First let’s look at Day Trading: Day Trading is where we buy/sell options within the same day usually in a short period of time which may be within minutes, or hours. An individual can day trade any stock or ETF desired, and we do not need to use today’s expiration in order to successfully day trade. In day trading we are looking for movements towards, and/or away from the mean (average price). One of the best and most accurate average prices of a security is considered to be the VWAP.
The VWAP (volume weighted average price) is a technical indicator used on intraday charts because it resets at the start of the morning session and continues throughout the day.
The VWAP is calculated from the total dollars used for every transaction (using price multiplied by volume and then dividing that amount by the total number of shares traded). Thus, it is called the Volume Weighted Average Price.
VWAP can be displayed as a line, similar to a moving average line, although it can also be changed on a chart to a chain-like dashed line, or something that fits your eye in a more efficient visual manner?.
Since the VWAP combines price and volume together, many traders consider it to be more representative of the “true average value” of the stock (ETF) price.
The VWAP can be placed on a chart in order to visually see the difference between current EMA price movement and the more static VWAP. We frequently talk about price being extended up and then coming back to the mean (VWAP). In trading then, we would be watching the VWAP as representing the “mean” and find that the moving price (using EMA) does move away from and back to that level frequently (much like a rubber band trade effect moving up and away, or down and away using the VWAP as the median price). All stocks move up, down, or sideways, and it is that movement we want to capture for our trades.
Some traders use the VWAP as a trading point, i.e., going long when price is below the VWAP, or going short when price is above the VWAP. In this scenario, the VWAP is acting as “home base” or “the mean” for the day trader.
Because we believe that good trading principles represent the use of multiple factors, the VWAP could easily become one of these factors, but not usually used in isolation.
A major benefit of the VWAP is that it is calculated from the open of the market until its close. Using it we can see price and volume action unfolding in real time throughout the day and, who knows, it might become an added tool for trading purposes. REMEMBER: This is not the only tool but is one used in conjunction with other indicators to determine proper direction changes..
Using the search engine on this useThinkScript site will take you to several examples of the VWAP. Stay tuned though, as I might soon update one of my charts and add the VWAP as the major “home base or mean” for trading purposes.
The VWAP (volume weighted average price) is a technical indicator used on intraday charts because it resets at the start of the morning session and continues throughout the day.
The VWAP is calculated from the total dollars used for every transaction (using price multiplied by volume and then dividing that amount by the total number of shares traded). Thus, it is called the Volume Weighted Average Price.
VWAP can be displayed as a line, similar to a moving average line, although it can also be changed on a chart to a chain-like dashed line, or something that fits your eye in a more efficient visual manner?.
Since the VWAP combines price and volume together, many traders consider it to be more representative of the “true average value” of the stock (ETF) price.
The VWAP can be placed on a chart in order to visually see the difference between current EMA price movement and the more static VWAP. We frequently talk about price being extended up and then coming back to the mean (VWAP). In trading then, we would be watching the VWAP as representing the “mean” and find that the moving price (using EMA) does move away from and back to that level frequently (much like a rubber band trade effect moving up and away, or down and away using the VWAP as the median price). All stocks move up, down, or sideways, and it is that movement we want to capture for our trades.
Some traders use the VWAP as a trading point, i.e., going long when price is below the VWAP, or going short when price is above the VWAP. In this scenario, the VWAP is acting as “home base” or “the mean” for the day trader.
Because we believe that good trading principles represent the use of multiple factors, the VWAP could easily become one of these factors, but not usually used in isolation.
A major benefit of the VWAP is that it is calculated from the open of the market until its close. Using it we can see price and volume action unfolding in real time throughout the day and, who knows, it might become an added tool for trading purposes. REMEMBER: This is not the only tool but is one used in conjunction with other indicators to determine proper direction changes..
Using the search engine on this useThinkScript site will take you to several examples of the VWAP. Stay tuned though, as I might soon update one of my charts and add the VWAP as the major “home base or mean” for trading purposes.
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