What is VWAP & Why it's Important for Day Trading

all right so this is a video lesson on V web volume weighted average price I use V whap a lot when I'm trading because it gives me a better picture of the average price of a stock over the course of the day then simple or exponential moving averages the reason is because the V whap the volume weighted average price takes into account the amount of shares traded at each price so if you look at a stock like T mus we have this big rip in the last last half hour but the average price traded over the course of the day even though it's increasing during this period it's still much lower than the current price so when you factor in the number of shares traded at this price versus the shares traded over the course of the day you get the V whap and here the view app lags behind now the moving average is on the other hand it doesn't matter if it's 10 shares or 10 million shares that trade at these upper levels the the simple moving averages are just going to come right up with it so the volume weighted average price is a little bit of a better indicator of the kind of center or average price over the course of the day and I use this a lot of times as a level of support and resistance for day trades so with a stock that rips up really quickly if I'm thinking about shorting it my target would be that it returns back down to the V web now I would probably take profits along the way at the 9:00 moving average or maybe the 20 moving average but ultimately my target would would be that it returns down to the V web price which is the orange dotted line on my chart if we look at a stock like aria this morning this had a big breakout on News and what we notice which is typical for a lot of stocks is that you have a breakout and then you have a return down to the view app a return down to the average price and then some consolidation and then sometimes they go again but this is oftentimes a really good area to look for either a re-entry or a short from the extension back down to view app and I also use it let's see I use it for when I'm shorting as well when I see something that's dropped down really quickly the first thing I look at is how far are we below the view app because this is going to be my ultimate target getting up to the view app and you see it happen really nicely here so we get this nice washout but if the washout stops and then starts reversing and you're really only like 10 cents below the view app then to me I don't have enough reward potential to justify the risk of entering the trade and I like to enter trades with a minimum of a one to one risk reward ratio or profit loss ratio but the higher the better so if I can get a a nice potential to get three times the risk out of this trade then I'm going to take it so if my stop is back at low of day and I've got say it's 20 cents top and I've got a 60 cent amount of room up to the V web that's a good risk reward ratio so I would be interested in taking that type of trade now generally speaking I use the view app more than I use moving averages but I have them I have both on my charts and I also use some other indicators but I find that V WAP is one of the better ones for day trading because it really gives you this good picture of the average price over the course of the day so it gives you a feel of whether you're buying extended and you have to be a little bit tighter with your stops or if you're buying something that's way below it and it's coming back it just helps give me a better picture of where where the current price is relative to the averages of the day and you'll notice me referencing it a lot in my trade to my stop is the V whap or first target V whap things like that and so that's what I'm talking about when I'm saying those kinds of things hopefully that makes sense to everyone if not feel free to send me a message in the chat room okay thanks

Channel: Warrior Trading

Views: 236,447

Rating: 4.7920356 out of 5

Keywords: day trading, day trading strategies, trading strategies, how to day trade, beginner trading strategies, momentum day trading, stocks, trading, how to trade, stock trading, penny stocks, pdt rule, shares, float, volume, candles, profits, Wall St, finance, brokers, Ross Cameron, warrior trading, day trade warrior

Id: U0uftXzvUZU

Length: 4min 25sec (265 seconds)

Published: Fri Dec 20 2013

Reddit Comments

[u/Vwapabc]

While this video explains your strategy I think it should explain in more detail how vwap is calculated and why it acts as support and resistance. Vwap is calculated by taking the number of shares traded multiplied by the price for every candle and then adds these and then divides this number by the total number of shares traded on the day. this is a simple calculation. The price for each candle is typically calculated by taking the hi+low+close divided 3. For simplicity assume every trade per candle is traded at the same price. So for example Candle one trades 8 million shares at $10, candle 2 trades 2 million shares at $5, the vwap would be 9 (8m shares * $10) =$80m. Candle 2 trades 2m shares at $5 = $10 m. Vwap after two candles would $90m divided by total number of shares traded for the day (10m shares) = vwap of 9. Additionally it should be noted that brokers attempt to execute trades on behalf of large firms (hedge funds, mutual funds, etc) at or as close to the vwap price as possible resulting in vwap acting as support or resistance given that more shares will be traded there.