The Complete Guide to Using the Full VWAP Indicator for Effective Trading

The Full VWAP indicator has become an essential tool for traders of all backgrounds, from novices to advanced institutional investors. This comprehensive indicator allows users to analyze the Volume Weighted Average Price (VWAP) over various time frames to gain an edge in the markets. In this guide, we will cover everything you need to know about the Full VWAP indicator.

Full VWAP Indicator

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What is VWAP and How is it Calculated?

VWAP stands for Volume Weighted Average Price. It measures the average price at which a stock is traded over a specified time horizon, taking into account the volume traded at each price level.

The Full VWAP indicator calculates VWAP based on the following formula:

$$VWAP = \frac{\sum(Price x Volume)}{\sum Volume}$$

To break this down:

  • Price x Volume is the typical price of each transaction
  • The typical prices are summed over the time period
  • This number is divided by the total volume over the time period

This results in a volume weighted average price that accurately reflects the fair value of the security based on what buyers and sellers are willing to transact at.

The Full VWAP indicator allows you to analyze VWAP over the current day, week, month, quarter, or year. You can also look at previous time frames. This versatility allows traders to gain insights into both short-term and long-term trends.

Key Benefits of Using the Full VWAP Indicator

There are several key reasons why the Full VWAP indicator has become so widely used among active traders:

The Full VWAP indicator helps traders identify periods when a stock is undervalued or overvalued compared to its typical average price. If the price is trading above VWAP, it may be overextended and due for a pullback. If trading below VWAP, the stock may be undervalued and offering a buying opportunity.

VWAP also acts as a dynamic support and resistance level. Traders watch for the price to bounce off VWAP as support or sell off when hitting VWAP resistance.

2. Confirm Trading Signals

The Full VWAP indicator can be used in conjunction with other technical analysis signals to confirm market direction and momentum. For example, if price is above VWAP and the RSI is showing overbought conditions, it may signal an impending reversal to the downside.

3. Gauge Institutional Activity

Since large fund managers aim to execute trades close to the VWAP price, it acts as a benchmark for institutional activity. If volumes increase when price crosses VWAP, it often signals increased institutional participation.

4. Automated Trading Strategies

The Full VWAP indicator can be incorporated into automated algorithmic trading strategies. The dynamic VWAP levels combined with volumes and volatility metrics can signal profitable entries and exits for quantitative trading systems.

5. Versatile Analysis Timeframes

Unlike other trading indicators, the Full VWAP allows you to analyze VWAP over multiple time horizons – from current day up to yearly VWAP. This provides more context and insights compared to single timeframe indicators.

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How to Use the Full VWAP Indicator

Now that we’ve covered the key benefits, let’s discuss how to effectively use the Full VWAP indicator in your own trading.

1. Identify Levels on the Chart

Add the Full VWAP indicator on your chart timeframes of choice. Make sure volume data is also enabled on your charts. The VWAP will now appear as a highlighted line on the chart.

Identify dynamic support and resistance levels where the price has historically bounced off VWAP in the past. This helps you anticipate potential reversal levels.

2. Combine with Other Indicators

Add additional indicators like RSI, moving averages, Bollinger Bands to your chart. Look for instances where price crosses VWAP at the same time other indicators confirm the strength and direction of the move.

For example, a VWAP breakout above resistance when RSI is also breaking out of a range. Use other indicators to validate the VWAP signals.

3. Gauge Institutional Participation

Analyze the volume bars as price approaches the VWAP levels. Check if volume is increasing relative to recent activity as price crosses VWAP. Rising volume shows increased institutional participation at that price level.

4. Set Dynamic Price Targets

Use VWAP values to set price targets for your trades. You can aim to take profits when price reaches the VWAP level on the opposing side of your entry. The VWAP lines will adjust in real-time allowing you to update targets.

5. Quantify Your Trade Execution

After entering a position, quantify if you received good trade execution by comparing your entry price to the VWAP levels. If you managed to buy below VWAP or sell above VWAP, it indicates you secured a better than average fill price.

