CUP and Handle Breakout in Talwalkar Better value Fitness

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Using VWAP For Entry And Exit During Trading

Volume Weighted Average Price (VWAP) is an indicator, or an intra-day calculation that is used to determine where a stock is trading relative to it’s volume weighted average for the day. For the matheletes out there, the equation is above. VWAP also helps to determine market direction and confirm trade signals. Before you apply VWAP to your charts, understand how it works, the drawbacks of the indicator, and how to read the signals it gives you.

As many as the last four daily VWAPs can be plotted by the indicator on the current session of the analyzed security. At times, the older VWAPs can serve as support and resistance lines as the current session’s price action develops, and can potentially offer valuable information for traders. The (default) intraday VWAP is reset at the beginning of each new trading session. Most trading applications only show the current day’s VWAP. This is mainly because historical VWAPs require enormous amounts of data, since all the tick and volume data for the different sessions would need to be referenced.

In a steady uptrend or downtrend, price will still continue to touch VWAP at several points along the way. Price may drift away from VWAP, only to be pulled back toward it again. Only in strong up or down moves will you see price extend further from VWAP. This is yet another way of using the indicator,  to determine the strength of moves based on their distance from VWAP.

VWAP vs. Moving Averages

VWAP initiates at the opening price level, and will move up or down with price movement and volume as the session continues. It can help to eliminate a lot of the noise within a stock throughout the day, even more so than a moving average would. It is compared at times to a moving average, and though it shares similarities, they are not the same.

The biggest difference VWAP has from a moving average is the overall time frame. Moving averages are made to average specific amounts of time (9 candles, 50 candles, 200, etc.) VWAP however, is an average of the entire day. The closer to the open, the more sensitive VWAP is to price moves. As the day goes on, it becomes less so. This is a result of cumulative values, so as volume increases toward the end of the day, every piece of new data has less and less effect on VWAP.

Trading with VWAP

It is said that when price is below VWAP, the stock is in a downtrend or there is a downward bias to the day. The opposite is true if above. The indicator itself is more of an analysis tool rather than an entry/exit indicator. However, as a result of this association, VWAP is often traded like a moving average. Price will commonly either bounce and reverse direction, or break directly through. If you choose to treat VWAP as a moving average entry/exit signal indicator, the following would be potential entry points:

Long Entry – A (convincing) break of VWAP to upside

Long Exit – A (convincing) break of VWAP to downside

Short Entry – A (convincing) break of VWAP to downside

Short Exit – A (convincing) break of VWAP to upside

If you choose to use this method, I recommend monitoring 5 min charts to confirm VWAP breaks. As you can see in the previous 1 min chart above, at several points price breaks above or below VWAP, only to then reverse and retrace. 5 min charts provide more reliable confirmation of breaks and entry/exit signals. In realtime, wait for candles to close before confirming breaks. These are demonstrated on the same $AAPL session on a 5 min chart below:

Despite what you see above, the best entry signals are formed using VWAP in tandem with other set ups and/or indicators. An example of this would be a BARR pattern that is extended high above VWAP. The break of the bump line would be your short entry signal within the pattern.

Using the same 1 min chart for $AAPL, an example is provided below. In this scenario, notice that we are looking at a BARR pattern late in the day. High above VWAP, once the BUMP line breaks we have further confirmation that price will continue down, creating a less risk short entry scenario. As a third confirmation, RSI is overbought. Even further, 1 minute/candle later a MACD death cross is created as a fourth confirmation.

On days that price action is trending, price will be above or below VWAP for much of the day. On ranging days that price action is consolidating or coiling, VWAP will flow through the middle of price action, showing the overall sideways direction of trading. This can help traders determine what type of strategy they should be utilizing.

VWAP Limitations

VWAP is tricky. It’s a debatable indicator, in that it is used in numerous ways and calculated differently in certain scenarios as well. Some traders believe VWAP should include pre-market and after hours data. Others think VWAP should not include in this information. Some even plot both forms (one with and one w/o PM and AH data) on their charts. This is where experimentation is necessary on your end. Personally, I prefer the 1 min intraday VWAP with pre-market and after hour data included.

The difference from a moving average, which is commonly used in the development of trading strategies, is that VWAP is more of an analysis tool than a trade signal tool, as mentioned before. It gives a basic directional guide for whether there’s an upward or downward bias in price action, but the actual VWAP line alone shouldn’t be used to provide consistently good trade signals. A good reason could be that during strong trending moves the price may not touch (or even come close to) the VWAP.

As mentioned before, VWAP is less sensitive to price action as the day extends. Later in the day, the “lag” in VWAP can become significant. Therefore, VWAP is of more value at the start of day to traders (in a directional sense) because it is more responsive to price moves. On the flip side, at the end of the day the VWAP will flatten out and be of little use to traders (harder to determine overall up/down movement.) However, to major institutions, the end of day VWAP values are more important, since the end of the day VWAP value gives a benchmark for the day that the institution can compare their transactions.

