The award-winning NinjaTrader trading platform comes preloaded with over 100 indicators to suit every type of trader from novice to expert. A recent addition to our ever-growing list of indicators is volume-weighted average price, or VWAP, which is included in the Order Flow + premium tool set for NinjaTrader 8.
What is VWAP?
Volume-weighted average price (VWAP) is similar to a moving average, but incorporates volume data as well. VWAP is calculated by weighing the average price of a trading vehicle against its trading volume within a specified time interval.
Some order flow traders consider the VWAP a “true” average price indicator as it factors in trading volume at specific price levels instead of just price data.
Using the VWAP Indicator
The VWAP indicator consists of a VWAP line overlaying the price data with up to 3 standard deviations plotted above and below. Both the VWAP line and the standard deviations indicate potential support and resistance levels surrounding the current price.
The VWAP line indicates the average price where the most trading volume occurred and is considered an important inflection level on the chart.
When the price is above the VWAP line, it is plotted green indicating a potential support level. Conversely, when the current price is below the VWAP line, it is plotted red indicating a possible level of resistance. These default color settings can be also customized to user preferences along with line thickness and style.
The standard deviation lines below and above the VWAP line, often referred to as bands, are also considered potential support and resistance levels. These are essentially “echoes” of the VWAP line offset by a specified multiplier within the VWAP indicator settings.
Standard vs Tick Resolution
Traditionally, tick data is required to calculate VWAP values. While this provides the most precise VWAP calculation possible, it can also utilize extensive CPU resources.
NinjaTrader’s Order Flow + VWAP includes both a Standard and Tick resolution providing a fast-loading VWAP alternative.
- Standard: This resolution mode can save valuable computing time and resources by calculating the VWAP on a bar-by-bar basis. Rather than recalculating with each incoming tick, the VWAP calculates once per bar.
- Tick: This is the conventional method of calculating VWAP values and recalculates with each incoming tick of price data.
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