Understanding VWAP In TradingWhat is VWAP?
VWAP is a price benchmark that gives more importance to prices where higher trading volume occurs. Unlike simple moving averages, which treat each price point equally, VWAP provides a volume-weighted perspective, making it more representative of market activity.
Traders use VWAP to gauge market trends, confirm trade entries and exits, and measure the quality of executions relative to the market's liquidity.
How Institutional Traders Use VWAP
Large financial institutions and mutual funds execute large orders over time to minimize their market impact.
VWAP helps them:
Achieve better execution by ensuring their orders are filled at a price close to the session's average.
Reduce market impact by avoiding aggressive buying or selling at extreme price points.
Gauge liquidity and time their orders efficiently.
Role of VWAP in Algorithmic Trading
VWAP is integral to algorithmic trading strategies that automate order execution.
Algorithms use VWAP in:
VWAP Trading Strategies: Algorithms execute orders in line with VWAP to avoid moving the market.
Mean Reversion Trading: Traders look for deviations from VWAP, buying when the price is below and selling when it is above.
Liquidity-Based Order Execution: Algorithms track VWAP to execute trades more efficiently, particularly in high-frequency trading (HFT).
Why VWAP is a Critical Benchmark for Intraday Traders
For short-term traders, VWAP provides key insights into market behavior:
Trend Confirmation: If the price is above VWAP, it indicates bullish sentiment; below VWAP suggests bearish conditions.
Entry and Exit Points: Traders use VWAP as support/resistance for trade decisions.
Institutional Footprint: Retail traders track VWAP to understand where large orders might be executing.
Since VWAP resets daily, it remains a highly relevant indicator for gauging intraday momentum and trend strength.
Calculation
Where:
Price = (High + Low + Close) / 3 (Typical Price for each period)
Volume = The total number of shares/contracts traded in the period
Understanding How VWAP is Calculated:
Calculate the Typical Price (TP): TP=High+Low+Close/3
Multiply TP by Volume for each time period to get the Cumulative Price-Volume product.
Sum the Price-Volume values cumulatively throughout the day.
Divide by the cumulative volume up to that time.
Since VWAP is cumulative from the market open, it resets at the start of each trading day.
Difference Between VWAP and Moving Averages
VWAP
Volume-weighted
Resets daily
Determines fair value in a session
Reacts to volume spikes
Moving Averages (SMA/EMA)
Equal-weighted (SMA) or Exponentially weighted (EMA)
Continuous across multiple sessions
Identifies overall trend direction
Reacts to price changes
How to Interpret VWAP
When the price is above VWAP: It suggests that the market is in an uptrend, and VWAP may act as support if the price retraces.
When the price is below VWAP: It signals a downtrend, and VWAP may act as resistance if the price attempts to rise.
Reclaiming VWAP: If the price moves below VWAP but then breaks back above it, this could signal a bullish reversal. The opposite is true for a bearish scenario.
VWAP and Market Trend Identification
Uptrend: If the price remains consistently above VWAP and VWAP itself is sloping upward, the market is in an uptrend.
Downtrend: If the price stays below VWAP and VWAP is sloping downward, the market is in a downtrend.
Sideways Market: If the price oscillates around VWAP and VWAP remains flat, the market is range-bound.
VWAP Standard Deviations (Bands) and Their Significance
First Standard Deviation (VWAP ±1σ)
Represents a normal fluctuation around VWAP.
Prices bouncing within this range indicate balanced market activity.
Second Standard Deviation (VWAP ±2σ)
Suggests stronger price movement.
A move beyond this level may indicate an overbought (above VWAP) or oversold (below VWAP) condition.
Third Standard Deviation (VWAP ±3σ)
Extreme price movement; rarely sustained.
A reversion back toward VWAP is highly likely.
Misinterpreting VWAP Signals
Many traders assume that VWAP alone dictates market direction. However, simply being above or below VWAP does not automatically mean the market is bullish or bearish. Market structure, momentum, and external factors such as news events or institutional order flows must also be considered.
How to Avoid It?
Look for Confirmation: Use VWAP in combination with price action and other indicators, such as volume, market structure, and momentum oscillators (e.g., RSI or MACD).
Check the Trend of VWAP: If VWAP is sloping upward and price is above it, this signals strength. Conversely, a downward-sloping VWAP with price below it indicates weakness.
