What is VWAP?
The VWAP is a major level used while daytrading that a lot of big traders and institutions monitor and is why you should be paying attention to it too. It stands for Volume Weighted Average Price.
This is a key indicator and guideline for large institutions, Institutional traders and pension plans that l take large positions and need to know they are getting a good price. This is the indicator of whether they are getting in at a good price or not.
It also allows them to get into positions without disrupting the market flow or elevating prices with their extremely large orders, resulting in bad entry prices for them. The VWAP identifies the true average price of a stock by factoring the volume of transactions at a specific price point and not based on the closing price.
After studying the VWAP on thousands of stock charts, I have noticed two basic setups: The pullback and the breakout.
The VWAP pullback is by far the most popular setup for most day traders that are hoping to get the best price. Day traders get in and out of a trade in minutes to a few hours for a trade to work out.
The VWAP breakout setup is not about a new high. I am not looking for a breakout to new highs but a break above the VWAP itself with strength. When this happens you will often see a continuing into new highs.