Volume Weight Average Price(VWAP):How to analyze the direction of the financial market using Volume weight average price

By QuintoTrader | Quinto Trader | 18 Nov 2019

Volume Weight Average Price is a trend following indicator.

Being a trend following indicator,volume weight average price was created to be used by traders to measure the average price of a security or stocks tradeable over a given period of time-based on volume and price thus enabling traders to know of uptrend or downtrend market movement.Just like other trend-following indicators, volume weight average is also based on bullish and bearish in the market.Volume Weight is based on price per share and the total number of shares, as well as volume, traded thus its formula is derived as follows;                         

VWAP= (Σ Price *volume traded)/Σ volume traded

Since Volume weight average price is based on bullish and bearish conditions, it, therefore, follows that when the price rises above the volume weight average, that will be an indication of an upward market direction thus the trader should be trading in an upward market direction while when the price falls below the volume weight average price that will be an indication of a downwards market direction thus the trader should be trading in a downward direction.This is indicated as from the candlesticks chart below;


From the candlesticks chart above, there are 3 points, point A, B and C. Point A and C represent the bullish and bearish points while point C is the volume weight average price.  At point A,the price has risen above the volume weight average price thus signaling the trading to start trading in an upward market direction at that point.On the other hand, at point C, the price has fallen below the volume weight average price thus signaling the trading to start tradingin a downwards market direction at that point.


Recommendation: If you are a day trader just use 1 min, 5 min, 15 min and 30 min timeframe while 

if you are a swing trader just use 1 hour and above timeframe if you want volume weight average price indicator to work well for you.

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