VWAP Vs VWMA - The Simple Guide

VWAP vs VWMA – The Simple Guide
VWAP is one of the popular indicators used by traders. It is an

intraday indicator, which best serves short term, particularly day
traders.
Because of the volume component and the similarity of its name,

traders often confused VWAP and another volume-associate indicator
VWMA.
This is your simple guide of VWAP vs VWMA.
Are VWAP and VWMA the same? The answer is NO.

Fundamentally, they are different. They serve different purposes.
If you are looking for an explanation of VWAP and VWMA, you are in
the right place.
In this post, I will show you the difference between VWAP and VWMA.
We will look at the construction of these two indicators. The best way
to determine if an indicator is useful to your trading is to understand
the math behind it.
Without further ado, let’s look into the details now.

VWAP vs VWMA – The fundamentals
VWA
P & VWMA on intraday 1-minute chart
What is VWAP?
VWAP stands for Volume Weight Average Price. It is a day trading
indicator. The indicator’s calculation resets at the beginning of each
trading session.
VWAP is widely used by both institutions’ traders and retail traders.

Institutional traders use it to guide their positioning decisions while
retail traders mostly use it to decide if the market is under or
overvalued.
To understand how to effectively use VWAP, let’s look at the

construction of the indicator.
How to calculate VWAP

VWAP is the cumulative average price with respect to the volume.
Take note that VWAP uses the typical price. Typical Price can be
calculated by averaging High, Low, and Close prices.
Typical Price = (H+L+C)/3
Let’s look at the formula of VWAP.
VWAP = Cumulative (Typical Price x Volume)/Cumulative

(Volume)
Or
A quick explanation of VWAP calculation:
1. Calculate the typical price of a specific time period by (High +

Low + Close)/3
2. Multiply the volume of the period to the typical price. (Volume x
Typical Price)
3. Calculate the cumulative total of (Volume x Typical
Price) since the session’s open.
4. Calculate the cumulative total of volume since the session’s
open.
5. Find the ratio of Cumulative Total of (Volume x Typical Price)
and Cumulative Total of Volume. This is the VWAP.
VWAP applications
Institutional traders use VWAP as a benchmark for their trade
executions. Institutional automated trading strategies often execute
their orders around VWAP to avoid a huge spike in volume.
For day traders, VWAP serves as a reference point. It is similar to the

Volume Point of Control of Volume Profile. Traders use it as a
reference to decide if the current market price is over or undervalue.
What is VWMA
VWMA stands for Volume Weight Moving Average. The name
often confused traders.
VWMA is one type of moving averages. In addition to closing prices,

VWMA incorporates volume into the calculation.
If you are familiar with the moving average, it is easy to get a hang of
the concept of VWMA.
How to calculate VWMA

To understand the calculation of VWMA, let’s start with Simple Moving
Average.
A Simple Moving Average is the average of closing prices over the

past N periods.
For example, 3-Day Simple Moving Average
3-Day SMA = (Close1+Close2+Close3+Close4+Close5)/5
Now, let’s look at the VWMA. Volume Weight Moving Average is

calculated as below:
C=Close
V=Volume
3-Day VWMA= (C1xV1+C2xV2+C3xV3)/(V1+V2+V3)
As you can see from the formula, each closing price is weighted with
its volume. In other words, the closing price with higher volume carries
more weight in the calculation.
The difference between VWMA & SMA
The chart above illustrates the difference between VWMA and SMA.
SMA rises when the market rises, as it is an average of closing prices

over the past 20 periods.
For the same look-back period, the VWMA moves below SMA when
the market is trading higher but with lower volume.
VWMA applications
If you have already used a moving average in your trading, VWMA
might give you additional insight.
There are traders using VWMA & SMA crossover to determine trend
strength. This approach adds a new dimension to trend analysis with
volume weighting.
Trading with VWAP
Example of day trading Futures with VWAP, Volume Profile, and Order Flow
As a day trader, VWAP is one of the essential tools in my trading. I
mainly used it in futures trading.
There are many ways to trade with VWAP. One of them is to work
along with Volume Profile and order flow analysis.
With the understanding of the Auction Market Theory, you can build
an effective day trading strategy.
Recently, I have been trying it in the Forex market. Although tick

volume is less than desirable, it does offer a good general read of the
market.
Conclusion – VWAP vs VWMA
I hope you have a good understanding of the constructions of VWAP
and VWMA now.
The key differences between VWAP and VWMA are:
VWAP is cumulative of average price with respect to volume. It does

not drop off any data over time. The calculation begins at the start of
the trading session.
VWMA is a type of moving averages. The indicator calculates the

average of closing prices with respect to the volume. It has a fixed
period where older data will be dropped off from the calculation. The
calculation is continuous across sessions.
They are different indicators and should not be confused.
Indicators could be useful to your trading, It could hinder your trading

as well. In trading, less is more.
You do not need more indicators to achieve success. As a rule of
thumb, if it confuses you, chuck it in the bin.

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VWAP vs VWMA – The Simple Guide

VWAP is one of the popular indicators used by traders. It is an

Because of the volume component and the similarity of its name,

This is your simple guide of VWAP vs VWMA.

Are VWAP and VWMA the same? The answer is NO.

Without further ado, let’s look into the details now.

VWAP is widely used by both institutions’ traders and retail traders.

To understand how to effectively use VWAP, let’s look at the

How to calculate VWAP

Let’s look at the formula of VWAP.

VWAP = Cumulative (Typical Price x Volume)/Cumulative

A quick explanation of VWAP calculation:

1. Calculate the typical price of a specific time period by (High +

For day traders, VWAP serves as a reference point. It is similar to the

VWMA is one type of moving averages. In addition to closing prices,

How to calculate VWMA

A Simple Moving Average is the average of closing prices over the

For example, 3-Day Simple Moving Average

3-Day SMA = (Close1+Close2+Close3+Close4+Close5)/5

Now, let’s look at the VWMA. Volume Weight Moving Average is

3-Day VWMA= (C1xV1+C2xV2+C3xV3)/(V1+V2+V3)

SMA rises when the market rises, as it is an average of closing prices

Recently, I have been trying it in the Forex market. Although tick

The key differences between VWAP and VWMA are:

VWAP is cumulative of average price with respect to volume. It does

VWMA is a type of moving averages. The indicator calculates the

They are different indicators and should not be confused.

Indicators could be useful to your trading, It could hinder your trading

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