Understanding the VWAP 2 Filter
Our VWAP 1, 2, 3, 4 and 5 filters provide the 5 anchored VWAP values in dollars.
The VWAP 2 filter refers to the Volume Weighted Average Price calculated over a specific period. In this case, starting at the previous days market open. VWAP is a trading benchmark that gives the average price a stock has traded at throughout the trading day, weighted by volume.
Here's how the VWAP 2 filter works:
Calculation of VWAP: VWAP is calculated by multiplying the price of each trade by the volume of that trade, summing up these values, and dividing the total by the cumulative volume traded over the period. In the case of VWAP 2, it represents the VWAP over the 2 trading days.
Application in Trading: Traders use VWAP 2 as a reference point to assess the average price levels at which significant trading activity has occurred over the last 2 trading days.
Intraday Analysis: While VWAP is typically calculated throughout the trading day, VWAP 2 provides a longer-term perspective on the average price weighted by volume over the previous two trading days. Traders can monitor VWAP 2 throughout the current trading day to gauge price levels relative to this longer-term average.
VWAP 2 Filter Settings
The settings of each Trade Ideas filter are defined in the Window Specific Filters Tab located in the Configuration Window of your Alert/Top List Window.
Here is how to setup the filter in your configuration window:
- Set the min value to $5 and the max value to $20 to see stocks with a VWAP value currently between $5 and $20.
Using the VWAP 2 Filter
Several trading strategies can be employed with the VWAP 2 filter. Here are a few examples:
Mean Reversion Strategy: Traders anticipate that the price will revert to the mean represented by VWAP 2 after a significant deviation. When the current price deviates significantly below VWAP 2, indicating oversold conditions, traders may consider buying opportunities, anticipating a bounce back towards VWAP. Conversely, when the price deviates significantly above VWAP 2, indicating overbought conditions, traders may consider selling opportunities, anticipating a pullback towards VWAP.
Breakout Strategy: Traders look for breakout opportunities when the price moves significantly above or below VWAP 2. If the price breaks out above VWAP 2 with significant volume, it may indicate a bullish breakout. Traders can buy the stock with the expectation of further upward movement. Conversely, if the price breaks out below VWAP 2 with significant volume, it may indicate a bearish breakout. Traders may consider short-selling the stock.
Trend Confirmation Strategy: Traders use VWAP 2 to confirm the direction of the trend. In an uptrend, if the price consistently remains above VWAP 2, it confirms the bullish sentiment, and traders may consider buying opportunities. Conversely, in a downtrend, if the price consistently stays below VWAP 2, it confirms the bearish sentiment, and traders may consider short-selling opportunities.
FAQs
What does VWAP 2 stand for, and how is it calculated?
- VWAP 2 represents the Volume Weighted Average Price calculated over the last 2 trading day. It is calculated by multiplying the price of each trade by the volume of that trade, summing up these values, and dividing the total by the cumulative volume traded over the period.
What is the significance of VWAP 2 in trading?
- VWAP 2 is an important benchmark used by traders to assess the average price at which a stock has traded during the previous 2 trading days, weighted by volume. It helps traders gauge the fairness of the current price and identify potential trading opportunities.
Are there specific trading scenarios where VWAP 2 is particularly useful?
- VWAP 2 is particularly useful in assessing the overall trend and market sentiment over a longer timeframe. It can be valuable in identifying potential buying or selling opportunities based on deviations from the average price over the previous two trading days.
