Volume-weighted average price or VWAP is the ratio of total volume traded divided by the total volume traded for a chosen time frame.
VWAP is an important indicator for intraday trading as it graphically tracks the average price of a stock, relative to the traded volume.
The goal of the indicator is to provide traders insight into a trend and the value of a security. Similar to moving averages, VWAP reflects a bullish sentiment when prices are above VWAP and bearish sentiment when prices are below VWAP.
This allows traders to identify support or resistance levels.
VWAP is calculated by multiplying the sum of the price by volume, divided by total volume. To break it down further, VWAP is the dollars traded for each transaction, multiplied by the number of shares traded, divided by the total shares traded.
Essentially, it helps a trader determine if they've chosen a good entry point, confirming a trend to buy or short.
Using it practically:
- Stock price moves above a previous swing high
- Identify the confluence area between VWAP and a 50% retracement level
- Buy a possible rejection of the confluence (buy/sell signal) level
- Stock price moves below a previous swing low
- Identify the confluence area between VWAP and the 50% retracement level
- Sell a possible rejection of the confluence (buy/sell signal) level
According to Benzinga Pro, these high volume stocks are nearing a VWAP breakout:
Southwestern Energy Company SWN
Yamana Gold Inc AUY
Tellurian Inc TELL
Kinross Gold Corporation KGC
Adapthealth Corp AHCO
Freshworks Inc FRSH
SM Energy Co SM
Nextier Oilfield Solutions Inc NEX
Kohl's Corporation KSS
Opko Health Inc. OPK
Transocean LTD RIG
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