Welcome back, trader!
Today we come with another important resource to build your road to success this 2024.
We're going to learn about a very popular and useful tool but first, we'll briefly talk about a concept you're probably familiar with.
It is a method in which the operations are closed on the same day that the opening of the same was made, which means that in reality its duration or the process of these, does not exceed a few hours or even minutes.
As in everything, every tool at your disposal can make a big difference in your success.
One of them, widely recommended by professionals, is the Volume Weighted Average Price (VWAP).
What is VMAP
VWAP stands for "Volume Weighted Average Price".
It is a dynamic indicator that takes into account both price and trading volume.
How VMAP works
It calculates the average price at which an asset has been traded during the day weighted by the volume traded at each price level.
When we do intraday trading it can be invaluable because it makes it easier to understand market sentiment and make informed trading decisions.
For example: If an investment manager needs to buy thousands of shares but also wants to pay less than the average price for the day, the VWAP is usually the target to beat.
Typically, the indicator is calculated for one day, but it can be measured between two different points in time.
How can I use the VMAP
The VWAP has two simple settings: retracements and breakouts.
1. VWAP retracement:
VWAP as a key support or resistance level.
Buys: when the current market price is above the VWAP and holds as support, it can be an entry signal for you to buy. Usually, we initiate buy positions in such cases, hoping that the upward momentum will continue.
Selling: On the contrary, when the market price is below the VWAP and acts as resistance, it may indicate short selling opportunities. In this case, we may consider selling or taking short positions, anticipating a downward trend.
2. Breakout of the VWAP:
This trading setup is intended for those who are just starting out with the VWAP indicator.
You should wait for an asset to test the VWAP to the downside. After that, wait for the asset to close above the VWAP.
Then, you will look to buy above the high of the candle that closed above the VWAP.
The VMAP helps us cut through the noise generated by highs, lows, opening and closing alerts in addition to other candlestick formations.
It is very useful for matching price and volume to decide if we need to sell, buy or wait.
It is very important to keep in mind that its potential reaches its maximum when combined with other complementary indicators, including momentum indicators or the MACD.
Don't forget that we are just a click away. Stay in touch.
All the best in your trades, trader! See you soon.
For this article, prompts have been used to request information
interpreted and provided by AI (Google Bard). Written and edited
by Kevin David Terán and verified by Pedro Arizaleta and Erwin Sánchez