Disclosure: Day trading is a high-risk investment strategy that requires thorough research and understanding of the associated risks. Please consider Webull's Day Trading Risk Disclosure.‌

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Why Use VWAP for Day Trading?

Volume weighted average price (VWAP) is a moving average that tracks the price value traded over the total volume on an intraday chart, meaning it plays a vital role in day trading.

Thanks to its easy operation and high quality, VWAP is favored by not only retail traders but also institutional traders and market makers. What makes it a valuable indicator is the combination of two overarching points of technical analysis—price and volume.

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How Is VWAP calculated?

VWAP is an average price that uses the cumulative result of the typical price of each trade times the volume of each trade, divided by the cumulative volume of a period during the day. The VWAP line is formed by connecting these average prices in a chart. To view a VWAP line on a graph, specify an intraday time interval you want the averages for. A 5-minute or 15-minute VWAP is widely used to illustrate trends in day trading.

• Typical price is the average of the high price, the low price, and the closing price of a candle.

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How Do We Apply VWAP?

The most popular way to use the VWAP indicator is to mix it with other indicators. The combination of VWAP and MACD is a common method for analyzing price trends together.

How Each Indicator is Individually Used

• VWAP:

If the VWAP line is below the price, it may indicate an upcoming bearish market. If the VWAP line is above the price, it may represent an upcoming bullish market.

• MACD:

When the MACD line crosses above the signal line, it’s considered a bullish signal and indicates that the price may change direction to the upside.

When the MACD line crosses below the signal line, it’s considered a bearish signal and indicates that the price may change direction to the downside.

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Matching the Signals of Each Indicator

When using the strategy of watching more than one indicator, the key is to try trading when the signals of both indicators match. The picture below shows how this strategy works:

Near the market opening, we get the first long signal that the MACD line makes a bullish crossover. Several minutes later, the price rises above the VWAP line. The signals of both indicators are consistent, and traders can opt to buy here. At 11:50, the third signal appears as a bearish crossover of the MACD line. Soon after, the price falls below the VWAP line bringing us a short signal. Investors may exit their long position here.

During 12:00-13:15, the price has been hovering around the VWAP line. The VWAP line generally plays the role of a support level. The price bounces above the VWAP line at 13:25 and we get the fifth signal, which is a long signal. Investors could buy here since the sixth signal of MACD confirms the long signal, and then stay in the trade until the next short signals match.

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How to Set VWAP Indicator on the Webull App?

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The Bottom Line

VWAP is a handy technical indicator that takes both price and volume into account. Investors could employ it to identify prime entry and exit points in tandem with other indicators like Bollinger Bands, and MACD. Tap here to try your trading strategy in paper trading>>>

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Data disclaimer: Technical analysis data and indicators are provided by Trading Central. Trading Central is a separate entity, unaffiliated with Webull Financial. Webull is not responsible for the accuracy or completeness of data provided by Trading Central. All data are provided for informational purposes only, and are not intended, and should not be construed, as investment advice or recommendations.