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  • Trading The VWAP

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    Alex Iga
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    The VWAP (volume weighted average price) acts as a magnet that price often moves towards due to liquidity. In a range-bound market, counter-trend trades can target the VWAP by entering when price deviates from the VWAP and exiting at the VWAP. Even in a trending market, the VWAP can provide entries that ride the trend. Additionally, the previous session's VWAP close is an important level, as price hits it 72% of the time in the following session due to leftover liquidity. A strategy uses this by only entering if the previous close was a certain distance from the VWAP and placing stops and takes based on standard deviation bands.

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    The VWAP (volume weighted average price) acts as a magnet that price often moves towards due to liquidity. In a range-bound market, counter-trend trades can target the VWAP by entering when price deviates from the VWAP and exiting at the VWAP. Even in a trending market, the VWAP can provide entries that ride the trend. Additionally, the previous session's VWAP close is an important level, as price hits it 72% of the time in the following session due to leftover liquidity. A strategy uses this by only entering if the previous close was a certain distance from the VWAP and placing stops and takes based on standard deviation bands.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    180 views5 pages

    Trading The VWAP

    Uploaded by

    Alex Iga
    The VWAP (volume weighted average price) acts as a magnet that price often moves towards due to liquidity. In a range-bound market, counter-trend trades can target the VWAP by entering when price deviates from the VWAP and exiting at the VWAP. Even in a trending market, the VWAP can provide entries that ride the trend. Additionally, the previous session's VWAP close is an important level, as price hits it 72% of the time in the following session due to leftover liquidity. A strategy uses this by only entering if the previous close was a certain distance from the VWAP and placing stops and takes based on standard deviation bands.

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    © All Rights Reserved
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    of 5

    Trading the VWAP

    By Lumas from Bitcoin Heroes

    What is the VWAP?


    The session VWAP or the volume weighted average price is an excellent trading tool that I
    believe is misused and underutilised by many traders. I see a lot of traders using the VWAP
    as a S/R level, although yes the session VWAP can be a S/R level this is not the most
    profitable way to trade it in my opinion. The VWAP is better used as a magnet to take trades
    towards, but of course this is dependent on the environment you are trading in. We know in
    the futures market (especially in crypto) it is a liquidity driven market, price often moves
    towards points of high liquidity as it allows bigger players to easily fill orders. Throughout the
    day the VWAP acts as a high liquidity zone as a lot of trading activity occurs around it.
    VWAP in range bound environment
    Counter trend trading using the VWAP is very useful in a range bound environment. In a
    range bound environment we can countertrade price action as it devativates away from the
    VWAP and target the VWAP as the take profit point for the trade. VWAP standard deviations
    are very useful for this as it gives you perspective on how far price has gone away from the
    VWAP in relation to the price action of the current session you are trading. They act as great
    points of interest for reversals and give clear take profits and stop losses. For example, entry
    on second deviation , stop loss on third deviation, take profit 1 at first deviation, take profit 2
    at VWAP.
    VWAP in trending environment
    I find the VWAP in a trending environment far less useful however you can still use it to get
    entries into the current trend like so.
    VWAP closes and opens
    As a new session starts, so does a new VWAP. A fresh VWAP is practically useless because
    it hasn't had enough data to fully develop yet. That's why on the opening of a new session
    the VWAP close of the previous session is still an important level as the majority of activity
    still lies there on the onset of the new session. Price often seeks out that left over liquidity
    from the previous session. From 219 days of backtesting, the likelihood of price hitting the
    VWAP close of the previous session in the following one is 72%. This is very important stat
    to keep in mind and can be improved on further.
    VWAP close strategy
    Knowing that now 72% of the time the VWAP close is hit in the next session, we can build
    upon this to create a very nice strategy. Through backtesting I found that most failed touches
    happen consecutively and the best trades occur when price closes a decent distance away
    from VWAP at close. Rules for strategy:

    -If the VWAP close was not hit in previous session don't expect it to be hit in the current
    session don't look for a counter trend trade back towards the VWAP close. Trade is
    invalidated.

    -If price is in the 2nd or 3rd standard deviation band at the close of a session then setup is
    valid. The move towards the VWAP often start on the session open so on session open you
    could theoretically open trade have stop loss placed at the high of the 3rd SD band of
    previous session and take profits as the SD band closes towards the VWAP.

    Here is an example of how you would of traded the past few days know this knowledge and
    applying strategy.
    https://www.tradingview.com/x/1L91v9SE/

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