There are times when the opposite is actually true. The high volume of trades shown on the VWAP trading indicator is happening because the smart money is looking to get out of their current position. As a general rule, if the price is currently above the daily average, it’s a good time to sell. When you see the price below the daily average, it could be a good time to buy. However, as with all of the indicators in day trading, there are exceptions to the rule.

Suppose you find a stock whose price is currently below the daily average. As was just mentioned, the general consensus would tell you that it’s a good time to buy. If there’s not enough trading volume at that point in the day, though, the price won’t go up. On a good day, that could leave you in a position where the stock price doesn’t really go anywhere for the rest of the day. That may allow you to sell it off with a small loss or even earn a few cents.

There’s also a chance, though, that the low volume ultimately drives the price down. That’s why just looking at the average price of a stock on the VWAP trading indicator can be a very near-sighted way to trade. Volume is just as important to the equation as the price. Another important element to keep in mind when using a VWAP is the time frame. Most professional traders will tell you to keep the time frame anywhere between 5 and 15 minutes. What that’s going to do is give you a clearer picture of the current price and volume within a stock. 

Another mistake people make is trying to look at daily time frames to anticipate where the price will go. Remember that the VWAP trading indicator is an average, but a lot can happen within a day. If you’re looking at the daily time frame, you can see that the current price is below the average and the volume of trades is decent. Conventional wisdom, as was mentioned, would indicate it’s a great time to buy. The problem is, the average is higher because the price started out the day on a high and then dropped, and the volume is decent because everyone was getting out! Now, there’s no guarantee that the price will return to a previous high point, at least not within the next few hours or even days. 

The VWAP can be one of the go-to tools for day traders. First, it’s very important to know how to adjust it properly. The key is to read every detail the indicator provides. Once you learn how to do that, you’ll have unlocked one of the most powerful day-trading tools! 

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The post What is the VWAP Trading Indicator and How to Use it as a Day Trader? appeared first on Bulls on Wall Street.

This video lesson I will show you how I use the VWAP in the current market environment, and how you can implement the indicator in your trading next week:

What is VWAP?

VWAP stands for Volume-Weighted-Average-Price. It tells you a very important piece of information: Whether buyers of the stock that day are in the green or in the red.

As momentum-based day traders, we consider it the “line in the sand” for intraday support and resistance. Using the combination of volume and price range, VWAP is an excellent technical trading indicator that can work for trading multiple trading strategies. Whether you look to long pullbacks or short pops, the VWAP can come in handy to do both!

Understanding How Stock’s Trend with VWAP

When using our VWAP trading strategy, it is important to understand how stock’s trend throughout the trading day. As we discussed in the video above, when stocks go on strong trends and get extended from the VWAP and intraday moving averages, they will at some point pullback before the continuing trend.

Waiting for this pullback takes patience. Most traders chase the stock when it is going up, and then sell for a loss because they bought when it was extended. The stock almost always pulls back to its VWAP at some point during the trading day. WAIT FOR THE PULLBACK. Don’t chase. This gives you better Reward vs Risk on your trades and helps you time your entries and exits.

A Common Mistake Traders Make

One of the most common mistakes traders make when using VWAP is that they assume a price break under VWAP immediately means it’s a sell, or a break above is a long. A break over or under VWAP is not a trade signal by itself.

What you need to pay attention to is how price RESPONDS to the VWAP area. What I tell my students is to wait for a candle to form and hold before taking a position. Don’t blindly buy or short when the price gets near it expecting it to reverse. If it was that easy everyone would be driving lambos.

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The post My Favorite VWAP Trading Strategy To Use in Volatile Markets appeared first on Bulls on Wall Street.