Mastering intraday trading with vwap indicator

Introduction

This indicator is commonly used by the intraday traders. VWAP stands for “volume weighted average price” there are many ways of using this indicators. Few of them are as mentioned in this report.

 

The most common use of this indicator is just to identify the support and resistance in short time frame that is intraday time frame.

 

  • It is very hard for any intraday trader to understand the area at which the price is going to resist or the area at which the price is going to take the support and turnaround in the opposite direction of the current trend and hence people use this indicator just to identify whether the area they wish to enter is any key area or not.
  • The most common time frame where this indicator applies is 1 minute, 5 minute and max by 15 minutes.
  • Using 15 minute is still very big time frame for VWAP indicator and we in the “Xpert Nifty” prefers to use 5 minutes of chart time-frame for using the VWAP indicator.

 

This is the indicator only for those who can take very quick decision if you are really slow and if you need time to take any decision for example taking an entry or taking an exit then this indicator will not be for your type.

 

  • When you’re using this indicator you need to be very quick with your entry and exit because since it is intraday indicator the entry and exit will be very quick and very sharp sometimes you may need to exit just within 2-3 candles after your entry and hence you need to be set in front of your computer for the entire trading time.
  • This indicator also confuse you many times as when the price is trend less or when the script is trend less the indicators give repetitive buy and sell indications which is none other than a trap or loss making trades.

Setup

Indicators have no additional setup other than choosing the right time frame. It works only in the intraday time frame if you try to apply this indicator in the daily timeframe then this indicator will not show anything.

This indicators stats at open of market and become 0 at closing of the day.

Trade setup

This indicator is used for 2 kind of trade setup.

 

  1. Support and resistance
  2. Break out or break down

 

  • Very good indicator to identify the support and assistance for that particular day this indicator to understand the re-entry price for that particular day.
  • If in scrip where you want to take entry and you think that it’s very expensive and you are actually waiting for the perfect price to take an entry then such kind of setup you can use this indicator.
    When the price after a rally comebacks to the VWAP, it actually acts as a support and resistance for the next trend.
  • When the price after rally comebacks and touches the VWAP line and you need to check that whether the price is reacting to this area or not if the price reacts then you can use this area for your re-entry.
  • First wait for at least one candle to react on VWAP line. If the price touch and bouncers to its origin trend it means it confirms that the trend is likely to remain in its primary trend and hence you can take an entry after a confirmation.
  • We need to for at least once confirmation for entry. Here you need at least one candle that touch and bounces from this area then you need to observe the second candle. It must close above for the bullish indication and it must close below for the bearish indication to its previous candle which has actually reacted from this support and resistance line
  • Once you see that the second candle is giving conformation, your entry can be at the third candle when it actually does the crossover of the confirmation candles high or low
  • You can apply the same strategy when the price actually crosses the VWAP indicators line.
  • The biggest problem with this indicator is the accuracy.
  • Accuracy is just above 50%, that is the benchmark and hence you need to be very accurate in using this methods which we have shown above. You can achieve up to 60% of accuracy in this trading strategy by doing practice.
  • To increase the accuracy further for using the VWAP indicator you must use our existing trading strategy based on the DOJI, APST, volume indicator and king Kong open interest.
  • In the coming days we will add more examples along with the chart of the script