What is the VWAP Indicator?
The Volume Weighted Average Price (VWAP) is a trading benchmark used by traders that gives the average price an instrument has traded at throughout the day, based on both volume and price. It provides traders with insight into both the trend and value of the instrument. VWAP is calculated by summing up the total dollars traded for every transaction (price times shares traded) and then dividing by the total shares traded.
Modes of VWAP Calculation
The VWAP indicator can operate in several modes, each suited for different trading strategies:
Moving: Functions like a Moving Average with a specified period.
Daily: Calculated from the start to the end of the day.
Weekly: Calculated from the beginning to the end of the week.
Monthly: Calculated from the start to the end of the month.
Session Time: Allows users to set specific start and end hours for VWAP calculation.
How to Use the VWAP Indicator
Many traders use VWAP bands similarly to Bollinger Bands. You can look for reverse trades on the second and third standard deviations from the VWAP. Combined with price action or candle patterns, you can achieve excellent results. VWAP can also be used for benchmarking, as many investors do.
Main Features of VWAP
The VWAP indicator boasts several key features:
Multiple modes for different trading needs.
Real and tick volume calculation (MT5).
First, second, and third standard deviations from the VWAP.
Highly customizable parameters (colors, line thickness, VWAP period).
Compatibility with Expert Advisor (EA) creation.
Available for both MT4 and MT5 platforms.
VWAP vs. AVWAP
While VWAP starts its calculation from the beginning of the day, week, or month, the
Anchored VWAP (AVWAP) allows traders to place it anywhere on the chart. This flexibility helps in analyzing specific periods or events more precisely.
Practical Applications of VWAP
VWAP is a versatile tool used by different market participants:
Institutions use it to evaluate the execution quality of large trades.
Independent traders use it as dynamic support and resistance levels.
Algorithmic traders employ VWAP to plan entries and initiate larger positions without disturbing the stock price.
Alerts and Notifications
Modern VWAP indicators come with various alert options to keep traders informed without constant monitoring:
Sound alerts when the VWAP touches or crosses its main lines or margin bands.
On-screen alerts in MetaTrader when the price touches or crosses the VWAP.
Push notifications to your phone for VWAP interactions.
Email alerts for VWAP crossings.
Customizable Parameters
The VWAP indicator allows traders to adjust several parameters to fit their trading style:
Price Type: Close, Open, High, Low, Median, Typical, Weighted.
Volume Type: Real Volume, Tick Volume.
Smoothing Methods: Simple, Exponential, Smoothed, Linear Weighted.
VWAP Channel: Percentage variations to create a channel around the VWAP.
Graphical Options: Colors, styles, and line widths for VWAP and its bands.
VWAP in Action
For example, the VWAP Indicator by PipTick MT4 is a robust tool available for traders, offering customizable parameters and compatibility with automated trading systems. This indicator can be used for creating Expert Advisors, making it a versatile
choice for both manual and automated trading strategies.
Conclusion
The VWAP indicator is an essential tool for traders, providing a comprehensive view of the average price of an instrument based on volume and price. Its various modes, customizable parameters, and alert features make it a versatile and powerful addition to any trader's toolkit. Whether you're an institutional trader or an independent trader, VWAP can help you make more informed trading decisions. 🚀📈
