Use of VWAP Trading

 VWAP shows who is in control

 VWAP can determine the market trend at opening
 VWAP act as support and resistance
VWAP shows who is in control

VWAP is an indicator, it indicates who is in control of the price (the buyers or the
sellers). When a stock is traded above the VWAP, it means that the buyers are in
overall control of the price and there is a buying demand on the stock. When a stock
price breaks and close below the VWAP, it is safe to assume that the sellers are
gaining control over the price.

1. If VWAP is rising then it shows buyers in control

2. If VWAP is falling it shows sellers in control
3. If VWAP is flat then it indicates no one is controlling the market, price in a
trading range
Used as Support and Resistance

Smart Money Buy below vwap and sell above the vwap if a large order came to
market then they buy from VWAP, so when price unable to close below vwap and
getting rejected from vwap and create a shadow or engulfing or outside bar this
confirms the support and resistance

Price action and volume confirm the support and resistance

VWAP USED TO DETERMINE THE MARKET TREND

Observations

1. For bullish trend days, the market stays above the VWAP.
2. For bearish trend days, the market stays below the VWAP.
3. For ranging sessions, the market stays around the VWAP which remains
more or less flat.
TRENDING SESSION

Step1: Look for at least 2/3 candle in the same direction

Step2: When first-time price approaching VWAP, Look for a push away from the
VWAP(the price should not stall at vwap)
Step3: Observe if that push enjoys follow-through or is rejected back to the VWAP
level from last swing high for an uptrend or last swing low for a downtrend

If they push away from the VWAP has good follow-through, assume a trending
session. You can then consider momentum trades in the direction of the trend. If the
market rejects the push away back to the VWAP, assume a sideways session.
Consider taking mean-reversion trades in this case.

8
RANGING SESSION

A quote from James Dalton’s Mind over Markets: “Many knowledgeable

professionals estimate that markets trend only 20 to 30 percent of the time. Failure
to recognize this fact is one of the main reasons why a large number of traders don’t
make money”. It is very important not to trade if there is no trend or no movements.
Trading in a range only works if the range is large enough.

Smart money buys below vwap and pushes above vwap, then when price retrace to
vwap see PA around vwap for continuous of existing trend or range market, If the
market rejects the push away back to the VWAP, assume a sideways session.

The characteristics of sideways markets are

 Price often near VWAP, Point of Control or other equilibrium prices

 Price stays the whole day in the opening range (the span of the first hourly
candle)
 Inside- and outside-candles near each other
 Many crossings of VWAP
 High and low of the day hold though out the day
VWAP REVERSAL ENTRY

VWAP REVERSAL FOR UPTREND

Rule

 The previous day should be a trend UP day

 Price should not close below last swing low
 Price should close above the VWAP
 Look weakness for morning move into previous days VWAP (PVWAP) level
 Faster the better
 The volume also important(prefer low volume move)
 Current day(ONE FIVE MINUTE) price should not close below the previous
day VWAP(PVWAP)
 Take the trade only if I can get a good entry and a good risk/reward ratio.
Reverse for downtrend

ENTRY PROCESS

Step1: find the stock in a clear trend up (HH/HL) or trend down(LH/LL)

Step2: Weak retracement move towards PVWAP
Step3: When the first time price approaching VWAP, Look for a push away from the
PVWAP (the price should not stall at pvwap)
Step4: Observe if that push enjoys follow-through or is rejected back to the VWAP
level from last swing high for an uptrend or last swing low for the downtrend

Price open and drive down with less volume shows sign of strength and stall at P
VWAP and unable to close below the PVWAP
VWAP False Breakout (TRAP)

Strong Stock will stay and trade above VWAP if there is buying pressure from
institutional traders. If a large investment bank is interested in taking the position, a
stock will often stay above VWAP and keep moving above VWAP. But if there are no
large institutions behind the stock, or if they fill all of their orders, then the stock will
move back to VWAP and often “lose it”, meaning it will drop and trade below the
VWAP. This is a sign for short sellers to start shorting it. On the other hand, when a
stock below the VWAP is bounces back and breaks out above the VWAP, it means
the buyers are gaining control and short-sellers desperately have to cover. Smart day
traders chase the fleeing shorts by going long to ride the momentum and “squeeze
the shorts”.

Price action and volume play a major role

VWAP First Pullback

Step1: find the stock in a clear trend up (HH/HL) or trend down(LH/LL)

Step2: Look for at least 2/3 candle in the same direction
Step3: When first-time price approaching VWAP, Look for a push away from the
VWAP (the price should not stall at vwap).also look for rejection from the vwap
Step4: Observe if that push enjoys follow-through or is rejected back to the VWAP
level from last swing high for an uptrend or last swing low for the downtrend