What is VWAP 📈 How to use it in Day Trading

so what's the most popular indicator for day trading in this video will tell you all about V WAP and how you can use it in your trading so Brandon what is give up the basic definition volume weighted average price is simply the ratio of total value traded divided by the total volume traded for a chosen time period now let's compare three prices for a basic example the instrument you are trading prints 100 shares at 25 200 shares at 26 and 300 shares at 27 the total value in this case is fifteen thousand eight hundred to find the V WAP we divide that by the total volume traded in this case six hundred shares giving you a V WAP of 26:33 now here's Neil with an explanation now that we have a definition of what V WAP is let's look at an actual example of what it's gonna look like in your everyday trading now to my left here I'm gonna actually be looking at a chart of Facebook it's a very simplistic chart it's gonna be a simple candlestick it's got the volume weighted average price that's gonna be that blue solid line in the middle it's got a simple moving average as well so we can show a little bit of a contrast and why the V WAP is important you're gonna also see volume down at the bottom this is gonna help us out in our explanations so we had our definition the volume weighted average price you understand how it's calculated it's always important to see what it's going to look like visually because the open is so important you can see at the very beginning V WAP starts with the price action those opening candlesticks and it tries to follow along as you have an upward trend in facebook throughout the day you see it diverge and why is that because at the very bottom you see that big volume coming in at the beginning which is very very important and which is contrasting and affecting the V WAP calculation as moves away you see the simple moving average fall way away from the V wha why is this because the simple moving average is only concerned with the open and close of each of those candles it doesn't matter if one chair traded or a thousand shares traded or a hundred thousand shares traded within that minute it's just gonna plot the actual price action and what that's going to mean to you is that if you're looking to trade movements above or below or through that simple moving average you'll be making a hundred trades a thousand trade the day in and out waning and losing mostly losing probably the volume weighted average price is gonna lag a little bit and because of this and because it's significant when it comes to the actual volume traded it's gonna be much more useful for support for resistance for some breakout trading as you can even see here you have that one dip off of the open where it came back in and support formed just above the volume weighted average price now one pro tip you can think about is what do big institutional firms and hedge funds you view up for it's a performance measure when they're looking to buy shares within a company on a given day they're gonna try and beat the volume weighted average price that means they beat the market in accumulating shares on that day when it comes to average price effectively so as it trades below V WAP and in this case it does not people would be buying those institutions to make sure that they can beat it as it gets toward that price they might slow that buying action in this case you see it trading above the volume weighted average price in an upward trend this means someone looking to sell a large position would be selling the entire way up and then when you get that final move in where it retest view up right here in the middle of the day they might slow that action for those of you that like to be countered trend you're asking yourself how can I short the top and get that fantastic trade well once you've picked the top or identified it maybe you have other indicators that you're using RSI whatever it might be you need to be able to take profit and one of the rules I like to use on a retracement trade is to think about exiting at V WAP where some of that sell action is going be slowing down every person that you think about her training against in the market it's probably looking at the volume weighted average price that's the power of an indicator because everyone's watching it and as they're watching and gravitate towards that they're thinking maybe it's gonna become support at that price great place to take profits when you know there are likely to be other buyers involved the other thing you can do with B WAP is forget about that perfect picking of the top how do we play with the trend well you look for pullbacks great way to get in on a pullback is to find some support and right in the morning you see the first pullback and what was going to be a fantastic upward trend Ward is a turnaround no coincidence that it's at the volume weighted average price this is the type of thing that every trader has to have knowledge of not just for your toolbox of trading but to understand how other traders are actively engaging in the market ultimately information is power and I know you guys have been waiting a long time here see some actual trading so let's throw it to Shawn to train the V well thank you so much Neil for that great explanation of view up we're actually right now in front of a live level 2 and chart and Facebook is right now bouncing off of this support and resistance line of our view up we're right here at 179 if we can break through 179 guys I'm gonna execute this trade looks like we are trying to break through view up as we speak right now at 179 here we go breaking through 179 we'll take the short we are now short 179 99 here on Facebook this is breaking guys so 178 99 we are short we are now taking lower and lower if this can hold we have a nice little winner look at the last time it broke through view up we came from 180 50 all the way down to 179 and change broke it and dropped nearly a dollar I'm actually looking for the same kind of activity right now on this Facebook break why is trading breaks important because it switches the momentum Facebook is now below V WAP what this means is whoever hasn't sold maybe now has their opportunity to do so you are now above the market here the market price is heading southbound d wat volume weighted average price as you see we are now moving to the south side a lot of traders would begin taking their trades off as momentum fades lower on a break down of view up here goes Facebook guys we are in at 179 eight and one seventy nine ninety nine we are trading 178 84 right now this is a quick 20 penny winner on a Viwa break and here we go Facebook this is starting to go to the south side it's now a 25 cent winner and hey guys you know what I like to take that out and bang there it is a nice 25 cent winner on a quick V walk break nothing to rocket science about this if you understand what V watt means and how we use it as traders you too can profit using this simple technical indicator thank you strong you and Brandon for this great explanation now know what we rob is hope you do too please subscribe for this channel and join us every morning at 9 a.m. Eastern time for our live trading show [Music] you

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Id: qMj0_YKazbE

Length: 7min 56sec (476 seconds)

Published: Thu Apr 30 2020