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Volume Weighted Average Price or VWAP Indicator

Volume Weighted Average Price indicator is a technical analysis tool. One can use it to measure the average price weighted by volume. The volume-weighted average price (VWAP) indicator mainly works with intraday charts as a way to determine the general direction of intraday prices. VWAP indicator is similar to a moving average when the price is above VWAP, prices are rising and vice versa. Technical analysts use this indicator to identify market trends.

Important FAQs about Volume Weighted Average Price Indicator

How do you calculate volume weighted average price?

To calculate the volume weighted average price, you need to add up the price traded for every transaction (price x the number of shares traded). And after that divide by the total traded shares.

What is the VWAP indicator?

The VWAP or Volume Weighted Average Price technical indicator averages the closing prices during a certain period of time. It is a lagging indicator as it depends on the previous data. Generally, traders use this indicator to analyze whether an asset was bought or sold at a good price.

What is a VWAP strategy?

VWAP trading strategies are quite common to use. Traders basically use VWAP strategies to confirm the entry, exit points. The indicator is quite popular for short term trading. It is more effective in hourly and above time frame charts. A stock is bullish when the price is moving above the VWAP. Reversely, a stock is bearish once the price goes below the VWAP.

How important is Vwap?

VWAP is a very important indicator to analyze any stock’s movement in the market. Short-term traders find it more useful compared to long-term investors. To find the correct value of a stock VWAP helps much. And, if a stock price breaks above or below the VWAP level multiple times, throughout the day, traders can take a chance to trade on it.

How to Attach the Volume Weighted Average Price Indicator on Charts?

For further data regarding the VWAP indicator, go to the STUDIES section of Zerodha Kite. This indicator is also available in Kite mobile App. In this indicator shown as the VWAP line is red if you want to change this color then you can change it. The traders can also check how we attached the Ultimate Oscillator indicator in Reliance Industries shares price chart. The volume-weighted average price (VWAP) indicator on any charts has daily, weekly, monthly or intraday time limits.

VWAP Indicator

In order to clarify the particular indicator more specifically, we’ve decided to given examples from the different trading platforms. A chart on Volume Weighted Average Price indicator from Upstox Pro is given below:

volume weighted average price indicator

This is a 15 min chart of HDFC bank from 5Paisa. As the chart reflects, when the price crosses the indicator, market trend change. Price downside the indicator consider as the downtrend and vice versa.

volume weighted average price indicator fyers

Whenever the price breaks the indicator, a new trend arrives in the market.

Top Volume Weighted Average Price (VWAP Indicator) Strategies

The first strategy is the basic VWAP strategy. Here, I bought the share at the crossover of the price and VWAP. As I mentioned that when the price crosses the VWAP line from below or the price goes above the VWAP line, it is bullish. This means the particular stock price is going to move in the upward direction soon.

Volume Weighted Average Price

Reversely, when the price is below the VWAP line, take sell or short sell position on the next candle of the crossover. In the above picture, I have highlighted the area of the buy and sell.

Volume Weighted Average Price flat range

The next chart reflects the flat range of VWAP. When the VWAP is flat, it means the price is moving between a specific range. Hence, the VWAP is flat.

Moving Average VWAP indicator

Now, let us come to the slightly advanced strategy of VWAP. Here, I use MACD (Moving Average Convergence Divergence) indicator along with VWAP. Sometimes, after moving in a direction, the price comes back to test the previous level. Here, also as you can see after moving to the upward direction, the price comes back to test the VWAP level. At that time, MACD did not move much and was on the zero levels. If you take both of the indicators into account, the buy and sell signals can easily be determined.

More Key Factors of VWAP Indicator

  • Volume Weighted Average Price (VWAP) indicator is used to identify liquidity points.
  • As a volume-weighted price measure, this indicator reflects price levels weighted by volume. This way can help institutions with large orders.
  • This condition is not to disrupt the market when entering large buy or sell orders.
  • This indicator helps these institutions determine the liquid and illiquid price points for a specific security over a very short time period.
  • You can use the indicator to measure trading efficiency. After buying or selling a security, the traders can compare their price to VWAP values.
  • In this indicator, a buy order executed below the VWAP value will be considered a good fill because the security is to buy at a below-average price.
  • In the same way, a sell order executed above the VWAP will be deemed a good fill because it is sold at an above-average price.

Conclusions :

So, Volume Weighted Average Price indicator serves as a reference point for prices for one day. This indicator is best suited for intraday analysis. The traders can compare current prices with the VWAP values to determine the intraday trend. VWAP is also used to determine relative value. In the Volume Weighted Average Price indicator the VWAP values are relatively low for that day or that specific time for prices below. These values are relatively high for that day or that specific time for prices above.

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