The Volume weighted average price indicator shows the extent to which the market players are active in the certain period. The best variant to use this indicator is as the additional auxiliary tool because there is no sense to trade based on it separately. It won’t show a trader the current direction of a price and won’t help to predict its movement for the future. However, that said, it can show that the current price movement is not backed by the volumes, so, possibly, the trend reversal will occur in the nearest time.
What is Volume weighted average price?
The Volume weighted average price binary options’ indicator helps a trader to determine the trading volumes which are currently present in the market for the certain asset. When comparing trading in the stock market with trading in the currency market, you can find out the wide difference instantly. In the stock market, you can see the amount of stocks which are bought or sold. In the currency market, it is difficult to determine which volumes are traded currently. For that very reason, the indicators which allow assessing this showing roughly are developed specifically for the currency market.
Such binary options’ indicators are not intended to show a trader the direction of the current movement. They have the specific task which is to determine the activity of the market players, in other words, to show volumes. The VWAP binary options’ indicator is designed according to this actual principle. Further, we will consider on which principle this auxiliary tool works, as well as what exactly it is designed for and how it can be used in trading.
Usage of Volume weighted average price indicator (VWAP)
When the volumes decrease in the market, the time for the sideways movement usually comes. The players’ interest in the trading asset decreases notably. It can either mean that players have satisfied their interest in an asset or that they stay uncertain. Any decrease of volumes is followed by their growth sooner or later. This process is accompanied by the appearance of the market players’ interest in the particular asset. Of course, the growth dynamics of volumes doesn’t show what kind of interest the players have: either to buy or to sell a trading tool. In order to determine the direction of the current trend, traders use entirely different binary options’ indicators. Then the question arises: why do we need the volume indicators at all?
The answer to this question is simple. They can warn a trader that the trend can change to the opposite one in the near future. If the volumes grow while an asset is located near the important resistance or support levels, it can mean that either the rebound or the breakout of these levels will occur.
It should be noted that the Volume weighted average price indicator doesn’t show the amount of deals which are closed for the particular time in the currency market. It is simply impossible to do this. This is because the calculation of the volume of deals with the currency tools is greatly hampered because of the dynamics of this market’s work. However, instead of the total amount of deals, this indicator shows the number of ticks for the particular time interval. In other words, in actual fact, it shows how the players’ activity increases or decreases in the different periods of time.
If you use the Volume weighted average price indicator together with a trend indicator, you will be able not only to receive the signals on the current direction of the main movement, but also to know whether it is backed by the activity from the main players.