Indicators like VWAP have become a very popular addition on many day traders’ stock charts. Many claim that certain indicators help them find an edge when they trade. As a new trader, many of these indicators can be confusing and many traders are left to figure out the meaning behind them and if they can be used on their trading software.
(ZeroPro: July 6, 2022)
Some of the most popular indicators are VWAP, Bollinger bands, RSI, and 20 or 50 day moving averages. People have different uses for different indicators and some traders may have varying opinions on each indicator.
(ZeroPro: July 6, 2022)
It is important to have trading software that offers indicators on their charts. TradeZero offers a number of indicators on their stock trading software. You can find many of these indicators on ZeroPro.
What is VWAP?
Talking about all these indicators would be information overload for a new trader. In this article, we are going to be discussing one of the indicators I see the most questions about, VWAP.
VWAP stands for Volume Weighted Average Price. The purpose of VWAP is to show traders the average price the stock has traded at in relation to the volume.
How VWAP is calculated
VWAP is calculated by dividing the total dollar volume traded on a stock and then dividing it by the shares traded. If you have 2 buyers of stock $XYZ and Trader A pays $1.02 a share for 5 shares of stock, and Trader B pays $1.00 a share for 10 shares, the VWAP price would be 1.006, where as the average price would be $1.01. This means that VWAP is essentially telling you the average price each share was valued at.
Many day traders think it is important to know VWAP whether you are going long or short. Platforms, like ZeroPro, provide a feature that automatically does the work for you and adjusts the VWAP for every tick, and displays that ‘Average Price’ as a line that fluctuates with the chart.
Why is VWAP important?
The significance of VWAP is highly debated amongst many traders, but it is safe to say that as more and more traders use VWAP it becomes more relevant because more eyes are paying attention to it. VWAP can help traders figure out trends and identify key levels on the chart. Professional day traders use VWAP in different ways. Many successful traders use VWAP as part of set ups that they like to trade, for example, a day trader might take the stock price crossing above VWAP as a time to take an entry when going long on a stock, or use the point the price breaks below VWAP as an opportunity to short. Many traders also use it as a risk level or profit target.
It is common for many traders to use VWAP in conjunction with support and resistance to help them figure out the trend of a stock on a given day. For example, if a stock is trending or consolidating above the VWAP line, the trader can hypothesize that VWAP is showing that the buyers are in control of the stock at the moment, and if the price is below VWAP that could hint holders are selling stock, or short sellers are trying to take control of the stock. With this mindset behind VWAP, traders can use it as a tool to gain confidence behind trades that without VWAP they would only have support and resistance levels to figure out the trend of a stock.
Even though some indicators can help traders out, it is good to keep it simple and not overload yourself with too much information. VWAP is very simple, logical, and can be an addition to your trading arsenal. As a trader, knowing the weighted average price of the stock can help you find an edge in certain situations. Whether you take VWAP seriously and use it as a potential risk level, entry point on a chart, or if you just use it to build confidence that you are reading a trend correctly, many traders can benefit from knowing the VWAP.
Put the VWAP line on your ZeroPro platform and see how you like it. There is no right answer as to how VWAP can benefit you, but it is your job as an aspiring or professional day trader to figure out what VWAP means to you. It is amazing that platforms like ZeroPro make it easy by constantly adjusting the VWAP line for you after every transaction takes place.
Fernando, Jason. “Volume-Weighted Average Price (VWAP).” Investopedia, Investopedia, 20 June 2022, https://www.investopedia.com/terms/v/vwap.asp.
“VWAP (Volume-Weighted Average Price) Indicator for Investors.” Timothy Sykes, 5 Aug. 2021, https://www.timothysykes.com/blog/vwap/.
This content (“Content”) is produced by Josh Jezouit. The Content represents only the views and opinions of Mr. Jezouit. Mr. Jezouit’s trading experiences and accomplishments are unique, and your trading results may vary substantially. TradeZero does not endorse the Content and makes no representations or warranties with respect to the accuracy of the Content or information available through any linked third party sites. The Content has been made available for informational and educational purposes only and should not be considered trading or investment advice or a recommendation as to any security. Trading securities can involve high risk and potential loss of funds. Mr. Jezouit is compensated by TradeZero for producing the Content and may also receive compensation for customers he introduces to TradeZero.
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