Why Volume weighted average price (VWAP) is important:
- Large institutional investors, mutual and pension funds use VWAP as a reference point to make buy / sell decisions.
- Many brokers offer VWAP algorithm for their clients. Example: Interactive Brokers VWAP
Two VWAP indicators are available for download:
1. VWAP + MPD (maximum permissible deviation) bands
MPD = (current day high + current day low) / 2
Upper band = VWAP + MPD
Lower band = VWAP - MPD
2. VWAP + standard deviation bands
Upper band = VWAP + multiplier * standard deviation
Lower band = VWAP - multiplier * standard deviation
For correct use of VWAP indicators think where institutional investors buy shares relative to VWAP and how brokers implement VWAP algorithm to make profit.
More free indicators will be added.