NinjaTrader VWAP: Understanding the Volume-Weighted Average Price

You need to understand various methods to strategize your trading if you are a regular trader. You need to learn the best possible way to ensure your profit. There are many components responsible for better trading. And one of them is Volume-

Weighted Average Price. Some companies develop automated VWAP for traders. NinjaTrader VWAP is a measurement tool used for technical analysis of an average security price over a trading period.

What is the Volume-Weighted Average Price?

An intraday chart technical analysis indicator that resets at the beginning of each new trading session is the volume-weighted average price (VWAP).

It is a benchmark for trading that shows the daily average price at which a security has traded in terms of volume and price.

VWAP is significant since it gives traders access to pricing information on a security's movement and value.

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Understanding the VWAP

VWAP is computed by adding up all of the dollars traded for each transaction (price times volume), divided by the overall number of shares moved.

VWAP = Cumulative Typical Price x Volume/Cumulative Volume

Where Typical Price = High price + Low price + Closing Price/3

Cumulative = total since the trading session opened

How to Calculate VWAP

The computation will be performed automatically when the VWAP indicator is added to a streaming chart. However, use the techniques listed below to compute the VWAP.

A 5-minute chart is assumed. Whatever intraday time range is used, the calculation remains the same.

●       Find the stock's average price for the first five minutes of the day. Add the high, low, and close, then divide by three to get this. This is multiplied by the volume for that period. In a spreadsheet, note the outcome in column PV.

●       Subtract PV from the volume for that time. The VWAP will result from this.

●       Continue adding the PV value from each period to the earlier values to maintain the VWAP throughout the day. By the volume up to that point, divide this total.

How Is VWAP Used?

Traders employ VWAP in many ways. VWAP can be used by traders to confirm trends and to create trading rules. For instance, they might view equities as undervalued or overvalued depending on whether their prices are below or above VWAP. Investors may buy the stock if prices fall below VWAP and rise above it. They might sell their positions or start shortly if prices above VWAP move below them.

VWAP enables institutional buyers, including mutual funds, to enter or exit the stock market with the least amount of market impact feasible. Institutions will, therefore, likely buy below the VWAP or sell above it whenever possible. In doing so, they move the price back toward the average rather than away from it.

Parting Thought

If you are looking for automated trading solutions, you need to adapt to all the necessary components. You can rely on the computerized solutions provided by various companies, but knowing them will help you a better trade. So get an automated VWAP system from NinjaTrader.

 

Source - https://penzu.com/p/e0d6c794