Understanding What Is Volume-Weighted Average Price (VWAP) Indicator

There are so many types of technical Indicators that help traders and investors analyze the crypto market before entering or exiting the market VWAP is among the important Indicators that you can use as a crypto trader or investor to to identify your entry point and exit point and as well trend confirmation.

Having said that above it is now time for us, to take a look at what the VWAP indicator means.

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What volume-weighted average price (VWAP) Means

_Tradingview

From the given name above, you can see that VWAP is an abbreviation for "volume-weighted average price" which means the average price of an asset (cryptocurrency) you are analyzing on a chart for a given period weighted by volume.

This means it is an indicator that you can use to calculate the average price of a cryptocurrency over a given period and you're going to learn how to do that as you keep reading.

Investors and traders make use of the VWAP indicator to compare the current price of the cryptocurrency they are to trade (analyze) to measure the performance of the asset to decide on when to either enter the market or exit from the market they are already in.

This implies that volume-weighted average price can help make the trading decision. Now let's take a quick look at how VWAP can be calculated.

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How VWAP Is Calculated

In some trading platforms, you don't need to calculate VWAP manually as the platform will automatically help you in doing the calculation. However, in a situation where VWAP isn't calculated for you like in the case of Tradingview where you have to do it manually the formula below is what you should use.

_Tradingview

VWAP = (Typical Price * Volume ) / Volume

Typical Price = (High + Low + Close) /3

Based on the formula given above, we are presented with the below figure.

• High = 20,
• Low = 15
• Close = 18

With that given, it means the asset's average price would be calculated as shown below.

Typical Price = (20+15+18) / 3 = 17.67

At this point, when calculating, you will have to multiply (×) the typical Price by the volume and if 20 is = V, then it means it will be calculated as 27.67 × 20 = 353.33

As the volume is added together, you will ensure you keep it running so you can get the cumulative volume which is 78 based on the example we are using.

VWAP will be calculated as 353.33 / 78 = 4.53

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Importance of using VWAP

This is an indicator that doesn't affect the closing price of an asset, but helps you as a trader to be to:

• Identify if the market is moving in bullish or bearish. Bullish is when it's above VWAP whereas bearish is the opposite which is when the price is below VWAP.

• It helps you to identify when to either buy or sell. This means it helps you to make good trading decisions.

• It gives you are better chance of making a profit than using a moving average. If you want to hold a bigger position in the market, then I will recommend you to use VWAP, since it allows many positions without disturbing the market.

Conclusion

_{Here in this post, we have learned what VWAP means and how it can be calculated. Note, that the crypto market is subjected to high risk which means before trading it's advisable for you to do your research, and perform both technical and fundamental analysis.}

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