VWAP or Volume weighted average price is an indispensable tool for intraday traders to forecast the price move of stocks. It does not necessarily give trading signals but it helps in buying low and selling high. When used with other trading indicators it can definitely help in increasing the accuracy of your trading strategy. It is also used by large institutional investors or hedge funds to buy/sell at a point which would not cause sudden movement is stock prices. VWAP factors in the volume of stock and hence indicates the current momentum as well as true average price. In this post, we would go through a VWAP Trading Strategy Excel sheet. This is an automated excel sheet which would calculate absolute VWAP value for various intraday timeframe.
You can also refer some of our very popular Excel based trading systems in the below link:
VWAP Calculation
As the name suggests, VWAP is the weighted average of stock price over a specified time period. The stock price is weighted based on the volume for that specified price candle. Below is the formula used to calculate VWAP:
∑ Number of Shares Purchased x Price of the Shares ÷ Total Shares Bought During the Period
As you can see, by multiplying the number of shares by the price, then dividing it by the total number of shares, you can easily find out the volume weighted average price of the stock. Since VWAP takes volume into consideration, you can rely on this more than the simple moving average.
Below are the steps in calculating VWAP:-
- Calculate the average or typical price movement of stock in specified time period. (H+L+C)/3
- Multiply Volume of the period with typical price computed in Step 1 above.
- Calculate the cumulative total of values computed in Step 2.
- Calculate the cumulative total of Volume.
- Find the ratio of values calculated in Step 3 and Step 4. This ratio is termed as VWAP.
VWAP Applications
VWAP has numerous application in the trading world. It is helpful for both institutional investors and retail intraday traders. Below are some well known applications of VWAP:-
- It helps in Buying low and Selling High. If the price is below VWAP, it is considered as undervalued, while price above VWAP is considered as overvalued.
- Crossing of prices above/below VWAP line in chart indicates momentum shift or change of trend.
- VWAP is also used as a trading benchmark by institutional investors who are not worried about the timing of the trade, but who are concerned about the adverse impact of their trades on the price of the security.
- VWAP serves as a reference point for prices for one day. As such, it is best suited for intraday analysis. Chartists can compare current prices with the VWAP values to determine the intraday trend.
- VWAP indicator can be used as a dynamic support/resistance line during sideways market.
VWAP Trading Strategy Excel Sheet
Below are the steps to use VWAP Trading Strategy Excel Sheet:
Step 1: Download the Excel file from the end of this post.
Step 2: Open this Excel file and make sure you are connected to internet. Please accept if it asks to enable Macros and Data connections.
Step 3: Input the Symbol Name, Exchange Name, Interval and Number of Days.
Step 4: Click on Get Data button. The data would be automatically downloaded and chart would be refreshed. The last columns indicates VWAP value.
Step 5: Green cell indicates VWAP is below closing price (undervalued), Red cell indicates VWAP is above closing price (overvalued).
Download link for VWAP Trading Strategy Excel Sheet
Please see the below link to download VWAP Trading Strategy Excel Sheet. Please let us know if you have any queries. Also, send us your feedback on how to improve this sheet.
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