Volume Weight Average Price Intraday Direction Filter and Crossover Strategy – MT5

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Volume Weight Average Price Intraday Direction Filter and Crossover Strategy 2

Intraday trading or day trading is probably a viable way to trade the forex market. Many new traders are drawn to it because of the perceived thrill of making quick money on short-term trades. To some extent, this has some truth in it. It is not uncommon to hear of millionaire traders making $10,000, $50,000, even a $100,000 or more in a single day. This sounds exciting. However, it is also not uncommon to hear of new traders losing their fortune in just a single trade.

Day trading in itself is not what is risky. It is the trader’s attitude towards risk and the tendency to overtrade even when the market is clearly not moving in your direction. It is further aggravated by the fact that many new traders do not have a clear plan as to how to day trade the forex market. Many even do not have the slightest idea which direction they should be trading when in fact this should be the first question they should answer.

Many professional profitable day traders would start their day by answering the question which direction they would trade. This pertains to the bias that they would be taking for that day. Some would look to the higher time frame charts to identify the long-term trend direction and trade only in that direction. If the market is in an uptrend on the long-term, they would skip sell trade signals and trade only buy trade signals. If the market is in a downtrend on the long-term, then they would do the exact opposite.

Another way many professional traders would identify and isolate trade direction is through the use of long-term trend indicators. This simplifies the process as trades would be filtered out based on the indicator on the chart.

Let us look into how we could make use of the VWAP as a means to isolate trade direction for an intraday trading setup.

Volume Weight Average Price

Volume Weight Average Price is a type of trend indicator which many professional traders use. As the name suggests, it provides information regarding the average price a security, currency pair, or other tradeable instruments traded at throughout the day, while considering the volume traded at different price levels.

Volume Weight Average Price Intraday Direction Filter and Crossover Strategy 1

Although the VWAP seems to be just the same as a moving average, the VWAP does have a clear advantage. Given that the VWAP incorporates volume in its computation, it is a much more precise representation of the average price traded.

Most traders use the VWAP as a trend direction filter. This means that they would only trade in the trend direction or bias indicated by the VWAP.

Trend bias is based on the location of price action in relation to the VWAP. The market is bullish whenever price action is above the VWAP, and bearish if price action is below the VWAP.

Some traders use it as an area of dynamic support or resistance. Traders would trade bounces off of the VWAP in the direction of an established trend. The closer the bounce is from the VWAP, the higher the probability of the trade.

Another thing to note when using the VWAP, it is best to use the “real volume” as the basis for the VWAP. However, most retail brokers that use MT4 or MT5 do not provide this access. If this is the case, we could use the next best thing, which is the tick volume.

VWAP Variables Modified

  • Applied Volume: Tick Volume (if Real Volume is not available)

5 EMA and 10 SMA Crossover

Moving Average Crossovers is a type of trend reversal trading strategy which is very popular among traders. In fact, this is probably one of the first types of trading strategies most new traders would come across with. This is probably due to the fact that it is very simple to follow and it does make sense.

However, moving average crossovers have fallen out of favor with many traders. This is probably because some traders would blindly follow moving average crossover signals thinking that they would come up profitable over the long run using only the crossover as a trade basis. This means they are not considering the fact that they may be trading against strong established long-term trends, higher timeframe momentum, or strong support and resistance levels that have to be breached.

One way to trade moving average crossovers would be to trade it in the direction which agrees with the long-term trend. This should also be counterbalanced with the consideration that the security or currency pair is not yet overbought or oversold in the direction of the trade.

Here, we will be using the 5-period Simple Moving Average (SMA) and 10-period Exponential Moving Average (EMA) as the basis for our short-term trend signals, which we will be trading with the confluence of the trend bias indicated by the VWAP.

Volume Weight Average Price Intraday Direction Filter and Crossover Strategy 2

Bullish VWAP Filter and 5 EMA – 10 SMA Crossover Setup

  • Price action should be above the VWAP with a bullish trend pattern.
  • Price should retrace causing the 5 EMA and 10 SMA lines to temporarily crossover against the VWAP.
  • The 5 EMA and 10 SMA lines should crossover once again in the direction of the VWAP uptrend bias.
  • The crossover should not be too far from the VWAP.
  • Enter a buy order on the confirmation of these conditions.
  • Set the stop loss on the support below the entry candle.
  • Close the trade as soon as the 5 EMA line crosses below the 10 SMA line.

Volume Weight Average Price Intraday Direction Filter and Crossover Strategy 3

Bearish VWAP Filter and 5 EMA – 10 SMA Crossover Setup

  • Price action should be below the VWAP with a bearish trend pattern.
  • Price should retrace causing the 5 EMA and 10 SMA lines to temporarily crossover against the VWAP.
  • The 5 EMA and 10 SMA lines should crossover once again in the direction of the VWAP downtrend bias.
  • The crossover should not be too far from the VWAP.
  • Enter a sell order on the confirmation of these conditions.
  • Set the stop loss on the resistance above the entry candle.
  • Close the trade as soon as the 5 EMA line crosses above the 10 SMA line.

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Conclusion

The VWAP is a staple indicator amongst many professional day traders. It is one of those indicators which have proved to be very reliable for day trading. It is also very suitable for day trading because the VWAP typically resets at the start of the trading period.

As a day trading strategy, it is best to use this indicator on timeframes below 15-minutes.

Although this strategy would be a viable strategy which you could incorporate in your trading arsenal once you have practiced it, there are also many other setups which you could use with the VWAP.


Forex Trading Strategies Installation Instructions

Volume Weight Average Price Intraday Direction Filter and Crossover Strategy – MT5 is a combination of Metatrader 5 (MT5) indicator(s) and template.

The essence of this forex strategy is to transform the accumulated history data and trading signals.

Volume Weight Average Price Intraday Direction Filter and Crossover Strategy – MT5 provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.

Based on this information, traders can assume further price movement and adjust this strategy accordingly.

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How to install Volume Weight Average Price Intraday Direction Filter and Crossover Strategy – MT5?

  • Download Volume Weight Average Price Intraday Direction Filter and Crossover Strategy – MT5.zip
  • *Copy mq5 and ex5 files to your Metatrader Directory / experts / indicators /
  • Copy tpl file (Template) to your Metatrader Directory / templates /
  • Start or restart your Metatrader Client
  • Select Chart and Timeframe where you want to test your forex strategy
  • Right click on your trading chart and hover onTemplate
  • Move right to select Volume Weight Average Price Intraday Direction Filter and Crossover Strategy – MT5
  • You will see Volume Weight Average Price Intraday Direction Filter and Crossover Strategy – MT5 is available on your Chart

*Note: Not all forex strategies come with mq5/ex5 files. Some templates are already integrated with the MT5 Indicators from the MetaTrader Platform.

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