Video Transcript
Do you trade using Daily, Weekly, or Monthly VWAP? Then there’s one important thing that you should know. When a new VWAP starts, it hasn’t collected enough data yet, which makes its levels unstable and less reliable for trading. So, how long should you wait before you can actually trust those levels? Let me show you how I approach this with the Daily, Weekly, Monthly, and even Yearly VWAP.
I think it’s pretty important to let the VWAP develop before you start trading with it. The reason for waiting for the VWAP to develop is this: the VWAP starts calculating anew. For example, every new day, a new Daily VWAP starts getting calculated, and it pulls data from here. It doesn’t have any historical data, so it starts from here and begins collecting volume, price, and time data. In the initial period, it doesn’t have enough data, so it’s sort of wild. It’s still collecting data, but later, it has more data. The indicator becomes wider, it’s more stable, and you can depend on those lines on the VWAP and on the deviations.
So, what I have in here for you is a rough setting of how I use it. When I’m trading with the Daily VWAP, what I recommend is waiting around 5 hours before you start applying the strategies. So, in here, it would be somewhere in here. This would mean no trading with VWAP in this area, and then the rest of the day would be okay to trade with VWAP. All right, so this is the period when it’s collecting data, when it’s volatile, and when you don’t really want to trade with VWAP.
Now, with a Weekly VWAP, it’s best to wait around two days. With a Monthly VWAP, it’s 10 days. And with a Yearly VWAP, you want to wait for the first two months of the year before you start trading with the Yearly VWAP. Now, those are just rough numbers. They are not set in stone, right? These are just rough numbers that I’m using. If there’s a nice trading opportunity and it sort of goes against some of those rules, well, you can take it, but you should always allow some time for the VWAP to calculate before trading with it.
Now, the next couple of pictures are going to be just illustrations of what I was talking about. So, this is a Daily VWAP in here. You want to wait five hours. This is the market open. Those are the first five hours. You don’t want to use VWAP trading strategies during this period. Then, for the rest of the day, it’s okay to trade with them. The next day begins in here again. The first five hours are a no-go. Then, for the rest of the day, it’s okay to use the VWAP.
Now, this is the Weekly VWAP, which means that every week, a new VWAP gets calculated. So, Monday and Tuesday, no trading with the VWAP, not with the Weekly VWAP. Wednesday, Thursday, and Friday, it’s okay. The next week starts in here again. Monday and Tuesday, no VWAP. For the rest of the week, it’s okay to use the Weekly VWAP.
For the Monthly VWAP in here, I recommend waiting for the first 10 days of the month. So, during this period, don’t trade with VWAP. You need to wait until it collects enough data. Then, for the rest of the month, it’s okay.
The last one is the Yearly VWAP. It starts calculating here in January. So, January and February are the months when it’s best not to trade with the Yearly VWAP. Let it collect enough data. Then, as it starts to develop, you can start using it and trade with it until the end of the year in here. All right? Then again, January and February, no VWAP. For the rest of the year, it’s okay.
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