There is an important tool that informs the day traders whether a stock was bought or sold at a good price. This tool is Volume Weighted Average Price (VWAP). The standard VWAP used typically by traders calculates the price on the basis of all of the orders for the day. Multiple time frames for the VWAP can also be used as in fact many traders do use.
Volume Weighted Average Price (VWAP) represents a ratio that is calculated by the number of shares bought multiplied by the price of the share divided by total shares bought. This strategy often used by institutional investors is designed to minimize the market ripples impacted by the large orders.
VWAP includes volume in their calculations and can be plotted directly on a price chart. Since it is a day trading indicator, it will not show up the daily, weekly or monthly chart. On an intraday basis, it indicates whether a security is cheap, of value, or expensive. Price hovering below VWAP, of the instance, indicates that the security is cheap or of value, while price above VWAP indicates that the security is expensive.
Since VWAP can offer traders an insight into the performance of the stock trade for that day, it is the best tool to guide them to the good price at which to sell or buy. VWAP serves as an excellent barometer indicative of trade fills as well. Volume indicates the market liquidity. It is easy for traders to identify the optimal or non-optimal status of a long trade. For instance, a long trade filled above the VWAP line is indicative of a non-optimal trade fill.
VWAP can serve as a trade fills barometer. Volume is indicative of liquidity of a marker. For example, a long trade filled above the VWAP line is indicative of a non-optimal trade fill. VWAP also was known as moving VWAP (MVWAP) and is based on the record of end-of-day calculations over time. Moreover, its period to take into account the time frame can be adjusted, so it is possible to include as many or as few Values as desired to apply to a daily chart.
As an intraday indicator, it is best for short-term traders who engage in trade for few minutes or few hours. Moving VWAP (MVWAP) as a long-term average is more appropriate for the traders who trade long-term instead of the single day.
However, like any indicator, it is not recommended as the sole basis for trading. While ‘trend’ is the most common trading strategy, it must be used cautiously. In other words, cues should be taken from chart patterns and price action, fundamental analysis or other technical indicators. The purpose of VWAP for bitcoin traders should be to mitigate volatilities. Volatility presents a risk for long-term traders, fund managers and investors who use digital currency.
A good strategy is to use benchmark here. It averages out the volatility. It serves as a safety bar on a roller coaster. In order to minimize the risk, the price to be paid is settling for the average price. The traders can successfully use it in their risk mitigation strategy. Nevertheless, it must be admitted that no one can predict the direction of the marker. The strategy of averages may have one settle for lower reward but it is better than the risk of a complete wipe-out.