Optimizing the Full VWAP Indicator

The Full VWAP indicator has a number of input settings you can optimize for your strategy:

Timeframe – Choose the relevant timeframes for your trading style. Day traders should focus on 5min and 15min Intraday VWAP. Swing traders can opt for Daily, Weekly or Monthly VWAP.

Bands – Enable the Upper/Lower Bands to identify overbought/oversold levels relative to VWAP. The bands provide additional trade signals to complement VWAP.

Alerts – Configure alerts when price crosses above or below VWAP. Alerts help time your trades without having to stare at the charts.

Colors – Change the colors of the indicator for clear visualization on all chart backgrounds. Use contrasting colors.

In summary, experiment with the various input settings to create a customized setup aligning with your trading approach. The flexibility is one of the major advantages of the Full VWAP indicator.

Common Trading Strategies with Full VWAP

Here are some of the most popular trading strategies leveraging the capabilities of the Full VWAP indicator:

Mean Reversion at Dynamic Support/Resistance

This strategy involves looking for price bounces as VWAP acts as support and resistance. Go long when price pulls back to VWAP in uptrends, or short at resistance in downtrends. The stop loss can be placed on the opposite side of VWAP.

Breakouts with Volume Confirmation

Analyze periods when price breaks out above/below VWAP with increasing volume. Rising volume confirms institutions are participating in the breakout. This adds higher probability that the new trend will continue.

Fading the Bands Overextensions

When price reaches the Upper/Lower Bands, it indicates short-term overextension beyond the average VWAP price. Traders can look to fade the band overextensions by entering counter-trend trades with tight risk management.

Quantifying Trade Execution

Buy below VWAP and sell above VWAP to secure better than average price fills on your trades. Executing on favorable sides of the VWAP signals you have good trade location.

Common Questions about Full VWAP

Is the Full VWAP indicator available for stocks, forex, futures etc?

Yes, the Full VWAP indicator works on all liquid markets including equities, currencies, commodities and cryptocurrencies. As long as your chart has volume data, VWAP can be calculated.

What chart timeframes is it best used for?

The Full VWAP indicator can be used on chart timeframes ranging from 1-minute charts for scalping, to daily and weekly charts for swing traders. Most traders analyze it on intraday 5min and 15min charts.

Does VWAP take into account afterhours/premarket trading?

No. The VWAP calculation only factors in trading activity during the regular market session from the opening to closing bell. Extended hours trading is not included.

What trading platform is required?

The Full VWAP indicator is available on all popular retail trading platforms like MetaTrader 4 & 5, TradingView, NinjaTrader etc. It can also be accessed through broker charting software.

Is any special configuration required before adding the indicator?

No special configuration needed. Simply download the Full VWAP custom indicator and add it to your chart window like any other indicator. Ensure volume data is enabled on your platform.

Conclusion

The Full VWAP indicator empowers traders with vital insights into the average traded price weighted by volume over any time horizon. This versatile indicator helps identify emerging trends, confirm trade signals, spot institutional activity, set dynamic price targets and benchmark execution quality.

By combining the Full VWAP with other analysis methods, traders can develop robust and profitable trading strategies. Just remember to optimize the input settings and chart timeframes to match your trading style.

The wide-ranging capabilities explain why the Full VWAP has become such an indispensable part of every trader’s analysis toolkit in the modern markets. Give this powerful indicator a try and observe how it can improve your trading outcomes.

Author: Dominic Walsh
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I am a highly regarded trader, author & coach with over 16 years of experience trading financial markets. Today I am recognized by many as a forex strategy developer. After starting blogging in 2014, I became one of the world's most widely followed forex trading coaches, with a monthly readership of more than 40,000 traders! Make sure to follow me on social media: Instagram | Facebook | Linkedin | Youtube| Twitter | Pinterest | Medium | Quora | Reddit | Telegram Channel

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