VWAP indicator explained: Day trading strategy made simple / volume weighted average price formula trader system strategies stocks futures forex options settings setup example breakout david moadel
a brief introduction to V whap what is it and how can you use it especially as
a day trader so let's talk about it what is V web well V web is volume weighted
average price it's mainly used for intraday trading also known as day
trading so in case you're curious here's the formula for today's V whap for a
particular stock it is the running total of the value of each transaction for the
trading days so far in other words the sum of the number of shares bought times
the share price for all of today's transactions divided by the total number
of shares bought today so far so in I tried to put that in plain English as
much as possible and you don't necessarily need to know the formula to
be able to use it but it certainly helps or at least it won't hurt you to know
the formula basically what it is is today so far during the trading day all
of the transactions every tick every price movement in a stock means that
there was a buyer somebody bought some stock and also somebody was on the other
end of that transaction somebody sold it alright they bought a certain number of
shares at a certain price and so if you take the number of shares times the
price that somebody bought at that okay then that's the total value of that
transaction and if you add all those up the value of all the transactions today
so far that would be in the numerator of this fraction okay and then in the
denominator would be just the total volume for the day so far the total
number of shares traded today so far so that's the best way I can explain it but
again you don't necessarily need to know that to be able to use it so basically V
web is the average price of the stock today so far weighted against the
trading volume of that stock today so far thus giving more weight or
importance to periods of high volume as opposed to just let's say a simple
moving average which doesn't really take volume into account so much that's more
just an average of all the prices V web is kind of like a moving average in that
it it does factor in the price it's it's an average price but it weights it in
terms of trading volume so it can give more importance to periods of high or
heavy volume much like a moving average day traders
can put the view app on a 1-minute candlestick charts and use it as a
momentum indicator an upward sloping V web line shows that the stock price is
trending upward while a downward sloping V web line shows that the stock price is
trending downward it makes sense if the stock if the line is going slanting
upward then the stock price is also probably generally trending upwards at
least in the short term and if the V web line is trending downwards then so
probably so is the stock price at least in the short term these are all
short-term here the V web line can also provide support
or resistance however one of the most common uses of the V web line is as a
possible buy or sell signal by when a candlestick clearly breaks above the V
web line and sell or even short sell when a candlestick and clearly breaks
below the V web line and again this is not trading advice this is not telling
you what to do or what not to do and I don't think you want to use just one
indicator to base your trading or investing decisions on okay but some
people will use this as a buy or sell signal and notice I say clearly it has
to have a clear break above or below and we'll show you what this looks like now
alright this is from trading view dot-com these charts and so I wanted to
give them credit for that and this is the one-minute candlestick chart alright
so this is again something that day traders might use and each of these
candlesticks represents one minute of price action in the stock or in this
case the ETF which is ewz which is a Brazil ETF alright and this is the V web
line and notice that it's kind of hovering above the view app line you
might consider that a support level here but then boom it clearly breaks below
the V web alright that's about as clear a break as you can get because it breaks
way below it for the and this is just one minute of price action so it's
really trending downward and so if you owned the stock you might choose to sell
there or you might even choose to short it
and that would have been pretty profitable for you if you had shorted it
all the way down or a few had owned the stock and then sold it here upon this
break below the V web line you would have been pretty relieved because he
would not have been subjected to this downward a price action and here's a
clear break above the V web line and if you had bought here you would have done
quite well all right now here's another example Tesla and this is the again the
1-minute candlestick chart here and you can see a clear break above the V whap
and if you had bought here you would have done okay you might have chosen to
take profits here or you could even use the the V web line as a stop loss
although I'm going to caution you against that because notice that the V
web line can provide support its support provided very strong support one two you
know twice two times and this is just in one day okay so it
broke clearly above all right and if you had just held on and not sold until it
broke clearly below this is not a clear break below it's just kind of hesitating
here and we can see how the view app provided a support line here bounced
right off of it and then again here not a clear break
below and again this was a support line right here okay so if you had bought
here upon the clear break here it clearly broke through it and then held
on you would have done quite well for yourself and don't get faked out by
these not so clear breaks okay because again it could bounce right off of it
and if it's below it it could bounce off of it as well it could be a resistance
line alright so that was my introduction to view app there's much more to learn
about it and I just hope that this helped you to clarify some things for
you and to get you started so if you like this video please give give this
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at any time my name is David Modell and you can email me at David Modell at
gmail.com thank you for watching and listening I hope this is this was very
helpful to you and I'll talk to you again soon