Hi everyone!
Hope you’ve been well, I’m back with another journal entry.
I’ve been learning more about VWAPs. VWAPs are short for Volume Weighted Average Prices. When anchored at key points, it can be a very powerful tool, especially when trading.
(If you’re not into trading, I wrote an article previously on dollar cost averaging into the S&P 500 here, something which I do too)
Back to VWAPs, I was initially a skeptic but I found that it has been surprisingly effective for where prices find support and resistance on the charts.
First, how are VWAPs derived?
VWAPs is calculated by summing the prices for every transaction mutliplied by volume of shares traded and then dividing it by the total volume of shares traded over a time-period.
Thankfully, you wouldn’t have to do it on your own. When this indicator is used on charts (I recommend tradingview.com, it’s available for free), everything is calculated for you and plotted out. Another comprehensive charting platform I’d recommend is Trendspider Charts.
How to use VWAPs?
For a start, I’m anchoring my VWAPs from key reversal points (eg. COVID-19 lows, all time highs). These points are where price action reversed and trends begin to change.
Let’s take a look at the SPY (S&P 500 ETF) and QQQ (NASDAQ 100 ETF) with VWAP applied.
SPY:
Looking at this chart of the SPY above, we see the VWAP anchored to 12 May 2021’s candle acting nicely as a support region for 3 out of 4 market pullbacks after, including the most recent one in September.
Looking at the VWAP anchored to all time highs (ATH) then on 2nd September 2021, we see during the entire market pullback, it acted as a solid resistance line for prices. It was only after a convincing close above it, that markets rallied.
QQQ:
Same with the Qs, check the VWAP anchored at the lows of 12th May 2021 acting as support for the most recent correction and the all time highs VWAP of 7 September 2021 acting as resistance throughout the most recent correction.
More charts to show, I’ll probably do a separate journal entry for it.
If you learn better via video, here’s an excellent one on VWAP and VBP, courtesy of Jake:
Hope this will be of value to you as much as it has been to me.
If you’re new to investing, feel free to check out my list of recommended resources:
https://linktr.ee/simpleinvesting
Have a great week, people! Till the next one,
Justin