Chart Decoder Series: VWAP – The Market’s Truth Detector
Main Idea
VWAP (Volume Weighted Average Price) is a key trading indicator that helps traders determine if they are overpaying or getting a better deal by showing the average price weighted by volume, and it is most effective when combined with other indicators like RSI and volume.
Key Points
1. VWAP calculates the average price of an asset weighted by trading volume, giving more importance to prices with higher volume.
2. Price above VWAP indicates bullish momentum, while price below VWAP suggests a better deal or bearish pressure.
3. VWAP is commonly used by large traders as a benchmark and often acts as dynamic support or resistance.
4. Combining VWAP with other indicators (e.g., RSI, volume, support/resistance) enhances its effectiveness in trading strategies.
5. VWAP resets daily, making it a short-term tool, and it may lag during extreme volatility or low-volume conditions.
Description
Welcome back to the Chart Decoder Series, where we break down the tools that separate casual traders from the pros. You’ve already mastered trend identification (SMA/EMA) , momentum shifts (MACD) , overbought/oversold zones (RSI) , volatility extremes (Bollinger Bands) , and r eversal timing (Stochastic) . Now it’s time for VWAP, the indicator that cuts through the noise and tells you one simple thing: Are you overpaying? What is VWAP? VWAP stands for Volume Weighted Average Price. It shows you ...
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