2016-05-18
Using the volume-weighted average price (VWAP) when trading in short-term time frames is highly effective and simple. One common strategy for a bullish trader is to wait for a clean test of VWAP rising slope, then enter long. On the other side, a bearish trader wait for a clean test of VWAP dropping slope, then enter short.
The VWAP can also help traders gain insight into where the momentum is at a specific time. For example, assume a trader was short because there was constant selling pressure and the price failed to break above the VWAP multiple times. If price reverses and has a clean breakout above the VWAP, the trader should look to cover shorts because the momentum has shifted to the buy side.