VWAP Trading Strategy For Zerodha Traders

VWAP Trading Strategy

This is not the first time we are covering VWAP indicator, in our previous content you can find basic information regarding it. So, today we’ve come with a more detail discussion of it. Apart from the discussion, we will demonstrate VWAP Trading Strategy For Zerodha Traders. Especially short-term term traders use this indicator with full dedication as it performs quite well in intraday as well as short-term trading analysis. Let’s discuss step by step to make the concept clear.

VWAP Trading Strategy For Zerodha Traders

After stating the trading strategy we will move to the Zerodha reference. So this post requires that you should have a Zerodha account. If you do not have a Zerodha account click here to get one.

Zerodha Open Account

What us VWAP?

VWAP is the abbreviation form of the Volume Weighted Average Price, considers as one of the common and popular market trend analyzers. The highly efficient indicator is a type of weighted average which includes volume in their calculation. It shows the market strength and stock movements towards bearish or bullish. In simple words, it reflects the average price that investors have paid for stocks over a trading day. It’s mainly a day trading indicator.

VWAP is calculated by adding up the rupees (traded for per day transaction), in short (Price x No of shares traded) and then dividing it by the total shares traded for the day.

VWAP Trading Strategy

In order to analyze the real-time market trend, proper VWAP trading strategy is required. Here is the list below:

Basic Strategies

Traders must know the importance of entry and exit timings. These two plays an important role in the trading system. Entry and exit point matters most in a profitable trade. Here, in the basic strategies, you will come to know about the buying and selling entry-exit points.

  • Buy When the Price Moves above VWAP: According to the strategy, the best time to buy a stock is when the price level is above VWAP. This indicates the majority of the intraday positions are in profit and the buyers are in control.
  • Sell When the Price Moves below VWAP: The strategy is exactly the opposite of the earlier one. Here, when VWAP is above price level or in other words, the price is below the VWAP line, it’s the time for selling. It means the sellers are in control.
VWAP Trading Strategy

VWAP Crossover Trading Strategy

It’s also considered one of the important trading strategies for intraday or short-term traders.

  • When the price cross VWAP line from the downside, it always tends to move in the upward direction.
  • On the other hand, when the price line crosses VWAP from the upside, it always tends to move in the downward direction.
VWAP Trading Strategy cross over

Supertrend Indicator with VWAP Trading Strategy

Supertrend is quite a popular indicator among intraday traders, it is well-known for its buy-sell signals. Traders can do an efficient as well as a profitable trade by the application of both Supertrend and VWAP indicator. The strategy is quite easy if the price is above VWAP and there is also a buying signal from Supertrend, it indicates that the market trend is strongly bullish and vice versa.

Supertrend Indicator with VWAP Trading Strategy

VWAP Bounce Trading Strategies

This is another strategy with much accuracy. Many of the analysts notice that sometimes, price come to test the VWAP line and bounce back to its previous level. It’s called bounce back trading strategies. Buyers often buy or sell a stock at the touching point of the price and VWAP indicator.

VWAP Bounce Trading Strategies

VWAP Movement

As I have stated above that the Volume Weighted Average Price moves ups or down based on the volume and price action throughout the day. If you notice carefully, you can see in the early hour of the market, it is more sensitive to the market movement in comparison to the closing hour.

It’s been said that that the Volume Weighted Average Price is the equilibrium of a stock. Hence, if a stock price moves too far away from it, it will always come back to it.

VWAP Movement

VWAP-Support and Resistance Trading Strategy

The indicator acts both as a support and resistance level but in different dimensions. When price trades below the indicator, VWAP line acts as a resistance level. The opposite happens when price trades above the indicator, VWAP line acts as a support level.

VWAP-Support and Resistance

VWAP Trading Strategy For Zerodha Traders

The above charts are taken from the Zerodha kite platform where you can get multiple charts, indicators, oscillators for analyzing the market effectively. if you are a Zerodha account user, you can use all of these tools and techniques at a free of cost. The trading platform provides real-time data and charts for trading.

Here, in the above attachments, I’ve tried to place examples of different VWAP trading strategies. There you can get examples of the perfect bullish-bearish trend, buy-sell signal, bounce trading strategy, support-resistance etc. Each chart’s time limit is 5 as the volume-weighted average price mainly works for intraday trading.

Limitations:

Though the specific indicator can be used in numerous ways, still it has certain limitations. It only works best for intraday traders, there is no use of it in the mid or long-term investment. It acts more as an analytical tool than a trade signal tool. As stated above that the indicator is less sensitive in the late market hour. Though it works wonderfully at the after closing market data analysis, during the market opening hours are best for it.

Though VWAP is not an exact science, it helps to predict the market as well as a stock’s movements to some extent. With the help of the indicator, traders can surely minimize the trading risk.

VWAP Trading Strategy For Zerodha Traders

3 thoughts on “VWAP Trading Strategy For Zerodha Traders

  1. Hi,
    For intraday which time frame is recommended for the use of this indicator? As the different time frame shows the different VWAP.
    Also is this the same as we see in the market depth window vwap?.

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