| VWAP, also known as Volume-Weighted Average | | | | the volume is changing at an increasing pace, where |
| Price, in simple terms is the average price of a | | | | as if the V-ROC is a negative number, the volume in |
| security over an average period of time, weighted | | | | the market is changing at a decreasing pace. How is |
| for the amount of shares traded over a specific | | | | this figure calculated? Well, first you need to divide |
| period of time. Many traders, from institutional money | | | | the volume change of the last X-periods (days, |
| managers to the average day trader, use the VWAP | | | | weeks, months) by the volume over the past |
| as a major benchmark for the overall order flow | | | | X-periods ago; thus resulting in a percentage change |
| throughout the trading session. For institutional size | | | | of volume, over the past X-periods (days, weeks |
| traders, they use the VWAP to evaluate where the | | | | and/or months). |
| best possible entry price might be; for example if | | | | Many investors will use a period of 15-30 days to |
| their entry is below or above the VWAP at the time. | | | | provide them with a relatively short-term idea of |
| If you are buying shares, it is said to enter the | | | | how volume is flowing in the market. This helps |
| market at a price below the VWAP for the best | | | | especially when trying to determine if a rally or a |
| possible results. This is because many believe if you're | | | | sell-off in price is actually legitimate. To do this watch |
| buying shares, you would be doing so in conjunction | | | | the V-ROC and see if there is a divergence in the |
| with volume. | | | | V-ROC and the actual price movement; if there is a |
| The VWAP is also a great way to get a feel for | | | | divergence in the V-ROC and price that might show a |
| how the volume is flowing into the market for that | | | | reversal or sluggish price movement in the near |
| day or that week. One of the best ways to use this | | | | future. Another way I use the V-ROC is when price |
| knowledge is to determine what type of market you | | | | is trading around a key level of support or resistance. |
| are trading in; is it a trending market or a choppy | | | | The V-ROC, I have found is very useful when price |
| one? Once you have answered this question you can | | | | is approaching a level of support or resistance |
| now utilize the full potential of the VWAP. In a | | | | because once price breaks through the line of |
| non-trending market (choppy) you might want to | | | | support or resistance it helps to confirm the |
| consider fading, or buying/selling if price is moving | | | | break-out with an increase in the V-ROC indicator. |
| away from the VWAP. Whereas if the market is | | | | I have to say both of these indicators were great |
| trending you want to consider buying the lows and | | | | additions to my shorter and longer-term trading, and |
| selling the highs into the VWAP. | | | | also helped me with my overall interpretation of |
| The next indicator or tool that I find useful in my | | | | volume in the market. I hope these tools will help you |
| trading is the V-ROC, also known as the Volume | | | | guys as much as they have me. As always, follow |
| Rate-of-Change. The V-ROC is a great tool to help | | | | those rules and best of luck trading. |
| identify the cyclical movements of volume in the | | | | Sincerely, |
| markets. If the V-ROC is a positive number that then | | | | School of Trade. |