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VWAP Indicator: Why and How to Use It?

If you have already tried at least some technical indicators, you know how much extra information they can provide in combination with charts. When you turn them on, the data gets more visualized and you can clearly and quickly determine whether you should open, hold, or close your positions. And, in today’s review, we will focus on one of the most universal indicators available — a VWAP indicator.

VWAP stands for volume-weighted-average-price. Hence, this indicator reflects the average value of certain security over a specified period, which is weighted by volume. Many experienced traders claim that, as it takes into account sales volume as an additional criterion, it is more accurate than a moving average indicator.

A VWAP indicator can provide you with the following trading signals, depending on your goals:

  • Buy. If you see that the current market value of an asset dropped below the line of this indicator, that means it is an advantageous moment to make a purchase. Some advanced traders can also make use of two VWAP indicators but set different parameters, for example, 5-period and 8-period. When the first line crosses the second one from below, that is a signal to buy the asset.
  • Sell. This works in the opposite direction — when the price of the asset selected rises higher than the VWAP line, that means you can sell it at a profit. Sure, you can add two indicators as described in the previous paragraph.
  • Resistance. When the market rate moves just below the line of the indicator but does not cross it for several periods, that is a sign of resistance.
  • Support. On the contrary, the market value fluctuates right above the line but does not break it as well.
  • Overbought level. The market price rises far above the line, which means it is time to go short.
  • Oversold level. The rate falls far below the line, which is a prompt to open a long position.

Besides, keep in mind that you can combine this indicator with others, for example, with a MACD indicator.

Where to get a VWAP indicator? The good news — you can download it for free from MQL5.

Where to use it? Luckily, today, the MT4 platform is supported by the overwhelming majority of brokers, but if you need our expert advice, we would single out RoboForex as it offers vast opportunities for passive trading, in addition to comfortable trading terms and a huge selection of indicators, expert advisors, charting instruments, order types.

To summarize, a VWAP indicator is an easy-to-understand instrument, which provides extremely precise information about the average price. So, it is definitely worth adding to your toolkit.