Volume Weighted Average Price (VWAP)
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Volume Weighted Average Price (VWAP) is a technical analysis tool used to measure the average price weighted by volume. VWAP is typically used with intraday charts as a way to determine the general direction of intraday prices. VWAP is similar to a moving average in that when price is above VWAP, prices are rising and when price is below VWAP, prices are falling. VWAP is primarily used by technical analysts to identify market trend.
There are five steps in calculating VWAP: 1. Calculate the Typical Price for the period. [(High + Low + Close)/3)] 2. Multiply the Typical Price by the period Volume (Typical Price x Volume) 3. Create a Cumulative Total of Typical Price. Cumulative(Typical Price x Volume) 4. Create a Cumulative Total of Volume. Cumulative(Volume) 5. Divide the Cumulative Totals. VWAP = Cumulative(Typical Price x Volume) / Cumulative(Volume)
The Volume Weighted Average Price indicator (VWAP) is similar to a moving average in that when prices are advancing they are above the indicator line and when they are declining, they are below the indicator line. Keep in mind however, that much like a moving average, VWAP can also experience lag. Lag is inherent in the indicator because it is a calculation of an average using past data. That being said, VWAP is best used during intraday periods. The reason is that calculations start when trading opens and stop when trading closes. Because of this, lag can and does occur during an intraday period. For example, if you are using a 1 minute chart, after 5 hours of trading, VWAP has been calculated for 300 periods. The lag associated with this would be similar to a 300 period moving average.
WHAT TO LOOK FOR
Trend Identification is a major benefit of using the Volume Weighted Average Price indicator (VWAP). The premise is very straightforward but can be very useful, especially when used for confirming trading signals.
Bullish Trend is characterized by prices trading above the VWAP.
Bearish Trend is characterized by prices trading below the VWAP.
Sideways Market is characterized by prices trading above and below the VWAP.
The Volume Weighted Average Price (VWAP) is an interesting indicator because unlike many other technical analysis tools, it is best suited for intraday analysis. It is a solid way of identifying the underlying trend of an intraday period. When price is above the VWAP, the trend is up and when it is below the VWAP, the trend is down. There is a downside however. Even though it is primarily used on an intraday basis, there can still be a great deal of lag between the indicator and price. The indicator begins calculating at the open and stops calculating at the close. Therefore, for a chart using a short timeframe (i.e. 1 minute), there can be several hundred periods within that single day. The closer it is to the day's close, the more lag the indicator will have. This is true for any indicator that calculates an average using past data.
HOW TO USE IN TRADINGVIEW
- Navigate to https://www.tradingview.com/
- On the landing page, enter a symbol and click "Launch Chart"
- Within the Toolbar along the top of the chart select "Indicators" and choose the one you would like to add to your chart.
- To make changes to your Indicator you will need to access the Formatting Window.
- You can access the Formatting Window by either clicking on the Blue "Format" button in the Chart Header next to the Indicator name, or by right clicking on the Indicator in the chart itself and selecting "Format".
===Offset to a blind cat Changing this number will move the VWAP either Forwards or Backwards relative to the current market. 0 is the default.
Can toggle the visibility of the VWAP as well as the visibility of a price line showing the actual current value of the VWAP. Can also select the VWAP Line's color, line thickness and line style.
Last Value on Price Scale
Toggles the visibility of Last Values for the Moving Average on the Price Scale.
Arguments in Header
Toggles the visibility of the indicator's name and settings in the upper left hand corner of the chart.
Scales the indicator to either the Right or to the Left.