Volume Weighted Average Price (VWAP) indicator

Volume Weighted Average Price (VWAP) is a technical analysis indicator that is commonly used by traders and investors to measure the average price at which a security has traded during a given time period, taking into account both the price and volume of each trade.

The formula for VWAP is as follows: VWAP = (Total value of all trades for a security) / (Total volume of all trades for a security)

In this formula, the total value of all trades for a security is calculated by multiplying the volume of each trade by its corresponding price. The total volume of all trades for a security is simply the sum of all the volumes for each trade.

The VWAP indicator is plotted on a chart as a line that represents the average price at which a security has traded over a given time period, typically a day or a week. The VWAP line is often used as a benchmark for intraday traders who seek to buy low and sell high within a single trading day.

Traders use VWAP to determine whether the current price of a security is above or below its average price for the day. If the current price is above the VWAP line, it may indicate that the security is overvalued and that a potential sell signal may occur. Conversely, if the current price is below the VWAP line, it may indicate that the security is undervalued and that a potential buy signal may occur.

Traders also use VWAP to identify potential support and resistance levels. For example, if the VWAP line is trending upwards and the security's price is consistently trading above it, the VWAP line may serve as a support level. Conversely, if the VWAP line is trending downwards and the security's price is consistently trading below it, the VWAP line may serve as a resistance level.