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 with 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:
Long setup:
- 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
Short setup:
- Stock price moves below a previous swing low
- Identify the confluence area between VWAP and 50% retracement level; sell a possible rejection of the confluence (buy/sell signal) level
According to Benzinga Pro, many popular or high volume stocks are nearing a VWAP breakout. We’ve gathered a list:
- GameStop Corp (NYSE:GME)
- Bed Bath & Beyond Inc (NASDAQ:BBBY)
- Lucid Group Inc (NASDAQ:LCID)
- Nikola Corp (NASDAQ:NKLA)
- Roku Inc (NASDAQ:ROKU)
- DocuSign Inc (NASDAQ:DOCU)
- Cleveland-Cliffs (NYSE:CLF)
- Marathon Digital Holdings Inc (NASDAQ:MARA)
- DatChat Inc (NASDAQ:DATS)
- Fisker Inc (NYSE:FSR)
- Datadog Inc (NASDAQ:DDOG)
- Palo Alto Networks Inc (NASDAQ:PANW)
- Newegg Commerce Inc (NASDAQ:NEGG)
- GoodRx Holdings Inc (NASDAQ:GDRX)
- Upstart Holdings Inc (NASDAQ:UPST)
- Moderna Inc (NASDAQ:MRNA)
- CrowdStrike Holdings Inc (NASDAQ:CRWD)
- SmileDirectClub Inc (NASDAQ:SDC)
- Affirm Holdings Inc (NASDAQ:AFRM)
- Minerva Neurosciences Inc (NASDAQ:NERV)
Photo courtesy of Fisker.
