VWAP Bands [TradingFinder] 26 Brokers Data (Forex + Crypto)

8 ago

🔵Introduction

Indicators are tools that help analysts predict the price trend of a stock through mathematical calculations on price or trading volume. It is evident that trading volume significantly impacts the price trend of a stock symbol.

The Volume-Weighted Average Price (VWAP) indicator combines the influence of trading volume and price, providing technical analysts with a practical tool.

This technical indicator determines the volume-weighted average price of a symbol over a specified time period. Consequently, this indicator can be used to identify trends and entry or exit points.


🟣Calculating the VWAP Indicator

Adding the VWAP indicator to a chart will automatically perform all calculations for you. However, if you wish to understand how this indicator is calculated, the following explains the steps involved.

Consider a 5-minute chart. In the first candle of this chart (which represents price information in the first 5 minutes), sum the high, low, and close prices, and divide by 3. Multiply the resulting number by the volume for the period and call it a variable (e.g., X).

Then, divide the resulting output by the total volume for that period to calculate your VWAP. To maintain the VWAP sequence throughout the trading day, it is necessary to add the X values obtained from each period to the previous period and divide by the total volume up to that time. It is worth noting that the calculation method is the same for intervals shorter than a day.

The mathematical formula for this VWAP indicator: VWAP = ∑ (Pi×Vi) / ∑ Vi






🔵How to Use

Traders might consider the VWAP indicator as a tool for predicting trends. For example, they might buy a stock when the price is above the VWAP level and sell it when the price is below the VWAP.

In other words, when the price is above the VWAP, the price is rising, and when it is below the VWAP, the price is falling. Major traders and investment funds also use the VWAP ratio to help enter or exit stocks with the least possible market impact.

It is important to note that one should not rely solely on the VWAP indicator when analyzing symbols. This is because if prices rise quickly, the VWAP indicator may not adequately describe the conditions. This indicator is generally used for daily or shorter time frames because using longer intervals can distort the average.

Since this indicator uses past data in its calculations, it can be considered a lagging indicator. As a result, the more data there is, the greater the delay.

🟣Difference Between VWAP and Simple Moving Average

On a chart, the VWAP and the simple moving average may look similar, but these two indicators have different calculations. The VWAP calculates the total price considering volume, while the simple moving average does not consider volume.

In simpler terms, the VWAP indicator measures each day's price change relative to the trading volume that occurred that day. In contrast, the simple moving average implicitly assumes that all trading days have the same volume.

🟣Reasons Why Traders Like the VWAP Indicator

1. The VWAP Considers Volume: Since VWAP takes volume into account, it can be more reliable than a simple arithmetic average of prices. Theoretically, one person can buy 200,000 shares of a symbol in one transaction at a single price.
   
   However, during the same time frame, 100 other people might place 200 different orders at various prices that do not total 100,000 shares. In this case, if you only consider the average price, you might be mistaken because trading volume is ignored.
   
   
2. The Indicator Can Help Day Traders: While reviewing your trades, you might notice that the shares you bought at market price are trading below the VWAP indicator.
   
   In this case, there's no need to worry because with the help of VWAP, you always get a price below the average. By knowing the volume-weighted average price of a stock, you can easily make an informed decision about paying more or less than other traders for the stock.
   
   
3. VWAP Can Signal Market Trend Changes: Buying low and selling high can be an excellent strategy for individuals. However, you are looking to buy when prices start to rise and sell your shares when prices start to fall.
   
   Since the VWAP indicator simulates a balanced price in the market, when the price crosses above the VWAP line, one can assume that traders are willing to pay more to acquire shares, and as a result, the market will grow. Conversely, when the price crosses below the line, this can be considered a sign of a downward movement.
   

🔵Setting

Period: Indicator calculation time frame.
Source: The Price used for calculations.
Market Ultra Data: If you turn on this feature, 26 large brokers will be included in the calculation of the trading volume.
The advantage of this capability is to have more reliable volume data. You should be careful to specify the market you are in, FOREX brokers and Crypto brokers are different.
Multiplier: Coefficient of band lines.