VWAP: Volume Weighted Average Price Trading
Uses Volume Weighted Average Price as dynamic support/resistance for intraday trading decisions.
What is VWAP?
VWAP (Volume Weighted Average Price) is a trading benchmark that calculates the average price an asset has traded at throughout the day, weighted by volume. It represents the 'fair value' of an asset for the trading session and is widely used by institutional traders to gauge whether they're getting good execution prices.
Key Characteristics
Dynamic level: VWAP updates throughout the day. Institutional benchmark: Used by large traders for execution. Intraday focus: Resets each trading session. Volume weighted: Heavier volume periods have more impact. Mean reversion: Price often returns to VWAP.
How to Trade with VWAP
Traders use VWAP in several ways. When price is above VWAP, it suggests bullish sentiment, and traders look for long entries on pullbacks to VWAP. When price is below VWAP, it indicates bearish sentiment, and traders look for short entries on rallies to VWAP. VWAP bands (standard deviations from VWAP) can provide additional support/resistance levels.
Best Practices
VWAP is most effective during active trading hours when volume is highest. The indicator is less reliable near market open when there's limited data, and near market close when the line becomes more static. Combine VWAP with other indicators like RSI or price action patterns for confirmation.
Practice Risk-Free
Master these concepts with paper trading before risking real capital.
Start Paper TradingDisclaimer: This article is for educational purposes only and does not constitute financial advice. Trading involves significant risk of loss. Cryptocurrency investments are volatile and high-risk. Always do your own research before making any investment decisions.