There are many ways to use VWAP propperly and NONE of them are after gaps up or down--
For swing traders it's very helpful.
How to Trade With VWAP
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.
Support/Resistance
One of the simplest uses of the VWAP is gauging support and/or resistance. It’s a simple line (VWAP) that acts as a support if the stock is trading above it and a resistance if the stock is trading below it. The direction of the VWAP line is the indication of the trend thereby using it as a de facto trend line.
Entry and Exit Levels
One trader’s support is another trader’s resistance. In other words, a trader who is long a stock can use the VWAP as a target exit if its trading below. Traders looking to take a long position can wait for the stock to breakout through the VWAP for longs or pullback and bounce off VWAP on pullbacks. The VWAP makes for a great entry and exit area. If you also have the accompanying higher and lower envelopes, these can be used for entries back towards the VWAP.
Gauge Relative Strength
A stock trading over intraday VWAP may be bullish, while a stock trading under may be bearish. A quick glance at the chart immediately provides you a gauge of relative strength or weakness. When you combine the VWAP reading for benchmark indexes and peer stocks, it enables you to compare and gauge whether your stock is exhibiting relative strength or weakness. It also enables you to think through your trade more thoroughly. For example, shorting a stock that is uptrending and trading above its VWAP makes it susceptible to a short-squeeze as you are trading against the trend. Whereas, shorting a stock that is downtrending and trading below the VWAP enables you to trade the relative weakness aligned with the trend.
Trade VWAP Price Crosses
When the underlying stock price crosses the VWAP up from below, it can represent a breakout. This can be a signal to go long the stock. If a stock falls below the VWAP, it could signal a short-sell trade as it breaks down. The VWAP also makes for a good stop area if the support is broken. For example, you may plan on entering XYZ on a breakout through $27.10 which is the VWAP and place a trail stop $0.20 below the VWAP. This enables you to devise a quantifiable game plan for your trade. Remember, the VWAP works best when combined with complementary indicators, especially momentum indicators.
For swing traders it's very helpful.
How to Trade With VWAP
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.
Support/Resistance
One of the simplest uses of the VWAP is gauging support and/or resistance. It’s a simple line (VWAP) that acts as a support if the stock is trading above it and a resistance if the stock is trading below it. The direction of the VWAP line is the indication of the trend thereby using it as a de facto trend line.
Entry and Exit Levels
One trader’s support is another trader’s resistance. In other words, a trader who is long a stock can use the VWAP as a target exit if its trading below. Traders looking to take a long position can wait for the stock to breakout through the VWAP for longs or pullback and bounce off VWAP on pullbacks. The VWAP makes for a great entry and exit area. If you also have the accompanying higher and lower envelopes, these can be used for entries back towards the VWAP.
Gauge Relative Strength
A stock trading over intraday VWAP may be bullish, while a stock trading under may be bearish. A quick glance at the chart immediately provides you a gauge of relative strength or weakness. When you combine the VWAP reading for benchmark indexes and peer stocks, it enables you to compare and gauge whether your stock is exhibiting relative strength or weakness. It also enables you to think through your trade more thoroughly. For example, shorting a stock that is uptrending and trading above its VWAP makes it susceptible to a short-squeeze as you are trading against the trend. Whereas, shorting a stock that is downtrending and trading below the VWAP enables you to trade the relative weakness aligned with the trend.
Trade VWAP Price Crosses
When the underlying stock price crosses the VWAP up from below, it can represent a breakout. This can be a signal to go long the stock. If a stock falls below the VWAP, it could signal a short-sell trade as it breaks down. The VWAP also makes for a good stop area if the support is broken. For example, you may plan on entering XYZ on a breakout through $27.10 which is the VWAP and place a trail stop $0.20 below the VWAP. This enables you to devise a quantifiable game plan for your trade. Remember, the VWAP works best when combined with complementary indicators, especially momentum indicators.
