Once upon a time, in the bustling city of Marketville, there lived a young trader named Sam. Sam had recently discovered the world of trading and wanted to find a way to make smarter decisions when buying and selling stocks. One day, while exploring trading tools, Sam came across a powerful indicator called VWAP — the Volume Weighted Average Price.
Curious, Sam dug deeper to understand how VWAP worked. Sam learned that VWAP was like a magical compass that showed the average price of a stock for the day, but with a twist — it also considered the volume of trades happening. This way, it told the story of both price and how much action was behind it.
Sam thought this way: a market fair has apples on sale, some customers buying a few, others purchasing in large quantities. VWAP computes the average price paid for all apples to give a much clearer view of the true market value instead of the last tag.
Excited, Sam sought to know how the traders applied the VWAP. He found that there were three golden rules:
- Above VWAP = Bullish Trend: If the price remained above VWAP, then it means buyers were in control, and the stock was doing good.
- Below VWAP = Bearish Trend: If the price remained below VWAP, then sellers were in control, and the stock was weak.
- Touching VWAP= The price near VWAP acts like a magnet and balances buyers and sellers.
Sam then attempted using VWAP in his trades. One morning, he observed a stock opening below VWAP but then surging above it with high volume. He remembered what he learned, so Sam went in on a trade. The price kept moving higher, and Sam was profiting! It was like having a secret map for navigating markets.
But Sam also learned an important lesson — VWAP resets every day. It was great for intraday trades but not for holding stocks overnight.
Sam combined VWAP with other tools like RSI and moving averages to become even better. This helped him make smarter trades, avoiding the risky decisions made based only on VWAP.
And so, he continued to drill it, being the master at trading with VWAP. Since the knowledge one requires with that is all of patience and right practice, any human may use that powerful magical indicator while making proper stock market decisions.
Moral to the story is that VWAP is not the line drawn upon the chart - it's mighty if used with knowing. Happy Trading!
