How to use the VWAP indicator

 

How to use the VWAP indicator

 VWAP (Volume Weighted Average Price) is an intraday technical indicator that combines price and volume to reflect the average cost of holding positions within the day. It is used as follows: prices above the VWAP are considered bullish (long), and prices below it are considered bearish (short). Its main functions are to determine trends, identify support and resistance levels (buy on pullbacks that don't break the support/resistance level, sell on rallies that don't break the resistance/resistance level), and guide entry and exit points for intraday trading.

How to use and strategies for VWAP metrics

VWAP is calculated automatically on most trading platforms (such as Futu NiuNiu ) and is particularly suitable for intraday analysis. 

1. Determine the trend of the day (trend confirmation)
   • Uptrend:  When the price is trading above the VWAP line and the VWAP line is sloping upwards, it indicates that the bulls are in control of the market.
   • Downtrend:  When the price is trading below the VWAP line and the VWAP line is sloping downwards, it indicates that sellers are in control of the market.
   • Market consolidation:  Prices fluctuate frequently around VWAP, indicating that the market is in a narrow range of fluctuation.
2. Find support and resistance levels (reversal signals)
   • Support level (for going long):  In an uptrend, when the price falls back to the vicinity of VWAP but fails to break below it, VWAP acts as an effective support level, and buying opportunities can be sought.
   • Resistance level (short selling):  In a downtrend, when the price rises to near VWAP but fails to break through, VWAP acts as a resistance level, and short selling can be considered.
3. Determine the timing of buying and selling
   • Breakout Buy Signal:  A buy signal is generated when the price breaks through and holds above the VWAP from below.
   • Sell ​​when  the price breaks below VWAP: This is considered a sell signal. 

VWAP Usage Notes

• Resettable:  VWAP is an intraday indicator that is reset at the opening of each trading day and is not suitable for judging medium- to long-term trends.
• Volume confirmation:  When the price breaks through VWAP, if the volume increases, the breakout is more effective; if the breakout is on low volume, be wary of a false breakout.
• Combining with other tools:  It is recommended to use it in conjunction with other technical indicators such as RSI and MACD to improve accuracy. 

Summarize

VWAP is a core tool for financial institutions and day traders to find true transaction costs and intraday entry points, optimizing buy and sell points through "trend following" and "pullback/bounce confirmation".