What is the VWAP Trading Strategy?
VWAP stands for Volume Weighted Average Price. These tools are used mostly by short-term traders and in algorithm-based trading programs.
VWAP is often used to measure the trading performance of smart money. Professional traders who work for investment banks or hedge funds and need to trade large numbers of shares each day and cannot enter or exit the market by buying or selling a large position in stock during the day, institutional traders compare their price to VWAP values.
A buy order executed below the VWAP would be considered a good fill for them because the stock was bought at a below-average price (meaning that the trader has bought their large position at a relatively discounted price compared to the market). Opposite for sell
Therefore, VWAP is used by institutional traders to identify good entry and exit points. Conversely, when a professional trader has to get rid of a large position, they try to sell at the VWAP or higher
.VWAP has the big advantages of the timeframe you chose, VWAP is the same.
Use of VWAP Trading Strategy
- VWAP shows who is in control
- VWAP can determine the market trend at opening
- VWAP act as support and resistance
VWAP shows who is in control
VWAP is an indicator, it indicates who is in control of the price (the buyers or the sellers). When a stock is traded above the VWAP, it means that the buyers are in overall control of the price and there is a buying demand on the stock. When a stock price breaks and close below the VWAP, it is safe to assume that the sellers are gaining control over the price.
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