Chart Signals Explained

Simple interpretations of VWAP and other key signals.

VWAP: Volume-Weighted Average Price

The Volume-Weighted Average Price (VWAP) represents the average price at which a stock has traded throughout the day, weighted by volume. VWAP requires intraday data — such as tick-level or minute-level price and volume. It is calculated as:

\text{VWAP}_t = \frac{\sum_{i=1}^{t} P_i \cdot V_i}{\sum_{i=1}^{t} V_i}

Where:

• P_i is the price at time i
• V_i is the trading volume at time i
• t is the current time point (e.g., minute or tick)

Approximated VWAP (VWAPa) from Daily Data

While true VWAP (Volume-Weighted Average Price) requires intraday price and volume data, most freely available data sources only provide daily OHLCV data (Open, High, Low, Close, Volume). As a result, an approximated VWAP uses the typical price, which is the average of the daily high, low, and close:

\text{VWAP}_{\text{a}} = \frac{\text{High} + \text{Low} + \text{Close}}{3}

This is often referred to as the typical price. It does not factor in volume, and should be understood as a simple price-level proxy rather than a true volume-weighted measure.

This is not a true volume-weighted measure but it is commonly used as a proxy when minute-level data is unavailable. If you would like to see the true values, please donate so that I can afford premium access. With such access, I would create additional charts for you all.

Why VWAP Matters

VWAP helps investors and traders understand whether they are getting a good price relative to the day’s trading activity.

• Buy below VWAP → favorable entry
• Sell above VWAP → favorable exit

VWAP as a Trend Indicator

VWAP also acts as a dynamic indicator of market sentiment:

• Price above VWAP → bullish signal
  
• Price below VWAP → bearish signal

VWAP resets at the start of each trading day and reflects where the majority of trading volume occurred, making it a useful benchmark for intraday analysis.

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