Observe Price Interaction with VWAP: If the price consistently bounces off VWAP and continues in the trend direction, it confirms its role as dynamic support or resistance. If the price frequently crosses VWAP back and forth without clear direction, it signals a choppy, range-bound market.
Strategies
VWAP Bounce
If the price pulls back to VWAP and holds, traders may look for a long entry (in an uptrend) or a short entry (in a downtrend).
Stop-loss orders are often placed slightly beyond VWAP in case of a trend reversal.
VWAP Breakout
If the price consolidates near VWAP and then breaks out strongly, traders may enter in the direction of the breakout.
A sustained break above VWAP signals strength, while a break below VWAP signals weakness.
VWAP as a Reversion Point
Traders monitor price deviations from VWAP. If the price moves too far from VWAP, a reversion trade back toward VWAP may be expected.
Key Takeaways
VWAP Represents Fair Value – It calculates the average price of a security, weighted by volume, giving traders insight into where most of the trading activity has occurred.
Intraday Benchmark – VWAP resets daily and is primarily used by intraday traders and institutions to assess whether prices are trading at a premium or discount.
Support and Resistance Tool – VWAP often acts as dynamic support in uptrends and resistance in downtrends, helping traders make entry and exit decisions.
Institutional Trading Guide – Large institutions use VWAP to execute orders efficiently, minimizing market impact and ensuring better fills.
VWAP vs. Moving Averages – Unlike moving averages, which continue across multiple sessions, VWAP is cumulative from the market open and resets each day.
Trend Confirmation – Price above a rising VWAP signals a strong uptrend, while price below a declining VWAP suggests a downtrend.
Avoid Over-Reliance – While useful, VWAP should be combined with volume analysis, price action, and other indicators to avoid false signals.
VWAP Bands for Overbought/Oversold Levels – Standard deviation bands around VWAP can help identify price extremes and potential mean reversion setups.
VWAP is more than just an average—it's the heartbeat of market sentiment, revealing where true liquidity and fair value align.
Stay sharp, stay ahead, and let’s make those moves. Until next time, happy trading!
Volume Weighted Average Price (VWAP)
Understanding Buy The Dip In TradingBuying the dip is a trading strategy where you take advantage of temporary price drops in an overall uptrend. The goal is simple: enter the market at a lower price before it resumes its upward move. It sounds easy, but knowing when and how to do it makes all the difference. In this guide, we’ll explore key setups, ideal market conditions, and smart risk management techniques to help you trade dips like a pro. 🚀
1. Understanding Market Structure 🏗️
Before jumping into a trade, it’s crucial to understand how price moves. A strong uptrend is characterized by higher highs and higher lows—this is where buying dips can be very profitable. But beware: not every drop is a buying opportunity. Some dips are part of a pullback, a temporary retracement before the trend resumes, while others signal a complete reversal—the last thing you want to buy into.
Key levels to watch include support zones, Fibonacci retracement levels, and high-volume areas. These zones act as potential turning points where the price is likely to bounce.
2. Proven Setups for Buying the Dip 🎯
🔢 Fibonacci Retracement Support
When the price pulls back within a strong trend, it often lands on key Fibonacci levels like 38.2%, 50%, or 61.8%. These act as natural support points where buyers step in. If a strong bullish candle appears at one of these levels, it can signal a solid dip-buying opportunity.
Combine this with an oversold RSI and rising volume, and you have a strong case for entry.
🎭 Liquidity Grab (Stop Hunt)
Markets love to shake out weak hands. Sometimes, the price dips below a previous low, triggering stop-loss orders before reversing sharply. This is called a liquidity grab—smart money accumulates positions while retail traders panic.
If the price quickly reclaims the level it just broke, it’s a strong buy-the-dip signal. Look for big buy orders, a sharp recovery, and bullish candlesticks to confirm entry.
📊 Anchored VWAP Test
Institutions often base their trades around VWAP (Volume Weighted Average Price), especially when anchored from a significant swing low. When the price revisits this VWAP in a strong uptrend, it’s a potential dip-buying zone.
Watch for bounces off VWAP, rising volume, and confluence with other support levels for confirmation.
🔥 Point of Control (POC) Revisit
Markets move towards areas of high liquidity. If the price revisits the Point of Control (POC)—the price level where most volume is traded in a range—it often serves as strong support.
When price pulls back into the POC and finds buying interest, it’s a great spot to enter. Look for strong reactions, failed attempts to move lower, and confluence with Fibonacci levels.
