Volume Weighted Average Price (VWAP) is a computation of the average price of a certain tradeable security or commodity. The trading strategy is much like a moving average as it also computes the average price. The difference is that VWAP takes volume into account, unlike moving averages, which only computes averages based on historical price.
VWAP takes into volume into account when computing for the average price, price movements that is accompanied by big volume have more effect on the VWAP than price movements with less volume behind it. On a chart, the VWAP line would have steeper tilts on price expansions with volume as compared to price moves with less volume.
This makes VWAP a useable tool to use in trading in many ways. One way to use it is as a basis for trailing stops. Because VWAP lines move stronger when there is volume in a price move, it is also likely that there is momentum whenever the VWAP moves strongly. And if momentum is in confluence with open trade, it would be logical to assume that price wouldn’t reverse prematurely unless there is a more powerful price move going against the current momentum.
Indicators:
5-period EMA (gold)
200-period EMA (green)
Volume_Weighted_MA: 20 & 50-period (brown)
Timeframe: any
Currency Pair: any
Trading Session: any
How to trade with VWAP EMA Gold-Green Forex Trading Strategy?
For this strategy though, we will be using a crossover of the 5-period Exponential Moving Average (EMA) over a 200-period EMA.
The meat of this strategy is on being able to squeeze as much profits as possible on a winning trade setup by using a trailing stop. Some traders trail the stop loss behind a VWAP. This is commonly done among stock traders. However, VWAPs are dynamic. It would also be beneficial to use a dynamic spacing behind the VWAP.
To do this, we will be using two VWAPs, a 20 and 50-period VWAP. The trailing stop loss would then be placed in between these two VWAPs. If price breaches the 20-period VWAP and reaches the middle of the area between the 20 and 50, then we would assume that the short-term trend might be ending, thus the trade would automatically be closed.
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Buy (Long) Trade Setup Rules
Entry
- The 5 EMA should cross above the 200 EMA
- The candle should close well above the 200 EMA
- Enter a buy market order at the close of the candle
Stop Loss
- Set the initial stop loss below the 200 EMA; or
- Set the stop loss below the low of the candle
Exit: Trailing Stop Loss, as soon as the trade is in profit, trail the stop loss in between the 20 and 50-period Volume_Weighted_MA until hit.
Sell (Short) Trade Setup Rules
Entry
- The 5 EMA should cross below the 200 EMA
- The candle should close well below the 200 EMA
- Enter a sell market order at the close of the candle
Stop Loss
- Set the initial stop loss above the 200 EMA; or
- Set the stop loss above the high of the candle
Exit
- Trailing Stop Loss
- As soon as the trade is in profit, trail the stop loss in between the 20 and 50-period Volume_Weighted_MA until hit.
How to Download VWAP EMA Gold-Green Forex Trading Strategy?
In order to install the indicator on your MT4 platform, you need to follow these steps:
- Click on the “Download Indicator” button located at the bottom of the post.
- Save the file to your computer.
- Extract and move the files into MT4>Indicator folder of the MetaTrader4 software file directory.
- Restart your Metatrader platform.
- Navigate to “Indicators.”
- And select the “VWAP EMA Gold-Green Forex Trading Strategy” template to apply it on the chart.
Note: This indicator was developed by our subscriber from Vietnam. AtoZ Markets does not carry any copyrights over this trading tool.
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