How to Use the VWAP Indicator on TradingView

The Volume Weighted Average Price (VWAP) is a trading indicator that shows the average price at which a stock has traded throughout the day, based on both volume and price. On TradingView, the VWAP indicator can be a valuable tool for gauging intraday support and resistance levels.

In this post, we’ll break down what the VWAP indicator does, how to use it for trading decisions, TradingView-specific settings, and strategies to utilize VWAP for intraday trading analysis. Let’s dive in!

Here are some key takeaways for using the VWAP indicator on TradingView:

• TradingView offers a free default VWAP indicator as well as more advanced custom indicators.
• To add the default VWAP indicator:
  • Click the “Indicators” tab at the top
  • Search for and select “VWAP”
  • Customize the color, line style, etc.
• The VWAP line shows the volume weighted average price over a specified timeframe.
• Prices above the VWAP line may indicate bullish sentiment. Prices below the VWAP line may indicate bearish sentiment.
• Look for areas on the chart where price interacts with the VWAP line, like crossing above or below. This can signal potential trade opportunities.
• Advanced custom VWAP indicators on TradingView offer features like:
  • Standard deviation bands to see volatility
  • Dynamic color coding based on price movement
  • Anchoring VWAP to specific points on the chart
• The default VWAP indicator resets at the beginning of each trading day. The Rolling VWAP custom indicator resets over a rolling time window.
• Use VWAP in conjunction with other indicators or analysis techniques to make informed trading decisions. It should not be used alone.
• Experiment with VWAP on various timeframes (1 min, 5 min, 15 min, etc) to see which provides the most relevant signals for your strategy.
• VWAP is best suited for intraday trading rather than long term investing. It is most applicable for very liquid stocks and forex pairs.

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What is the VWAP Indicator?

VWAP stands for Volume Weighted Average Price, and gives traders the average price a stock has traded at throughout the day, weighted relative to its volume.

It essentially takes each trade’s volume and applies that to the price, and then takes the weighted average for the full trading session. This results in the typical price investors are willing to pay for the stock intraday.

VWAP also often acts as a support or resistance level, as a high volume of trading activity tends to take place around it. Traders analyze price action relative to VWAP to gauge intraday momentum and direction.

How TradingView Calculates VWAP

TradingView’s VWAP indicator calculates a moving VWAP, meaning it continually updates based on price action throughout the day. The specific steps are:

• It sums up the total traded value, which is price x total volume on every new trade.
• This cumulative total traded value is divided by the cumulative volume to give VWAP.
• The calculation runs on each new tick, resulting in a dynamic VWAP plotted on the chart.

In essence, VWAP tells us the weighted average price of a stock over time intraday. Where volume is higher, the weighting has more of an impact.

Using VWAP for Intraday Trading Decisions

There are a few key ways traders utilize VWAP for intraday analysis and decisions:

• Mean reversion setups – When price diverges away from VWAP, it often snaps back like a magnet as volume pulls it back to fair value.
• Breakouts – Closing and holding above or below VWAP can signal continued momentum in that direction.
• Support / Resistance – Price tending to react around VWAP shows it acts as an anchor for intraday high and low ranges.
• Volume confirmation – Volume increasing as price crosses VWAP verifies a high conviction breakout or breakdown.

Analyzing price relative to VWAP provides valuable insights into prevailing intraday momentum and whether momentum is stalling or continuing.

TradingView VWAP Indicator Settings

The TradingView VWAP indicator has a few settings traders can adjust:

• Length – The number of bars or candles used in the calculation, such as 30 minutes or 15 days. Default is daily.
• Auto Reset – Automatically reset VWAP to current price at a certain time, like 3:00 PM. Useful for intraday analysis.
• Anchored Left/Right – Locks left side of VWAP start point, or right side end point rather than a moving average.

Optimizing these settings to suit your strategy or market traded gives added flexibility in analyzing VWAP for trading decisions.

Common VWAP Trading Strategies

Some example strategies using VWAP include:

Mean Reversion

• Enter long when price drops 2% or more below VWAP and shows reversal pattern. Target return to VWAP.

Breakouts

• Buy breakouts above VWAP with increased volume for continuation. Stop under VWAP.

Intraday Support/Resistance

• Look to short at VWAP after an intraday downtrend as it may act as resistance.

VWAP Crossovers

• When shorter time frame VWAP (5 or 15 mins) crosses daily VWAP, signals potential intraday trend change.

Combining VWAP with Other Indicators

VWAP works best when combined with other technical analysis. Useful complements include:

• RSI – Shows overbought/oversold levels relative to VWAP.
• Moving Averages – Crossovers with VWAP confirm price momentum.
• MACD – Signals momentum shifts as VWAP acts as anchor.
• Volume – Adds additional conviction to breakouts and crossovers.

No single indicator provides a silver bullet. VWAP works best when integrated into a broader technical approach.

Conclusion

The VWAP indicator provides valuable insights for intraday traders by:

• Plotting the average traded price weighted by volume.
• Acting as potential intraday support and resistance.
• Signaling momentum shifts when price diverges then reconverges on VWAP.
• Providing breakout and mean reversion setups.

Make sure to customize VWAP settings to suit your strategy timeframes and combine it with other analysis. Used properly, VWAP delivers a unique perspective into intraday price dynamics.