📏 Previous Range Support
A breakout from a trading range is significant, but the price often returns to retest the range high as new support before continuing higher. If this happens on low selling pressure and aligns with moving averages or VWAP, it can be a golden buy-the-dip opportunity.
Look for bullish reactions, buying volume, and strong candles off the level.
3. When Buying the Dip Works Best ✅
Not all dips are worth buying. The best setups occur when:
The market is in a strong uptrend, making higher highs consistently. 📈
Volume is high, showing that buyers are stepping in. 🔥
Macro conditions support upside movement, like favorable economic news. 📰
4. Risk Management: Protecting Your Capital 🛡️
Even the best traders take losses. What matters is how you manage risk:
Set a Stop Loss 🎯: Always place a stop below key support levels.
Position Sizing 📊: Never risk more than a small portion of your capital per trade.
Have an Exit Plan 🚪: Know where you’ll take profits, whether it's at a resistance level or a trailing stop.
Scale In and Out 🎢: Enter gradually instead of all at once, and take profits along the way to lock in gains.
Key takeaways 🎤
Buying the dip can be a powerful strategy—when done correctly. The key is patience: wait for strong trends, allow price to reach significant levels, and confirm with volume and momentum. Combine technical analysis with solid risk management, and you’ll improve your chances of success in the markets. Happy trading! 🚀
BTC Bullish + Bearish PredictionsThis analysis is based on VWAP, one of the most definitive levels that determine the future trend direction.
Right now we are sitting well above the VWAP anchored to 1/13 where the pivot low for out most recent move up began. Depending on the price action, the strong overall sentiment for BTC is strong enough to take it past the 108k ATH, despite many technicals suggesting we are overdue for a large pullback down to the 70ks.
What needs to happen is for accumulation to happen between the 102k and 105k levels, and continue through to the ATH such that buyers can hold thru any pushback/resistance at 108K and 109k, the next resistance level. If it can push us through 109, then our next resistance will be at 111k and 113k, which is also the zone where I would guess the retracement from the next ATH may return to. We may top out at 113550, which is both a macro fib level and a stddev extension of the VWAP, if bullish sentiment is not strong enough. If it can break 113500, we may just go exponential to 125 or 128k, where it should retrace to 113K, or even shallower.
The bearish case is a fast run up past 108k, losing steam at 109k or 111k, consolidating for a short while between 109 and 105 where bears can build their positions and then take us back under 101k. There are key VWAP levels in black around 102k that if we break and close below, will almost certainly shift the odds towards going back down.
Ive included a second VWAP anchored to a more recent pivot low, where the value sits at 104950 currently, a break below may not necessarily spell doom for bulls but the price action between that level and the main VWAP around 102k may tell you something about the current bull/bear sentiment.
If you are bullish it would be wise to build your position below 105k whenever you have the chance, and to encourage the breakouts at 108 ATH, 109700, 111000-111500, and 113500. For bears you are looking for strong resistance showing up at 109750, then at around 111k, accumulating your shorts between 109k and 105k with the goal of breaking through 101k.
Put Your Speculators On!This head and shoulders pattern could be just pure speculation at this point. In fact, let me reword that.. this IS speculation based on the fact that I missed the lows and psychologically, I'm really hoping this comes back to shore so I can get back on the boat with everyone else.
I do however do my technical analysis in advance and set alerts at levels like you should do and if it plays out then great if not there's always the opposite idea too. We move onto the next one.
For now though what I'm looking at is BITGET:ADAUSDT.P has closed the daily candle back inside the value area high ( VAH ) of the range they just left. I am now in a waiting game to see what happens with the second candle close but we just had a 7.5% drop from that value area high (white dots) and the weekly level.
The purple line is the previous Monthly VWAP (volume weighted average price) which when you go down to a lower timeframe it's actually touched (Just doesn't look like that here).
The yellow line is the previous Weekly VWAP which we had confluence with at the weekly level and the value area high and also back tested a couple of hours ago.
The blue bars are to show the 21% from the top of the head down to the neck of the head and shoulders pattern and then a repeated 21% from the neck to complete the pattern right into a point of control ( POC ) from a very high timeframe, I'm talking years.
If we start to lose some levels here like $0.35ish and back test it, I'll probably just wait to lose the POC and then see if we get the drop down into that area of confluence below at around $0.26.
I'm far too broke to be gambling so I'd rather wait and reward myself with a little bit of patience, who knows, it could just happen quickly but “Uptober” isn’t starting off that well so far.
