[What is VWAP]
From the Wikipedia definition, In finance, volume-weighted average price (VWAP) is the ratio of the value traded to total volume traded over a particular time horizon (usually one day).
VWAP = (Cumulative Volume * Price) / (Cumulative Volume)
VWAP is basically use to find the liquidity area or in simple term we can say that VWAP use to determine at what price most of the trader carry their position.
[How to find Support and Resistance using VWAP]
Take a look at below chart of BankNifty, where blue line represent VWAP, Green is the 1 Standard deviation from VWAP, Orange line represents the 2 standard deviation from VWAP and Golden represents the 3 standard deviation from VWAP.
Uploaded with ImageShack.us
Uploaded with ImageShack.us
Take a look at the above normal distribution bell curve, as you can observe 68% of the time the price stay within 1 standard deviation, also notice that 95% of time the price stay within 2 standard deviation.
After studying several Intranet charts I've found that more then 60% of time, price trading within 1 standard deviation of VWAP, and 2 standard deviation act as strong support/resistance and it gives the opportunity for counter trend trade.
From the Wikipedia definition, In finance, volume-weighted average price (VWAP) is the ratio of the value traded to total volume traded over a particular time horizon (usually one day).
VWAP = (Cumulative Volume * Price) / (Cumulative Volume)
VWAP is basically use to find the liquidity area or in simple term we can say that VWAP use to determine at what price most of the trader carry their position.
[How to find Support and Resistance using VWAP]
Take a look at below chart of BankNifty, where blue line represent VWAP, Green is the 1 Standard deviation from VWAP, Orange line represents the 2 standard deviation from VWAP and Golden represents the 3 standard deviation from VWAP.
Uploaded with ImageShack.us
Uploaded with ImageShack.us
Take a look at the above normal distribution bell curve, as you can observe 68% of the time the price stay within 1 standard deviation, also notice that 95% of time the price stay within 2 standard deviation.
After studying several Intranet charts I've found that more then 60% of time, price trading within 1 standard deviation of VWAP, and 2 standard deviation act as strong support/resistance and it gives the opportunity for counter trend trade.
