VWAP, the volume weighted average price, is a kind of signal, marker or benchmark that is used by financial traders. It is a mathematical derivation, that gives the average price that the cryptocurrency (or any other financial instrument for that matter) has been traded at, throughout the day (or week or month or any duration as required) factoring in both the volume and price. So in simple terms, it is the ratio of value to volume, of the traded cryptocurrency over a period of time, which is usually one day.
How it Works- VWAP in Trading
1. VWAP in trading is used as a benchmark by passive traders who want to avoid risk and minimize the market impact. Short term trading becomes very effective and profitable with the help of VWAP ratios.
2. The traders get an insight both into the price at which the cryptocurrency was traded, and the trend on volume of the cryptocurrency traded with VWAP.
3. It is in the form of a single line chart, with intervals of 1 hour, 1 minute, and so on.
4. It can be an upward VWAP, or a downward VWAP depending upon the market scenario.
5. The price is calculated by averaging the high price, the low price and the closing price, that is, by summing these and then dividing by 3.
6. The simple formula for VWAP is: VWAP=(Price*Volume)/Volume
Making Sense out of a VWAP in Trading
Usually market investors, try to use the VWAP in trading to trade with the minimum possible market impact. So the simple funda for using VWAP in trading is to try to sell the cryptocurrency above the VWAP and buy it below the VWAP line.
You might find it very easy to take a glance at the VWAP and deduce a few things. Per contra, it is not easy to make sense of a VWAP, in depth, to deploy the tool for effective trading decisions. Companies like executium.com, are online platforms that master such techniques with the help of their team of professionals, so that clients can make maximum benefit. For example, looking at a cryptocurrency VWAP, you might be able to say whether you purchased your Bitcoin cheap or expensive, but executium.com, or any other such platform in this regard, can help you trade based on many other inferences from this VWAP. They assess the price of the cryptocurrency, based on many VWAP ratios; they forecast the VWAP and also use historic VWAP. Also, traditionally VWAP is a single-day indicator, however, platforms like executium.com have devised customized VWAP ratios, for different time horizons so as to predict different aspects of a financial cryptocurrency market. As a single handed investor, you might feel that VWAP is based on historical data, and so cannot be used for future trends, but this is not the case. A company like executium.com twists and turns this ratio, shakes it in every dimension possible and comes up with advanced investment models for the clients.