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What is the VWAP & How Do You Use It?

 The Volume Weighted Adjusted Price (VWAP) gives the average price a stock has traded at throughout a day based on its price and volume. The VWAP is mainly used to determine a stock’s direction and valuation. Some traders like it because it is great for intraday trading as well as adjusting a stock’s price for its volume.


How to Read the VWAP


    Above is an example of the VWAP. What is important to note is that in many cases, a VWAP can be used as a line of support or resistance. Many stocks may have a history of using their VWAP as these trend lines and therefore you would want to focus on this instead of drawing trend lines yourself. In the case above, the VWAP is acting first as a line of support. When the candlesticks break below the VWAP, there is a massive drop in share price. After this drop, the VWAP acts as a line of resistance and the share price has a difficult time breaking above it. If the candlesticks did break above the VWAP, you could most likely expect a large upwards jump in share price. Remember, a VWAP is used for intraday trading and can be considered very limited. Look into this one more to decide if you would like to use it.

How to Configure the VWAP

    When setting up a VWAP, you can choose to display many standard deviations but most traders choose not to. All you need to do is pick your colors and it is set up.

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