Beginners Guide to VWAP Part 3: Where to get VWAP & Setup Guide

A good quality VWAP

It is very important to have a good quality VWAP indicator which has all the functions you need.

The most important functions and features are:

  1.  VWAP (and its Deviations) are calculated correctly (there are many VWAPs around which have the calculation wrong).
  2.  VWAP is able to calculate the 1st and 2nd VWAP deviations.
  3.  You can switch between Daily/Weekly/Monthly and Yearly VWAP depending on your trading style (more about that later in the article).
  4.  Prints a line where the previous session of VWAP and Deviations ended.
  5.  You can use the VWAP for any trading instrument.
  6.  You can use the VWAP with any type of chart and with any time frame.

The VWAP indicator which I developed for NinjaTrader 8 platform has all those features.

Where to get a good VWAP?

You can get my VWAP indicator from my website, either as a part of The Elite pack (educational trading package) here: Dale’s Volume Profile Indicators and Education.

Or you can purchase it separately here: VWAP + VWAP Video Course.

My VWAP indicator has a lifetime license and you can use it on multiple computers.

Setting up your VWAP

With my VWAP indicator, you can choose between different calculation periods. This is especially useful because you can tailor the VWAP to fit exactly your needs.

You can can use those VWAP calculation periods: Daily, Weekly, Monthly, and Yearly.

Daily VWAP: Is ideal for scalpers and day traders. It’s calculation starts anew every day and it is very responsive to changes in price and volumes which occur during the day.

Weekly VWAP: This one is good for day traders as well as for more long-term swing traders. It is not as responsive to quick changes as the Daily VWAP, but it points you to the most important S/R zones which occur throughout the week.

Monthly VWAP: This one is best used for swing trading. It does not respond to sudden changes quickly, but rather points you to the big levels which you would miss with the more responsive VWAP.

Yearly VWAP: Is best used for swing trading and investment planning (for example with stocks). This one gives you the strongest VWAP levels of the year. It only responds to the most significant changes in price and volume which occur throughout the year.

A cool thing my software does is that you can combine those VWAPs. This way you can for example watch Daily VWAP but you won’t miss an opportunity on a Weekly VWAP.

You can combine them in one chart or in multiple charts. I personally prefer more charts – I will show you that below.

Intraday trading workspace

In my intraday trading workspace I use two VWAP charts.

The upper chart is a 60 Minute chart which shows the Weekly VWAP (= every week a new VWAP and Deviations start to calculate). I use this to see the bigger picture.

The lower chart on left is a 30 Minute chart with a Daily VWAP (= every day a new VWAP and Deviations start to calculate).

This way I can keep track of both VWAPs – Weekly and Daily. This gives me the full picture which I need to see in my intraday trading.

As you have probably noticed, I also have Volume Profile indicators in those charts. The upper chart is a Weekly Volume Profile (gets printed every week), and the lower left chart uses a Flexible Volume Profile.

This way, I can clearly see the confluences of VWAP and Volume Profile. I talked more about those confluences in my previous VWAP article here:

Beginners Guide to VWAP Part 2: VWAP Trading Setups

Swing trading workspace

My swing trading workspace is simple. I prefer to use only the Yearly VWAP (with Daily chart) which points me to the most important S/R areas that form during the whole year.

It looks like this:

I also have Volume Profile in this chart. I use Yearly Volume Profile (gets printed every year) and also a Flexible Volume Profile which I can move around the chart and look into specific areas to see how volumes were distributed there.

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BONUS

Here is a recording of a VWAP webinar I had recently. Enjoy!

Here are important and interesting questions I got during the webinar:

VWAP Webinar Q/A

I hope you liked this VWAP series and that you learned something new!

Stay safe and happy trading,

-Dale

Beginners Guide to VWAP Part 1: What is VWAP

VWAP DEFINITION:

VWAP stands for Volume Weighted Average Price. It is a trading indicator that shows where the “fair value” of the instrument is. It is calculated using PRICE and VOLUMES.

How does VWAP work?

WVAP is a simple line that shows on a price chart. It shows where the “fair value” of the trading instrument is.

If the price is above this line, then the instrument is overpriced and its price should drop back to the VWAP line.

If the price is below the line, then it is undervalued and it should move upwards back to the VWAP line.

How is VWAP different to EMA, SMA, and other standard Average indicators?

Standard indicators that show the average price (EMA, SMA, …) are calculated using two variables: PRICE and TIME.

VWAP brings VOLUME into the equation. It is calculated using three variables: PRICE, TIME and VOLUMES.

This is really important, because VOLUMES make all the difference!

Imagine two scenarios:

1. In the first one, the price moves upwards and many institutions are joining in and adding their longs to the buying rally. In this case, the VWAP line moves upwards.

2. In the second scenario, the price also moves upwards but there are no big volumes behind the move. There are no big guys pushing the price upwards. In this case the VWAP won’t move too much and the “fair value” will stay at the lower price levels.

None of the standard Average indicators is able to reflect this! The reason is simple – they don’t use VOLUMES in their calculation.

In the picture below, you can see that the price (and volumes) are shifting downwards. VWAP reflects that and the “fair value” moves downwards too.

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How to use VWAP in trading?

There are more ways how to trade using the VWAP. The simplest way comes from the logic, that the VWAP represents a “fair value” and that the price should always return to it.

Many trading algorithms work like this: they BUY when the price is BELOW VWAP, and they SELL when the price is ABOVE VWAP.

You can image VWAP as a magnet:

VWAP deviations

The VWAP indicator which I developed has also the option to calculate 1st and 2nd VWAP deviations. Those are standard deviations calculated from the VWAP and they are really useful. In fact, most of my VWAP trading strategies are based on deviations!

They look like this:

Deviations are calculated form VWAP, but they are a way more responsive to price and volume changes. For example, when a new trend starts to form then it will first show on Deviations.

This is the first way how to use Deviations:

Use VWAP deviations to identify TREND and ROTATION

When the Deviations move sideways (horizontally), then there is a ROTATION:

When the Deviations move upwards or downwards (vertically), then there is a TREND:

Sometimes, you can tell whether there is  ROTATION or  a TREND by just looking at the simple price chart. But there are cases when it is not so clear.

Let me explain:

A healthy trend needs to be volume driven. There needs to be big money behind the move (the big guys need to join the party). VWAP and its Deviations reflect that because they track VOLUMES . That’s why they are so good at revealing trends!

Use VWAP Deviations as Supports and Resistances

In my trading, I like to use the Deviations as Supports and Resistances. The price has nice reactions to them. Especially to the 1st Deviation, which I like to use the most in my trading strategies.

A good place for a Take Profit is the yellow VWAP line. The reason is that it works as a magnet – the price tends to return to it.

Are there any simple VWAP trading strategies I can learn?

Yes there are!

I will show you these strategies step-by-step in my next VWAP article here:

Beginners Guide to VWAP Part 2: VWAP Trading Setups

Where do I get VWAP?

You can get it as a part of my educational package called the Elite Pack, or you can purchase it separately at the bottom of this page:

Dale’s Volume Profile & VWAP Training

Happy trading!

-Dale

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