VWAP+MACD Strategy : VWAP or Volume Weighted Average Price is a trend indicator based on volume. It is a benchmark used by most of the traders as it gives both average price and volume. It is great indicator as it gives weightage to both value and trend on graph.
MACD or Moving Average Convergence Divergence is a momentum indicator which shows whether the security is gaining momentum or losing it.
If we combine both VWAP + MACD then it becomes a great strategic tool.
VWAP + MACD Strategy Detail
In order to setup the strategy, here is what you need to follow.
- Volume Candle : This is preferred because in volume candle the width of candle is based on the relative increase in volume.
- VWAP Indicator : Apply the simple VWAP indicator on the chart.
- Candle Duration : Use candle of 5 mins for quick trades and 15 mins for good movements.
- MACD Indicator : Apply MACD indicator with setting (12,26,9).
How to Trade using VWAP + MACD
The chart would look like below with the setup of VWAP+MACD:
Entry & Exit : Going Long
- If the green candle crosses and closes above VWAP with good volume i.e. volume which is higher than previous candle, then first condition is satisfied.
- If the MACD indicator is also MACD above signal (i.e. Black above red in our case) then it is time to go long.
- Stoploss should be immediate low of previous candle and below VWAP.
- We should exit when VWAP crosses below or MACD recross i.e. Red goes above black.
Entry & Exit : Going Short
- If a red candle crosses and closes below the VWAP with good volume i.e. higher volume than previous candle, then first condition is satisfied.
- If MACD has signal above MACD line (i.e. Red above Black in our case) then go short.
- Stoploss should be high of previous candle above VWAP.
- Exit with MACD recrosses i.e. Black above red.
So in the graph shown above, if every candle in 5 minutes starting from 9.15 AM, close of 9.30 candle i.e. 9.35AM would entry point for short. The exit would be around 11AM as MACD indicates trend changes.
Follow this strategy under observation. It is recommended that you paper-trade before following this as not every strategy suits trading style of different people.