Why the Most Successful Traders use VWAP

Ask 10 high-performing traders what their favorite technical indicator is, and one indicator will make the list almost every time: the VWAP.

The VWAP can show you where the trading volume is and at what price. 
Ultimately, the VWAP indicator can help you find more trading opportunities and make more informed trading decisions.

What Is VWAP?

Volume-weighted average price (VWAP) is a technical indicator that shows where the majority of volume trades in a stock or future.

The indicator is a basic line on the chart. When the price is above the line, it’s above VWAP. And when it’s below, the price is below VWAP.

VWAP is one of the more useful indicators for traders  as it can give a good view of whether traders who recently entered positions are profitable or losing money on their trades.

Why the VWAP Matters

VWAP sounds great, right? Or maybe you think it sounds like all the other indicators. Let’s break down what’s so special about this one …

Here are a few reasons why so many top days traders love VWAP …

  • VWAP is dead simple: the price is either above it or below it. When it comes to day trading, simplicity often rules.
  • It’s an easy gauge on whether a stock is cheap or expensive on the day.
  • You can use it to help you pinpoint intelligent entry and exit points for your day trades.
  • It can help you determine trend changes, often quicker than moving averages.

There are plenty of reasons that day traders love the VWAP. Ready to learn more? Practice, practice, practice. Load up a few charts with a VWAP and see what kind of patterns pop out at you.


How to Calculate VWAP

Calculating the VWAP is pretty simple.

First, take the dollar amount traded for the entire trading volume that day (the share price multiplied by how the number of shares traded). Next, divide that number by the number of shares traded during that day. The result is the average price compared to volume. This tells traders at which price levels the majority of volume traded. 


Ready to start using VWAP in your trading strategy?

It’s a truly simple indicator, but you need to make sure you use a reliable and accurate one from a vendor you trust.

Make sure to only trade particular VWAP setups that make sense to you. You can also simply use VWAP as a filter for your other trading setups.

One last point: Any time you add a new technique or indicator to your trading strategy, make sure to paper trade it first. Some practice trials can help you work out the kinks and build more confidence with a new tool.

See BSG new VWAP on Buyside Global website and incorporate it into your Trading now!