What is the volume weighted average indicator?
Key takeaways
- VWAP, the volume-weighted average price indicator, is used to measure the weighted average price by quantity.
- The VWAP indicator is usually used together with intraday charts.
- If the stock price is running above VWAP, it indicates that the current stock price is in an upward trend.
Conceptual Understanding
The Volume-Weighted Average Price (VWAP) is a technical analysis tool used to measure the weighted average price by quantity.
How to Calculate VWAP
The basic formula for calculating VWAP is as follows:
VWAP = ∑ (typical price * volume) / ∑ volume
where the typical price = (high + low + close) / 3
How to Use VWAP
The VWAP indicator is usually used together with intraday charts to confirm the basic trend of intraday prices.
The volume-weighted average price indicator is similar to a moving average line.
If the stock price is running above VWAP, it indicates that the current stock price is in an upward phase; if the stock price falls below VWAP and runs below it, it indicates that the current stock price is in a downward phase.
Summary.
The VWAP indicator can show the average price of assets considering trade volume over a specific period. However, VWAP is a lagging indicator, which means it does not have predictive power over prices. Therefore, many investors use it as a tool for intraday analysis.
