How to Use VWAP in Intraday Trading

By Jane Smith

Introduction to VWAP

Volume Weighted Average Price (VWAP) is a trading benchmark used by traders that gives the average price a security has traded at throughout the day, based on both volume and price. It is important because it provides traders with insight into both the trend and value of a security.

How to Calculate VWAP

The VWAP is calculated by adding up the dollars traded for every transaction (price multiplied by the number of shares traded) and then dividing by the total shares traded.

Benefits of Using VWAP in Intraday Trading

• Identify Market Trend: VWAP can help traders identify the market trend. If the price is below the VWAP line, the trend is down. If the price is above the VWAP line, the trend is up.
• Price Confirmation: Traders often use VWAP for price confirmation. If the price breaks above the VWAP line, it may be a good time to buy. If the price breaks below the VWAP line, it may be a good time to sell.
• Improve Order Execution: VWAP helps traders improve their order execution. By comparing the current price to the VWAP, traders can see whether the current price is a good deal or not.

How to Use VWAP in Intraday Trading

To use VWAP in intraday trading, a trader needs to look at where the price is in relation to the VWAP. The VWAP can be used as a level of support and resistance. Traders can buy when the price is near the VWAP and showing signs of bouncing off it. Conversely, traders can sell when the price is near the VWAP and showing signs of falling from it.

Conclusion

VWAP is a powerful tool in intraday trading. It can help traders identify market trends, confirm prices, and improve order execution. However, like all trading tools, it should not be used in isolation. Traders should use it in conjunction with other technical indicators and trading strategies to increase their chances of success.