Conclusion

VWAP is meant to give the average price of a stock (so far) for the trading day, based on price moves and volume. It’s an intra-day indicator, starting with the first period (based on chart time frame chosen) of the day, and ending with the last. The larger the time frame of candles, the less useful VWAP becomes.

Although many traders rely on VWAP for their entries, it isn’t really meant to provide trade signals like other indicators; it’s an benchmarking and analysis tool. Used in tandem with other indications, it can be very useful and effective.

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15 Ways To Trade Moving Averages

1. The 20-day moving average commonly marks the short-term trend, The 50-day moving average the intermediate trend, and the 200-day Moving average the long-term trend of the market.

2. These three settings represent natural boundaries for price Pullbacks. Two forces empower those averages: First, they define Levels where profit- and loss-taking should ebb following strong price Movement. Second, their common recognition draws a crowd that Perpetrates a self-fulfilling event whenever price approaches.

3. Moving averages generate false signals during range-bound markets Because they’re trend-following indicators that measure upward or Downward momentum. They lose their power in any environment that Shows a slow rate of price change.

4. The characteristic of moving averages changes as they flatten and Roll over. The turn of an average toward horizontal signifies a loss of Momentum for that time frame. This increase the odds that price will Cross the average with relative ease. When a set of averages flat line And draw close to one another, price often swivels back and forth Across the axis in a noisy pattern.

5. Moving averages emit continuous signals because they’re plotted Right on top of price. Their relative correlation with price development Changes with each bar. They also exhibit active convergence divergence Relationships with all other forms of support and resistance.

6. Use exponential moving averages, or EMAs, for longer time frames But shift down to simple moving averages, or SMAs, for shorter ones.EMAs apply more weight to recent price change, while SMAs view each Data point equally.

7. Short-term SMAs let traders spy on other market participants. The Public uses simple moving average settings because they don’t Understand EMAs. Good intraday signals rely more on how the Competition thinks than the technicals of the moment.

8. Place five-, eight- and 13-bar SMAs on intraday charts to measure Short-term trend strength. In strong moves, the averages will line up And point in the same direction. But they flip over one at a time at highs And lows, until price finally surges through in the other direction.

9. Price location in relation to the 200-day moving average determines Long-term investor psychology. Bulls live above the 200-day moving Average, while bears live below it. Sellers eat up rallies below this line In the sand, while buyers come to the rescue above it.

10. When the 50-day moving average pierces the 200-day moving Average in either direction, it predicts a substantial shift in buying and Selling behavior. The 50-day moving average rising above the 200-day Moving average is called a Golden Cross, while the bearish piercing is Called a Death Cross.

11. It’s harder for price to break above a declining moving average than A rising moving average. Conversely, it’s harder for price to drop Through a rising moving average than a declining moving average.

12. Moving averages set to different time frames reveal trend velocity Through their relationships with each other. Measure this with a classic Moving Average-Convergence-Divergence (MACD) indicator, or apply Multiple averages to your charts and watch how they spread or contract Over different time.

13. Place a 60-day volume moving average across green and red Volume histograms in the lower chart pane to identify when specific Sessions draw unexpected interest. The slope of the average also Identifies hidden buying and selling pressure.

14. Don’t use long-term moving averages to make short-term Predictions because they force important data to lag current events. A Trend may already be mature and nearing its end by the time a specific Moving average issues a buy or sell signal.

15. Support and resistance mechanics develop between moving
Averages as they flip and roll. Look for one average to bounce on the Other average, rather than break through it immediately. After a Crossover finally takes place, that level becomes support or resistance For future price movement

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Nifty Volume Trick to Identify Trending moves!

Today We are going to reveal one of the trading clue about Nifty which is very useful for Short term trading in nifty.

This clue can be found in NIFTY INTRADAY 5MIN CHART

Click here to see the CHART LIVE

As you can see in the chart above , Observe that on 21-02-2017 12.00PM NIFTY formed a 5min candle with a volume of 688.5k Quantity which is the BUY trigger for us.similarly if it is a red candle it is a sell trigger for us.

Trigger Our trigger is any candle on 5 Min chart with a volume > 600000

If the candle is green it is BUY Trigger for us
If the candle is red it is SELL Trigger for us

The Entry here would be (High+low)/2 of that candle which here is 8877.1+8872.9/2 = 8875 and Stoploss would be the low of the previous day's low price for BUY and previous day high price for SELL

Target The  target for the trade is

For Buy Triggers Entry Price + 10 Points for every 100k volume for example in this case it is 8875+68.85=8943.85

For Sell Triggers Entry Price - 10 Points for every 100k volume

EXIT Trigger Apart from exit by way Stop loss or target there might be situations where you need to exit from the opposite trigger i.e SELL for BUY and BUY for SELL

For Example in this case if NIFTY before reaching the target of 8943.85 forms a red candle with the trigger volume then you should exit your trade.

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