Introduction to the VWAP indicator
The VWAP indicator is actually a volume-average price indicator used in the Forex market. It represents the average value of a currency pair weighted by volume.
If you are a novice trader, the above description does not provide much information, but don’t worry, we will go into details in this article.VWAP is just a tool comparable to moving averages. Many traders prefer VWAP to traditional moving averages because it has several advantages.
The version we present this time is designed specifically for MT4 and has three lines: weekly, monthly and daily. We will explain in detail how to read and use the indicator.
The indicator is displayed in the same way as the trading charts are displayed.
It is compatible with all types of currency pairs and time frames. However, we recommend to apply it to smaller time spans (up to H1).
The default settings that can be changed directly via the input tab can be modified. You are free to play with the parameters and settings to suit your personal preferences.
What is this process? What is the best way to use it in trading?
VWAP and Moving Averages
The traditional moving averages you are familiar with are based on closing prices. As such, they are the closing cost of any financial asset or currency pair.
However, VWAPs constantly show the average price weighted in volume. Because these calculations are performed continuously, many traders consider it to be a more accurate and reliable indicator that better reflects price movements. Most traders consider volume to be an important indicator of trends and trend reversals, as well as breakouts and support.
MT4’s no-cost VWAP runs all the calculations in the background and provides traders with the necessary lines. These lines are explained as well as in subsequent sections of this article.
The indicator it provides is quite simple and should not be a problem. The most effective signals generated by this indicator occur after the weekly and monthly crossover. Please follow the steps below.
Using VWAP to buy a trade
The trend is considered bullish when the daily (red) line is above the monthly (green) line. It is important to only look for trading opportunities that are in line with the overall trend. In this case, you should look for long-term trades. Even if VWAP does not provide extremely precise entry points, the best way to find these trades is to look for them when prices are below the daily (yellow) and/or close to the weekly (red) line.
Place your stop loss below the low of the last market swing. You can also set your take profit when your trades reach a risk-reward ratio of at least 1:2.