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Zach Hurwitz, TheVWAP
Zach Hurwitz, Founder of TheVWAP

Volume-weighted average price has gained popularity in recent years, but very few traders use it properly. Our strategy incorporates additional concepts like standard deviation bands and longer-term VWAPs to unlock its full potential.

Not sure what I mean? Let me explain.

Starting simple.

An intraday volume-weighted average price plotted from 9:30am ET to 4:00pm ET is the most common VWAP that traders use, and it's still pretty powerful on its own.

The manner in which it's calculated and the role it plays in institutional trading — which we discuss in our free eBook — makes it a driving force in day-to-day market activity.

By maintaining the same initiation point and building upon itself as time progresses, every share transacted is factored in. Simply put, it's the market's true average price over the entire trading day.

DAL chart example with only intraday VWAP applied Blank DAL chart example with no indicators applied
DAL chart example with intraday VWAP and standard deviation bands applied DAL chart example with only intraday VWAP applied

Bring in the bands.

Plotting standard deviation bands alongside VWAP creates a virtual grid system on our charts, through which we can objectively determine how far we're trading from the market's average price.

Price tends to behave differently at varying distances, and the deviation bands oftentimes serve as barriers separating those contrasting regions. The result? Areas of otherwise hidden support and resistance.

VWAP, but make it longer.

One of the biggest misunderstandings about VWAP is that it's only applicable on an intraday chart. In reality, you can and should be anchoring volume-weighted averages to prior days as well.

Whether it's yesterday's open or a company's last earnings date, long-term VWAPs capture market sentiment over a relevant time frame and add invaluable context to our trading as a result.

DAL chart example with intraday VWAP, standard deviation bands, and the prior day's VWAP applied DAL chart example with intraday VWAP and standard deviation bands applied
DAL chart example with intraday VWAP, standard deviation bands, the prior day's VWAP, and the slope of VWAP measurement applied DAL chart example with intraday VWAP, standard deviation bands, and the prior day's VWAP applied

Sorting through setups.

The combination of these concepts allow us to segment market behavior, make higher probability assumptions about upcoming chart movements, and identify areas of support and resistance that can be used for trade entries and exits.

From there we assess the quality and likelihood of success of potential setups using a variety of metrics and methods, including the one shown here — the slope of VWAP.

Flexibility

The impact of VWAP — and as a result our strategy — is not limited to one particular market type. Its widespread use by institutional traders makes it effective wherever they're conducting transactions, which is ... basically everywhere.

As long as there's sufficient volume, VWAP should play a role. To be specific, we have members that currently apply our framework to:

  • Futures — ES, NQ, CL, GC, currency Futures, etc.
  • Large, mid, and small cap stocks
  • Options trading
  • Cryptocurrency

Click here to view more chart examples of the markets listed above.

E-mini S&P 500 Intraday VWAP example

Intraday chart of the E-mini S&P 500 (/ES) from January 1st, 2019 with intraday VWAP and standard deviation bands applied.

Bitcoin anchored VWAP example

Hourly chart of Bitcoin from April 2021, with a VWAP anchored to a recent low from April 7th prior to a one-week uptrend.

Versatility

One of the most clear-cut benefits of VWAP and its associated standard deviations bands may be as support and resistance levels, but that's not the only role they play in our approach.

While we do utilize them for trade entries, initial/ongoing risk management, and eventual exits, we also rely on these tools to characterize and contextualize chart behavior, interpret past and current price action, and make educated guesses about what is most likely to happen next. We incorporate additional concepts like slope and longer-term anchored VWAPs to help accomplish these objectives as well.

This splits our approach into two separate but related components: strategic assessment and tactical implementation. Before deciding where, when, and how to enter or exit a trade, it's crucial that you first determine if the chart you’re looking at is worth trading at all.

Adaptability

The framework we implement is not biased in either direction. We teach four primary trade types — two for trend continutation and two for countertrend reversion — that each have both long and short applications. The prevailing market conditions at any given moment will often dictate which trade types are most likely to yield success, and having the ability to modify your plan of attack accordingly is crucial to long-term success.

So while the tactics you employ (trade type, typical hold time, position sizing, entry/exit criteria, etc) may change in response to different environments, the underlying concepts that make up our strategy remain in tact. We continue to assess charts using the same metholodology, and the result of that assessment helps determine how we proceed.

Click here to view more examples of our approach dating back as far as 2010, demonstrating the longevity of VWAP and its ability to adapt over time.

SPY Intraday VWAP example 2010

Intraday chart of SPY from September 20th, 2010 with intraday VWAP and standard deviation bands applied.

SPY Intraday VWAP example 2022

Intraday chart of SPY from April 21st, 2022 with intraday VWAP, standard deviation bands, and the prior day's VWAP applied.

Still not sure about the "hidden support and resistance"?

AAL Intraday VWAP Example

AAL 4/28/22 — Intraday VWAP with deviation bands

ABBV Intraday VWAP Example

ABBV 4/13/22 — Intraday VWAP with deviation bands

AMAT Anchored VWAP Example

AMAT 4/7/22 — Prior day's VWAP

AMD Intraday VWAP Example

AMD 12/9/21 — Intraday VWAP with dev bands + prior day's VWAP

C Intraday VWAP Example

C 4/11/22 — Intraday VWAP with deviation bands

COP Intraday VWAP Example

COP 3/9/20 — Intraday VWAP with deviation bands

E-minis S&P 500 Intraday VWAP Example

S&P 500 1/2/19 — Intraday VWAP with deviation bands

MYL Intraday VWAP Example

MYL 7/29/19 — VWAP with dev bands + PD VWAP + 5-day VWAP

NCLH Intraday VWAP Example

NCLH 1/31/22 — Intraday VWAP with deviation bands

E-minis NASDAQ 100 Intraday VWAP Example

NASDAQ 100 1/10/22 — Intraday VWAP with dev bands + PD VWAP

NVDA Intraday VWAP Example

NVDA 4/21/22 — Intraday VWAP with dev bands + PD VWAP

ORCL Intraday VWAP Example

ORCL 3/4/20 — Intraday VWAP with deviation bands

OCY Prior day VWAP Example

OXY 6/10/20 — Prior day's VWAP

PYPL Intraday VWAP Example

PYPL 1/13/22 — Intraday VWAP with dev bands + PD VWAP

SBUX Intraday VWAP Example

SBUX 1/5/22 — Intraday VWAP with deviation bands

SCHW Intraday VWAP Example

SCHW 3/1/22 — Intraday VWAP with deviation bands

SLB Intraday VWAP Example

SLB 2/7/22 — Intraday VWAP with deviation bands

SPY Anchored VWAP Example

SPY 2019 Daily Chart — VWAP and dev bands anchored to 12/24/18

TSLA Intraday VWAP Example

TSLA 3/17/21 — Intraday VWAP with dev bands + PD VWAP

TTWO Anchored VWAP Example

TTWO 2020 Daily Chart — VWAP anchored to 5/18 earnings report

TWTR Intraday VWAP Example

TWTR 4/9/20 — Intraday VWAP with deviation bands

VZ Intraday VWAP Example

VZ 3/1/22 — Prior day's VWAP

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Equities, Futures and Forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

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