Understanding the VWAP 5 Filter
Our VWAP 1, 2, 3, 4 and 5 filters provide the 5 anchored VWAP values in dollars.
The VWAP 5 filter refers to the Volume Weighted Average Price calculated over a specific period. In this case, over the last trading week. VWAP is a trading benchmark that gives the average price a stock has traded at throughout the trading day, weighted by volume.
Here's how the VWAP 5 filter works:
Calculation of VWAP: VWAP is calculated by multiplying the price of each trade by the volume of that trade, summing up these values, and dividing the total by the cumulative volume traded over the period. In the case of VWAP 5, it represents the VWAP over the last trading week.
Application in Trading: Traders use VWAP 5 as a reference point to assess the average price levels at which significant trading activity has occurred over the last 5 trading days.
Intraday Analysis: While VWAP is typically calculated throughout the trading day, VWAP 5 provides a longer-term perspective on the average price weighted by volume over the last 5 trading days. Traders can monitor VWAP 5 throughout the current trading day to gauge price levels relative to this longer-term average.
VWAP 5 Filter Settings
The settings of each Trade Ideas filter are defined in the Window Specific Filters Tab located in the Configuration Window of your Alert/Top List Window.
Here is how to setup the filter in your configuration window:
- Set the min value to $5 and the max value to $20 to filter for stocks with a VWAP within the range of $5 to $20 over the past trading week.
Using the VWAP 5 Filter
Several trading strategies can be employed with the VWAP 5 filter. Here are a few examples:
Breakout Trading: Breakout traders can use the VWAP 5 filter to identify breakout opportunities. If the current price breaks out above or below the VWAP 5 level with significant volume, it may signal the beginning of a new trend. Traders can enter long positions on bullish breakouts above the VWAP 5 and short positions on bearish breakouts below it.
Pullback Trading: Pullback traders may use the VWAP 5 filter to identify potential pullback opportunities within the trend. If the price retraces towards the VWAP 5 after a strong move in the trend direction, it may offer a favorable entry point. Traders can enter positions on pullbacks, anticipating the resumption of the prevailing trend.
Scalping: Short-term traders can use the VWAP 5 filter to scalp intraday price movements. By entering and exiting positions quickly based on deviations from the VWAP 5, traders can capture short-term profits from rapid price fluctuations within the trading session.
FAQs
What is VWAP, and how is the VWAP 5 filter calculated?
- VWAP is a trading indicator that represents the average price a security has traded at throughout the day, weighted by volume. The VWAP 5 filter calculates the VWAP over the past five trading days for each stock. It is calculated by multiplying the price of each trade by the volume traded and dividing the sum by the total volume traded over this five-day period.
What does it mean if a stock's current price is above or below the VWAP 5?
- If a stock's current price is above the VWAP 5, it indicates that the stock's current price is trading above the average price it has traded at over the past five days. Conversely, if the current price is below the VWAP 5, it indicates that the stock's price is trading below the five-day average.
How can traders use the VWAP 5 filter in their trading strategies?
- Traders can use the VWAP 5 filter in various trading strategies, such as trend confirmation, mean reversion, breakout trading, volume confirmation, pullback trading, and scalping. By analyzing stocks' positions relative to the VWAP 5, traders can identify potential entry or exit points and make informed trading decisions.
FAQs
VWAP is calculated by multiplying the typical price by volume and then dividing by total volume. A simple moving average incorporates price but not volume. The SMA is calculated by totaling closing prices over a certain period (say 10 days) and then dividing the total by the number of periods (10).
Is the VWAP indicator accurate? ›
Since it uses historical data, it is a lagging indicator. Although some traders still consider the VWAP to be fairly accurate, it may be prudent to use it with other technical tools to ensure that your trading strategy is on the level.
What is the best indicator to use with VWAP? ›
As with some other indicators, VWAP might be more effective when combined with another indicator like the Relative Strength Index (RSI) or moving averages. VWAP is a dynamic indicator calculated for one trading day. On a daily chart, the VWAP line alone might be used to identify potential trends and price reversals.
