Volume Weighted Average Price shows a fair price of an asset and based on a trading volume.
Volume Weighted Average Price knows as VWAP is a “benchmark” price of an asset for any period of the trading day or session. Average price is weighted by volume for evaluating the overpaying or underpaying of current price relative to the VWAP price.
The indicator is calculated for any period of time according to the following algorithm:
The VWAP indicator is located on the Indicators Dropdown Menu under Orderflow category. When you click on it, the indicator will get added with default settings.
Period: By default, the Period will be “Session” and is not relevant to this indicator.
Anchor: Anchor toggle manages the anchor nature of the indicator. It will be deactivated by default.
Standard Deviation Bands. When the parameter is active, the standard deviation lines up and down from VWAP will be additionally calculated on the chart. Specify the number of standard deviations in the “Value” field
VWAP line — set the main line type, its thickness and color
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:
Standard deviations are an objective statistical measurement that quantify variance in a data set, with a small value indicating that most data points are close to the average and a larger value indicating a wider spread.
By applying this tool to trading with VWAP serving as our average, we can plot these deviations as bands to create a visible unit of measurement to characterize market movement and gauge volatility
Deviation bands are plotted continuously alongside VWAP, automatically adjusting as we receive more data. They typically start off small and expand as price begins to break away from the market’s average, but lacking any notable volume or volatility they remain stable throughout the day.
VWAP and these bands are very good approximations of the developing POC and Value Area of a Market Profile Chart
We all understand that Market Profile is an abstraction of the normal curve and the value area are the standard deviations from the mean
The below animation from TradeWinder does a great job in explaining how the VWAP bands form the basis of a developing Value Area
BVWAP stands for Buy VWAP and SVWAP stands for Sell VWAP. These are important metrics that measure polarity between buyers and sellers within a candle.
A Candle VWAP is a measure of VWAP within a candle that factors all trades and volumes traded within the candle. It is an integral part of the Orderflow analysis and looks like below on the Bar Statistics Indicator
Basically, you take all trades into account and compute the VWAP by taking a weighted average of the prices that were traded within the candle (weighted by volume). If you consider only the BUY trades it will compute the BVWAP (price points traded by Buyers) and only the SELL trades, it will compute the SVWAP (price points traded by Sellers)