How to use VWAP for timing your trading entries and exits?

By Dean | Market Profile Blog

Mar 29

What is VWAP?

VWAP is Volume Weighted Average Price – guess you all might be aware of this by now. What it means is basically the average or median price of days trading range based on volume.

Now this mean price acts as a magnate in sideways days and as support in case of a trending move.

Derivatives Trading involves substantial risk of loss, therefore, is not suitable for all investors. Past Performance is not necessarily indicative future results – Read Full Disclaimer


Let’s look at an example for each case.

VWAP as a Magnate in Sideways Markets


Reversion to Mean Buy

In the first chart, we can see that the down move was exhausting because on every break Smart Money was stepping in and buying resulting in a  sideways move.

This action combined with a Wyckoff Spring prompted a potential long scalp for the test of the mean.

As the sellers were getting exhausted there was a possibility that mean will act as a magnet and attract price. That’s precisely what happened, actually, prices went overboard. Because VWAP acts as a magnate it did not allow prices to move too far away from it.


Multiple Mean Reversion Trades

In the second chart, we can see 3 occasions when VWAP acts as a magnet. Every time the price strays too far away from the mean, it pulls it back. In the process, we get 3 nice scalps out of the markets.

Now, this may seem very easy in the hindsight, but because of the volatility that Nifty shows intraday, it is very difficult to execute it every time.

Thankfully you can combine this with Order Flow Charts and some Context from Market Profile to give your trade higher probability of succeeding.

VWAP acting as a Support in Trending Markets


Offering Support in a Trend

In this daily chart, you can see I am using the Monthly VWAP. I am using this chart because I want to show you that this thing works on all time frames.

As seen on the chart there are multiple occasions when it provides support to falling prices.

As the trend is clearly up the best strategy is to buy breaks, and VWAP helps us do that effortlessly.


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About the Author

Dean is a full-time trader and mentor, with experience of over 12 years. He trades using Market Profile and Order Flow Charts. Dean absolutely loves to trade. He says “matching my wits against other traders is the most exciting game ever and I get paid to play”. He also likes sharing his learnings and mentoring committed traders.