VWAP Crossover Strategy: What to Know and How to Get Started
When I first started doing stock/option trading, I was just taking random entry points. I realized that 90% of the time my entry points caused me to lose on my trades. So how do I pick an entry point in stock/option trading?
The answer is quite simple, you can use the VWAP and EMA9 crossover technique to make better entry choices. It is one of my most used pattern every time I trade and has helped me have higher chances of winning.
Let’s go over what is VWAP and EMA9, and how you can use it to snipe entry points!
What is Volume-weighted Average (VWAP)?
Volume-weighted average also known as VWAP is the average price of number of shares bought multiplied by the share price, and then divided by the total shares bought.
VWAP calculation
VWAP = (price * volume) / volume
What is 9-day Exponential Moving Average (EMA9)?
The EMA (exponential moving average) is the average price over a certain time period.
This indicator applies more weight on the current share price data causing to react faster to price change. Making it useful to identify recent trends in momentum.
How to use it – EMA9/VWAP Crossover strategy
When used together, the VWAP and EMA9 create a great indicator for short-term momentum. Which can help to find great entry points on a trade.
Let’s take a look at a bullish crossover on a 5 minute chart for $ORCL.
Bullish Crossover
Notice when the crossover circle. As soon the EMA9 crossover on an upward trend, the stock price for $ORCL goes up. This means that buyers are stepping in.
There’s a difference between a stock price breaking the VWAP line versus the EMA9. A better indication is to wait the EMA9 to cross over.
When to enter in a bullish crossover
You want to enter as the EMA9 is getting closer to the VWAP line or at the moment of the crossover happening.
The same rule applies for bearish crossovers but on a downward trend. Let’s take a look another example for $ORCL.
Bearish Crossover
Notice in the example above how the price of $ORCL drops as EMA9 crosses below VWAP line.
You’ll want to enter in a bearish crossover before or as the EMA9 is crossing the VWAP line.
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