How do I find my 5 day VWAP? ›
The VWAP 5 filter calculates the VWAP over the past five trading days for each stock. It is calculated by multiplying the price of each trade by the volume traded and dividing the sum by the total volume traded over this five-day period.
Is VWAP a lagging indicator? ›
The Significance of VWAP
Since the VWAP calculation is based on historical data it is still considered a lagging indicator, but that doesn't stop traders from using this measure to establish support and resistance levels suitable for intraday trading.
What is a VWAP example? ›
For example, if the cumulative volume for the day is 78, then using the VWAP formula [(typical price * volume) / cumulative volume], the VWAP for the day can be computed as: 353.33 / 78, which equals 4.53. Investors can compute the VWAP for every data point in the stock chart by calculating it for each period.
What is the success rate of VWAP? ›
Applying VWAP in 5-minute day trading alongside a Heikin Ashi chart delivered outstanding success, outperforming 93% of stocks with a buy-and-hold strategy. Despite a modest 29% win rate, the 4.1 reward/risk ratio translated into success across almost all stocks.
What is the best timeframe to use VWAP? ›
Typical Timeframes
A 5-minute or 15-minute VWAP is typical when trading intraday to illustrate the trend.
What is the most accurate volume indicator? ›
6 of the Best Volume Indicators
- VWAP – Volume-Weighted Average Price. ...
- Volume-Weighted Moving Average (VWMA) ...
- Money Flow Index (MFI) ...
- Accumulation and distribution indicator (A/D) ...
- Klinger Oscillator. ...
- On Balance Volume (OBV)
General Strategies
If the price is above VWAP, it is a good intraday price to sell. If the price is below VWAP, it is a good intraday price to buy. However, there is a caveat to using this intraday. Prices are dynamic and what appears to be a good price at one point in the day may not be by day's end.
Unlike the traditional Volume Weighted Average Price (VWAP), which resets daily and provides the average price of a security within a single trading day, the Anchored VWAP provides a more flexible view by allowing traders to set an anchor point from which the calculation begins.
Are VWAP and MACD the same? ›
The Volume Weighted Average Price (VWAP) indicator is based on price and volume, unlike the moving average price indicator, which only takes prices into account, not volume.
How to read VWAP indicator? ›
A VWAP indicator tells the investors and the traders if the market is bearish or bullish. If the stock price falls below the VWAP, the market is considered bearish, and if it goes above the VWAP, it indicates the market's bullishness.
What is the 5 day average VWAP? ›
Five-Day VWAP means the VWAP for the immediately preceding five consecutive Trading Days. Five-Day VWAP means the arithmetic average of the Volume Weighted Average Price for the five consecutive Trading Days ending two Trading Days prior to the applicable Conversion Date.
Is VWAP good for swing trading? ›
If price is trading above VWAP and comes back to it, a short-term trader might look for it to act as support. If price is trading below VWAP and trades back up into it, a short-term trader might look for it to act as resistance. Swing and position traders use the VWAP in the same way as a moving average.
How do you calculate a 5 day weighted moving average? ›
That factor is equal to the number of days past the first day used in the Moving Average so that today's weight factor is the greatest, while the first day's factor is equal to 1. The total is then divided by the sum of the factors, for example, for the 5-day Weighted moving average, it is equal to 5+4+3+2+1=15.
What is the five day Volume Weighted Average Price? ›
Five-Day VWAP means the VWAP for the immediately preceding five consecutive Trading Days. Five-Day VWAP means the arithmetic average of the Volume Weighted Average Price for the five consecutive Trading Days ending two Trading Days prior to the applicable Conversion Date.
How do you calculate weighted average pricing? ›
The investor can calculate a weighted average of the share price paid for the shares. To do so, multiply the number of shares acquired at each price by that price, add those values, then divide the total value by the total number of shares.
What is the formula for volume weighted moving average? ›
The Volume Weighted Moving Average (VWMA) is calculated by taking the sum of the product of volume and price over a period of time and dividing it by the total volume for that period.
