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The VWAP or volume-weighted average price measures the average traded price of a stock over a trading period. It is the ratio of the asset price to total volume traded over a particular period.
This VWAP indicator should be applied to intraday data. It sums the product of the price and the volume of each transaction (if tick data is used, otherwise the last price and total volume of each bar is used) for the current day and divides it by the total volume.
The theory says that if a trade buy price is lower than the VWAP then it is a good trade. If the trade buy price is lower than the VWAP then it is a bad trade. For this reason, the VWAY is often used as a trading benchmark by traders and investors.
In algorithmic trading, some brokers offer VWAP order types to guarantee the execution of the order at VWAP price.
Traders can also use the VWAP or volume-weighted average price line to find potential support and resistances levels for entries and exits.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.