What is a VWAP Cross
Let me tell you directly: a VWAP cross is a trading indicator that happens when a security's price crosses its volume-weighted average price, or VWAP, and this can signal a potential buy or sell opportunity for you as a trader.
Breaking Down VWAP Cross
To understand this, you need to closely follow a security’s current price and its VWAP. I’m keeping it straightforward here—this requires monitoring how the price interacts with that average.
VWAP Cross Charting
You can program technical systems to chart a security’s market price and VWAP using candlestick patterns and trendlines on a technical chart. When the price crosses the VWAP trendline, that’s your VWAP cross signal.
Traders like you often treat VWAP trendlines much like resistance and support lines. In this setup, the VWAP is a single trendline on a candlestick chart, focusing on its movement.
For you using a VWAP trendline, it’s crucial to grasp the VWAP calculation. Here it is plainly: VWAP equals the sum of (shares bought times share price) divided by the total shares bought. This acts as a moving average trendline that shows how volume affects price compared to the security’s volume from day to day. You might also consider other volume tools like the Positive Volume Index or Negative Volume Index alongside it.
VWAP Cross Signal Indicators
VWAP is a trendline influenced by volume and price, so various scenarios arise from changes in these factors. Generally, it’s a useful addition to your candlestick chart, whether it’s trending above or below the pattern.
The inferences from VWAP’s variables drive buy and sell signals for you. The quick effects of sharp volume and price shifts make VWAP a go-to trendline. If a security’s price is below support and you see a rapid volume and price increase, the VWAP spikes up, crossing the current price—this creates a potential bullish buy signal.
On the flip side, if VWAP is high and spikes down, it’s a bearish sell signal, suggesting the security will trend lower after the cross. Using VWAP trendlines and crosses helps you detect price movements that aren’t yet fully reflected in the security’s short-term or long-term price.
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