Understanding the VWAP 5 Filter
Our VWAP 1, 2, 3, 4 and 5 filters provide the 5 anchored VWAP values in dollars.
The VWAP 5 filter refers to the Volume Weighted Average Price calculated over a specific period. In this case, over the last trading week. VWAP is a trading benchmark that gives the average price a stock has traded at throughout the trading day, weighted by volume.
Here's how the VWAP 5 filter works:
Calculation of VWAP: VWAP is calculated by multiplying the price of each trade by the volume of that trade, summing up these values, and dividing the total by the cumulative volume traded over the period. In the case of VWAP 5, it represents the VWAP over the last trading week.
Application in Trading: Traders use VWAP 5 as a reference point to assess the average price levels at which significant trading activity has occurred over the last 5 trading days.
Intraday Analysis: While VWAP is typically calculated throughout the trading day, VWAP 5 provides a longer-term perspective on the average price weighted by volume over the last 5 trading days. Traders can monitor VWAP 5 throughout the current trading day to gauge price levels relative to this longer-term average.
VWAP 5 Filter Settings
The settings of each Trade Ideas filter are defined in the Window Specific Filters Tab located in the Configuration Window of your Alert/Top List Window.
Here is how to setup the filter in your configuration window:
- Set the min value to $5 and the max value to $20 to filter for stocks with a VWAP within the range of $5 to $20 over the past trading week.
Using the VWAP 5 Filter
Several trading strategies can be employed with the VWAP 5 filter. Here are a few examples:
Breakout Trading: Breakout traders can use the VWAP 5 filter to identify breakout opportunities. If the current price breaks out above or below the VWAP 5 level with significant volume, it may signal the beginning of a new trend. Traders can enter long positions on bullish breakouts above the VWAP 5 and short positions on bearish breakouts below it.
Pullback Trading: Pullback traders may use the VWAP 5 filter to identify potential pullback opportunities within the trend. If the price retraces towards the VWAP 5 after a strong move in the trend direction, it may offer a favorable entry point. Traders can enter positions on pullbacks, anticipating the resumption of the prevailing trend.
Scalping: Short-term traders can use the VWAP 5 filter to scalp intraday price movements. By entering and exiting positions quickly based on deviations from the VWAP 5, traders can capture short-term profits from rapid price fluctuations within the trading session.
FAQs
What is VWAP, and how is the VWAP 5 filter calculated?
- VWAP is a trading indicator that represents the average price a security has traded at throughout the day, weighted by volume. The VWAP 5 filter calculates the VWAP over the past five trading days for each stock. It is calculated by multiplying the price of each trade by the volume traded and dividing the sum by the total volume traded over this five-day period.
What does it mean if a stock's current price is above or below the VWAP 5?
- If a stock's current price is above the VWAP 5, it indicates that the stock's current price is trading above the average price it has traded at over the past five days. Conversely, if the current price is below the VWAP 5, it indicates that the stock's price is trading below the five-day average.
How can traders use the VWAP 5 filter in their trading strategies?
- Traders can use the VWAP 5 filter in various trading strategies, such as trend confirmation, mean reversion, breakout trading, volume confirmation, pullback trading, and scalping. By analyzing stocks' positions relative to the VWAP 5, traders can identify potential entry or exit points and make informed trading decisions.
FAQs
VWAP is calculated by multiplying the typical price by volume and then dividing by total volume. A simple moving average incorporates price but not volume. The SMA is calculated by totaling closing prices over a certain period (say 10 days) and then dividing the total by the number of periods (10).
How do I find my 5 day VWAP? ›
The VWAP 5 filter calculates the VWAP over the past five trading days for each stock. It is calculated by multiplying the price of each trade by the volume traded and dividing the sum by the total volume traded over this five-day period.
What is the 5 day weighted average? ›
5-Day Weighted Average Closing Price means the volume weighted average closing price of the Securities for each of the five trading days immediately preceding the Closing Date on which any Securities traded on NASDAQ.
What does the VWAP tell you? ›
VWAP is the average price of a stock weighted by volume. By monitoring VWAP, a trader might get an idea of a stock's liquidity and the price buyers and sellers agree is fair at a specific time. The VWAP indicator can be used by day traders to monitor intraday price movement.
What is the best indicator to use with VWAP? ›
There are many ways to trade with the VWAP. Again, it works best when combined with other complementary indicators including momentum indicators like MACD or stochastic.
How do you calculate a 5 day weighted moving average? ›
That factor is equal to the number of days past the first day used in the Moving Average so that today's weight factor is the greatest, while the first day's factor is equal to 1. The total is then divided by the sum of the factors, for example, for the 5-day Weighted moving average, it is equal to 5+4+3+2+1=15.
How to calculate VWAP in Excel? ›
Sample Calculation
- Typical Price = (20+15+18) / 3 = 17.67. Next, you need to multiply the typical price by the volume. ...
- 17.67 * 20 = 353.33. You can keep a running total of the volume as they aggregate through the day to give you the cumulative volume. ...
- VWAP = 353.33 / 78 = 4.53.
You can assume a 5-minute chart for the VWAP indicator. To find the VWAP, you need to add the high, low, and close price, then divide by three, multiply this volume for that period, and add the result in the spreadsheet, under the volume column PV. After that, you need to divide PV by the volume for that period.
How to calculate weighted average price? ›
The investor can calculate a weighted average of the share price paid for the shares. To do so, multiply the number of shares acquired at each price by that price, add those values, then divide the total value by the total number of shares.
How do I calculate my weighted average? ›
Simply, in order to find the weighted average, one must first multiply all values in the data set by their corresponding weights. Then, add up the resulting products and divide by the sum of the weights. When dealing with percentages, one will usually find that the sum of weights is equal to 1 or 100%.
To calculate the weighted average cost, divide the total cost of goods purchased by the number of units available for sale. To find the cost of goods available for sale, you'll need the total amount of beginning inventory and recent purchases.
Is VWAP a good or bad indicator? ›
The VWAP is considered better than other indicators like the VWMA indicator. The indicator gives concrete information on when to enter or exit the market and is not based on general stock trends. Hence, the investors place educated and well-informed trades in the stock market.
How accurate is the VWAP indicator? ›
Lagging indicator: As a moving average, VWAP is inherently lagging and may not accurately reflect sudden price changes. Limited predictive value: VWAP is not a predictive tool and should not be solely relied upon for trading decisions.
How to calculate volume weighted average price? ›
VWAP = (Sum of (Price x Volume)) / Total Volume
Volume is the number of shares traded at that given time. The sum of (Price x Volume) represents the total dollar value of all trades in the security over time. Total volume is the total number of shares traded over the specified period.
How do you calculate volume weighted average market price? ›
Once you have the average, calculate the PV value of the stock by multiplying the average with the volume for that particular time frame. Now, divide the PV value by the volume of the stocks for the entire time frame to get the value for VWAP.
How do you calculate volume weighted price? ›
Volume-Weighted Average Price (VWAP) is exactly what it sounds like: the average price weighted by volume. VWAP equals the dollar value of all trading periods divided by the total trading volume for the current day. The calculation starts when trading opens and ends when it closes.
How do you calculate weighted average pricing? ›
How to calculate inventory weighted average cost. To calculate the weighted average cost, divide the total cost of goods purchased by the number of units available for sale. To find the cost of goods available for sale, you'll need the total amount of beginning inventory and recent purchases.
