popular demand, I’m doing a two-part series on the VWAP indicator trading strategy. VWAP stands for volume, weighted, average, price. It’s a benchmark that can be very useful in your trading, as it’s adding up the dollars traded for every transaction, multiplied by the number of shares traded. You can also use this in place of moving averages.
VWAP Indicator Trading Strategy
What we have on this particular chart, (see video) is the way I have it lined up here. This black line is actually the volume weighted average price, or the VWAP Indicator. By incorporating volume into it, you can see that it’s not only an average of price, but energy, volume, and the weight of the price action. I consider it kind of a neutral zone, and that’s why I use the term fair value. That’s not how it’s technically defined, but to me fair value makes sense.
Anything below that black line would be bearish, and anything above it would be bullish. Let me bring up the indicator and show you how I’ve got it set up on my charts. (See video for set up) The black line is our actual volume weighted average price (VWAP) so, that is our line in the sand, between a bull and bear market. The lines always start out together, because it’s gonna be recalculated at the beginning of every day. It’s really important that you have this loaded before the market starts.
VWAP Indicator Signaling Trend
One way of trading this if you’re looking for a trend trade, is to look for the VWAP Indicator to be going up, and price to be above it. The best case scenario is for it to stay in this standard deviation range, just like it does right now. That is a nothing but net trend, to use a basketball analogy. It’s not coming back to the volume weighted average price. The markets come back to a neutral sentiment and if you want a continuous trend, well, you don’t want it to come back to neutral. Then you’ve lost your trending.
Now some people still do that and use it as a support/resistance level for bearish markets, and that’s okay, if you use other things along with it. I’m just saying that for me in my house, when we’re looking for a sustainable trend, and I feel much more confident if it stays between these standard deviations. The famous saying, cut your losses short and let your winners run, is another way of not getting freaked out during neutral parts of market action, and still having an established sentiment based on logic and a rule-based method.
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