I won't be looking for any long trades unless we can reclaim that weekly level and value area high. Targets would be the weekly level above with confluence from the high timeframe value area high and anchored VWAP from the all-time high (Green line).
This is not financial advice. This is just an idea and some slight education to put out there for anybody that's feeling a little bit lost about what they're seeing on the charts.
$TSLA Support Found at Yearly Anchored VWAPIt appears Tesla NASDAQ:TSLA might have found significant temporary support at the yearly anchored VWAP. I expect a move up to test upper deviation at 226.50, which would be first profit target. I own some Oct 4 240 C which I plan on scaling out of beginning around that level.
LCID SHORT on VWAP rejecting price rise.In my previous idea of January 29, I bought LCID as it broke out of a falling wedge on news from
Saudi Arabia fixing supply chain and production issues for body parts. LCID ascended the
following day to fall down on rejection from the mean VWAP band line anchored in mid-
December. On the 4H chart, another smaller and more condensed falling wedge is found
and price is moving down toward the one standard deviation line below the mean VWAP ( the
jagged blue line ) which is now horizontal. The last candle is red and narrow bodied. It is near
the top of the channel. Trade plan- I will short LCID here and add to the position each time
price returns to the top of the channel as monitored on a lower time frame such as 15-45
minutes. I will watch for a reversal of the down-trending lines of the zero-lag MACD
and a cross at the bottom. Similarly for the RSI indicator and its green fast and red slow line
in the range of RSI value of 20-35. Likewise, if price rises above the channel in an early
breakout, the trade is over as the downtrend is correcting again. If the price were to break
resistance of the mean VWAP zone, this would represent a break of the down supertrend and
could cause a bit of a short squeeze to get underway. If I see that, I will get into a long
position with more position size as it could become lucrative.
Unlocking Trend Reversals: Mastering Bollinger Bands and VWAPsIn this comprehensive video tutorial, we will delve into the powerful techniques of utilizing Bollinger Bands and VWAPs (Volume Weighted Average Prices) to identify and master trend reversals in the futures market. ES1!
You will learn how to leverage these volatility-based indicators to detect potential turning points in price trends. By understanding Bollinger Bands' ability to highlight periods of market consolidation and expansion, you will gain an edge in predicting trend shifts and take advantage of profitable opportunities.
Additionally, we will explore the significance of VWAPs, an essential tool for analyzing price and volume dynamics. By combining volume-weighted prices with Bollinger Bands, you will be equipped with a comprehensive approach to assess market liquidity, support, and resistance levels.
Throughout this tutorial, I provide step-by-step guidance to effectively interpret the signals generated by Bollinger Bands and VWAPs, empowering you to make informed trading decisions. We will also address common misconceptions that can often lead to misinterpretations and false signals.
Whether you are a seasoned trader seeking to refine your strategy or a beginner eager to grasp these technical indicators, this video is designed to provide valuable insights and practical knowledge that can elevate your trading outcomes.
Review and Trading plan for 21st July 2023Nifty future and banknifty future analysis and intraday plan in kannada.
This video is for information/education purpose only. you are 100% responsible for any actions you take by reading/viewing this post.
please consult your financial advisor before taking any action.
----Vinaykumar hiremath, CMT
CAT Swing Long ReversalCAT has a downtrend 10% from its 30-day high.
However, fundamentally the industrial is holding up quite well.
The downtrend was inverse parabolic accompanied with
an appropriate volume pattern showing 3X relative volume
This is sometimes called the retirement trade pattern
or V-type pattern. CAT has dropped to three standard
deviations below the anchored VWAP /
This makes it undervalued well below fair value.
I see this as a good setup for a long swing trade or a call options
contract with the expectation of a 50% retracement of a
10# drop or a 5% price target For the call options I will
target the anchored VWAP at a strike of $243 about 12 DTE.
SPY 2022.07.25 Monday of Fed Week premarket analysisUptrend in place. Opening in the range of last sessions price range. It's a Fed week so price action will likely be constrained by that until after the announcement at 11AM PT on Wednesday. Price S/R lines of interest and VWAPs and MAs of interest are presented in the video.
SPY gap opening at significant support level. Will it hold?SPY is opening at a level of significant support over the last month. Price is below the declining 5DMA, 20DMA, and 5DMA. We are in a bear market. Will this level hold? Areas and levels of significant interest presented in the video including possible short swing set up.