What is the VWAP Indicator?
The VWAP indicator stands for the Volume Weighted Average Price indicator, and it shows the average true price of a currency pair, weighted by volume. This indicator consists of three lines: monthly, weekly, and daily. The weekly line is red, monthly is green, and the daily line is yellow. The positioning and direction of these lines helps traders identify trends in the forex market.
What is the VWAP Forex Trading Strategy?
The VWAP forex trading strategy utilizes the VWAP indicator to identify a possible time to buy a position or sell a position. It helps users identify whether the market is going to be bullish or bearish. Although this indicator is not built-in on the MT4, it can be downloaded for free from third-party providers. This indicator can be used on all timeframes and trading pairs.
The VWAP forex trading strategy displays a buy signal when the chart looks as follows:
As you can see, the market trend is considered bullish using the VWAP trading strategy when the weekly red line crosses above the monthly green line. The trend is further solidified when the daily line is seen above the monthly green line and near the weekly red line. You must set your stop loss below the last market low and take profit close to the 1:2 risk-reward ratio.
The VWAP forex trading strategy displays a sell signal when the chart looks as follows:
As you can see, the market trend is considered bearish using the VWAP trading strategy when the monthly green line crosses above the weekly red line. The trend is further solidified when the daily line is seen below the monthly green line and near the weekly red line. You must set your stop loss below the last market low and take profit close to the 1:2 risk-reward ratio.
VWAP Forex Trading Strategy Pros & Cons
The VWAP forex trading strategy provides a unique way of looking at the market and identifying trends. However, it does have its pros and cons. They are as follows:
- Works with all timeframes
- Works with all trading pairs
- Identifies bullish and bearish markets
- Market charts looks complex
- Strategy is not beginner-friendly
- Indicator not built-in on the MT4 platform.
The VWAP trading strategy can be a great addition to your forex trading account so long as you are able to understand how to read the chart after adding the VWAP indicator. Although this indicator is not built-in on the MT4, it is worth downloading. While it is not beginner-friendly, users are still able to easily learn and read the complex chart to understand the trading strategy. I would first use this strategy on a demo account before incorporating it into your trading.
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