VWAP Calculator (2024)

FAQs

What is the success rate of VWAP trading? ›

VWAP Backtesting Results

I conducted a VWAP test on the Dow Jones Industrial Average's 30 stocks across 68 days with 400 trades. The Volume Weighted Average Price (VWAP) indicator didn't yield profits for day traders using standard candlestick/OHLC charts, resulting in a 30% win rate.

VWAP is calculated using the cumulative total of the price of each trade, multiplied by the volume of that trade, and then divided by total volume traded for the day. A trader can plot VWAP on thinkorswim^® charts without using the formula.

There are many ways to trade with the VWAP. Again, it works best when combined with other complementary indicators including momentum indicators like MACD or stochastic.

The VWAP is used by traders to evaluate price and volume to determine entry and exit points. It can also be used to whether there are any trends or overlying sentiments in the market. It isn't bullish or bearish on its own. Rather, it points to a bullish trend if prices and volumes rise and bullish if they drop.

It is primarily based on historical data and may not predict future market movements with 100% accuracy. Additionally, the VWAP is most effective during regular trading hours when volume is high. It may be less reliable during pre-market or after-hours trading when volume is low.

In the example below, we use the 5-minute time frame and enter if price is at least 1.5% below the VWAP. We're looking to play a very quick bounce here, so we exit 1 candle later and we get a return of 3.52% over the time period tested. This beats all of the 5-minute bullish strategies that we tested above.

VWAP can advise traders on whether they should engage in active or passive trade execution. It acts as an important reference point by offering insight into the average perceived value of a security which aids in discerning the day's overall market sentiment towards that stock along with its typical price range.

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.

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.

The 30-day VWAP is equivalent to the average of the daily VWAP over a 30-day period. So, to calculate the 30-day VWAP, you would have to add up the daily closing VWAP for each day, then divide the total by 30.

What is the formula for rolling VWAP? ›

The formula for VWAP is:VWAP = (Sum(price * volume) for all trades within the time period) / (Total volume traded within the time period) Moving Average: The VWAP is typically calculated for a rolling time window, such as a day, week, or month.

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.

Importance of Volume Weighted Average Price

The market is bearish when the price is below the VWAP and bullish if the price is above the VWAP. During a bullish market, there will be an increase in the buying price, and the trend line on the chart will move upward.

Win Rate: 27.33%

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.

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.