VWAP - a friend of MACD

VWAP stands for Volume Weighted Average Price. It’s one of the most popular intraday indicators used by professional day traders, algorithms, and institutions to gauge the average price a stock has traded at throughout the day, based on both price and volume.

Formula:

VWAP = ∑(Price×Volume) / ∑Volume

Where:

• Price = (High + Low + Close) / 3 for each candle/bar

• Volume = Trading volume for that bar

Why VWAP Matters to Day Traders:

Role	How VWAP Helps
Entry Timing	Used to enter trades below VWAP for long and above VWAP for short, assuming mean reversion.
Institutional Insight	Many funds and algos try to buy at or below VWAP to avoid moving the market.
Support/Resistance	VWAP often acts as a dynamic S/R level throughout the session.
Trend Confirmation	Price above VWAP = bullish bias, below VWAP = bearish bias.

Example:

Imagine a stock starts the day at $100 and fluctuates heavily:

• Total volume traded: 1,000,000 shares

• Average VWAP by midday: $102.50

• If price is now $105, traders may consider it overextended and wait for a pullback to VWAP for an entry.

Day Trading Strategies with VWAP:

1. VWAP Bounce (Reversion Trade)

   • Price pulls back to VWAP → Buy if it holds support.

2. VWAP Breakout (Momentum Trade)

   • Price consolidates under VWAP → Breakout + volume = long signal.

3. VWAP Fade (Contrarian Trade)

   • Price moves too far from VWAP early → Mean reversion expected.

Tips:

• VWAP resets daily. It’s only for intraday use.

• Best used with 1-min to 5-min candles.

• Combine it with volume spikes, price action, or MACD for better confirmation.