Volume Weighted Average Price. This exactly what the name implies. VWAP starts fresh every morning at the open and starts to calculate as the day goes on and can be printed on a chart as the day progresses.
The VWAP line can be an excellent setup for daytrades. Strong stocks that are making new two day highs are often buys when price pulls back to the VWAP line. Conversely, weak stocks making new two day lows are often shorts when they rise to the VWAP line.
The VWAP is most effective when charted on trading hours only and ShadowTrader is partial to the five minute chart although in theory the VWAP line should be the same no matter what timeframe chart you are on. It is common for there to be a slight discrepancy in the VWAP calculation between various charting platforms.
There is also the question of anchoring in VWAP. Anchoring defines what time you start the calculation. As the VWAP resets every day, for equities this start time is always 9:30am ET. In futures, which trade closer to 24 hours per day, it’s not as cut and dry. Most platforms will reset the VWAP at 5pm ET for the futures which is when the new day session officially starts. This is generally fine but ShadowTrader has found that a midnight reset of the VWAP can be much more accurate in predicting turns. Not all platforms have the capability to reset the VWAP on demand. The Pro Trading Rooms for Weekly Options Advisory and ShadowTrader SquawkBox both contain free scrips for the thinkorswim platform that allow you to change the anchor time. The tastytrade platform comes wired with this capability out of the box. In the settings for VWAP you can change the day and start time to whatever you want.
