Today’s post is for a technical trader like you! Were going to introduce you to an indicator that takes into consideration price and volume, the Volume Weighted Average Price (VWAP) indicator!
What is the Volume Weighted Average Price?
VWAP is an indicator of volume-weighted average price, which is a technical analysis tool that shows the ratio of an instrument’s price to its total trade volume. it provides traders and investors with a measure of the average price at which an instrument is traded over a given period of time.
VWAP is commonly used as a benchmark by investors who want to be more passive in the market – usually pension funds and mutual funds – and traders who want to be sure whether an instrument was bought or sold at a good price.
To calculate VWAP, you use the following equation:
VWAP = ∑ (amount of instrument bought x instrument price)/total instruments bought that day
The standard VWAP is calculated using all of the orders of a given trading day, but it can also be used to look at multiple time frames.
The VWAP ratio is then presented on a chart as a line. It has been likened to a moving average, in that when the price is above the VWAP line the market is seen as in an uptrend, and when the price is below the VWAP the market is in a downtrend.
Reading and Trading the VWAP Signals
The signals from the VWAP could be confusing at some point. The reason for this is that the same signal from the indicator could be interpreted mainly in two different ways, Support, and Resistance with the VWAP or VWAP Breakout.
Support and Resistance
The VWAP indicator can also help you to identify support and resistance levels. Since the indicator averages the total periods for the day, it has psychological meaning on the chart. If the price approaches the VWAP from below and starts hesitating in the area, then the VWAP may be considered resistance. If this happens in the opposite direction, then the indicator might be able to support the price, creating a bullish movement. Below you see an example of the VWAP as a support and resistance level:
A breakout occurs when an instrument moves out of specific support or resistance level with a higher volume.
For the VWAP breakout, your strategy is to wait until the price goes above the VWAP indicator this means that the strength of the bullish move is strong. It is so strong that the price has managed to break its average value on the chart. Therefore, we get a long signal. The same is in force for a bearish breakout but in the opposite direction.
The VWAP indicator, just like the other technical indicators in a technical trader’s tool-set has no special powers. Unlike traditional moving averages which simply sum up the closing price of an instrument traded and divide it by a number of predetermined periods, the VWAP gives you the true average price of the instrument by additionally considering the transaction volume at a specific price. But if you use it the right way and under the right conditions, it can create many profitable trading signals.
The VWAP is a very good indicator, to be used by day traders, breakout traders, or momentum traders. Day traders find it especially helpful to know where the current market price stands in relation to the volume-weighted average price, in order not to buy instruments that diverge a lot from the VWAP. Breakout traders usually base their entry strategies on the VWAP breakout – a cross of the price below or above the VWAP which generates sell and buy signals, respectively. And momentum traders benefit from identifying early shifts in momentum if the price diverges is a large degree from the VWAP, accompanied by changes in underlying instruments fundamentals.
However, remember to apply money management rules when trading based on the VWAP indicator, and always look for additional confirmation signals from other technical indicators or candlestick patterns, chart patterns, or others. Just like with any trading tool, confirming the VWAP’s signals is a key measure to avoid false and lagging signals.
Ten Rookie mistakes in trading
“I make plenty of mistakes and I’ll make plenty more mistakes, too. That’s part of the game. You’ve just got to make sure that the right things overcome the wrong ones.” – Warren Buffett
The idea that we learn from our mistakes is an almost absolute truth, especially if we are constantly observant and analytical along with being intuitive. That is why they say that once we have learned a lesson from a mistake, we must avoid making it again. With trading, you have the option to learn from the mistakes of others. Here are the common mistakes every new trader does. And you don’t have to do it. Because you learn it here.
Mistake #1 — Riding without proper training
Learning to ride a bicycle with training wheels or without? The answer is with training wheels.
In this parallel, the training wheels are the demo account, and without is the live account.
Trading in a demo account can sound silly for you, some even argue that trading in a demo account doesn’t bring emotions into the game and so a trader will not be prepared for the difficulties out in the real world. But, here’s the thing: The demo account doesn’t follow the experiences of a real account. Rather, it gives a touch of the things out there in the real world. It makes you understand the correlation between currency pairs or any other trading instruments, the best time to trade, and provides you a panel to test your novice strategy. If the strategy gives you a worthy reward, it stacks up to your confidence. When you’re a rookie trader and you see prices swing from your entry, confidence matters most. You need to know when to hold back and when to let go. And trading demo account can aptly do so for you.
Remember, they are training wheels and they make you learn basic riding though it might not prepare you for the rides without them. As a wannabe rider (trader), you got to take it.
Mistake #2 — Over-leveraging
Over-leveraging is a two-edged sword. In a winning-streak, it could be your best friend, but when the trend changes, it becomes the largest foe. Over-leveraging is a terrible way to think you can make more money faster. A lot of traders are misled into this way of thinking and end up losing all their capital in a short time. Some brokers are offering mad amounts of leverage (like 1:1000) that can lead to nothing more than losing your capital to zero. Therefore, one needs to be extremely careful when picking those levels and the brokers that represent them. That’s why diversification among various brokers is probably the best strategy.
Join IC Markets – Max Leverage 1:500
Mistake #3— Overtrading profitable trades
When one trade is good, why not make two or even three out of it, it seems logical?
Definitely Not! Trading doesn’t work that way. The market doesn’t give profitable trade setups at your command. Before you realize this mistake, your trading capital would be split. What you lose in a matter of moments, take months or even years to build. Pick the trades wisely and ride the trends.
The key reason traders overtrade is that they either don’t have the patience or don’t understand its importance. The patience is not limited to the development of the trade setup alone.
A master trader has patience in all aspects of trading — the development of trade setups, the patience to take profits, waiting years to develop their trade account. You can’t master patience over-night just for trading.
It demands a shift in your personality. Hunting and fishing are like trade setups, preys are a hard catch. You have to wait for hours to catch it. And these kinds of activities slowly change you as an individual. It instills patience in your character and makes you a better trader.
Mistake #4 — Revenge the losing trades
It is the one mistake that every trader knows that they shouldn’t do, yet no one can help it but do.
The market can be brutal at times. A profitable position can turn into a loss or you can have a series of losses for reasons you can’t understand. It creates a vile chain of emotions you can’t control and you feel the urge to get back what you lost immediately. But the more you try, the more lose. It is because the trades are not supported by logic or strategy rather emotion and desperation. And when you realize the mistake, it may be too late.
The solution is a break from trading, it helps you in many ways. It gives a clear perspective of what went wrong. Never wait to take a break. After all, it’s the only thing that you can control in the market.
Mistake #5 — Ignoring the trend
“The trend is my friend“– another cliche sentence, which will help you to stay on the right side of the market. If you think about trading the way I do, it could be a boring business, but at least one that makes money. I am not interested in fast returns. I am not interested in the most attractive trades that everyone is talking about. I choose to do my analysis. The more boring trade views, the better for me the trade is. Always examine the trend before opening the trade!
Mistake #6 — Trading without stop loss (SL)
This concept is quite popular among some professional traders and they might even recommend it. But it is not going to work for you. Because the resources available at their (professional traders) disposal and your end are quite different.
They tend to have a team of fundamental specialists and a hefty load of money. And so they trade without a stop loss but with solid fundamental backing. Besides, they use various hedging strategies to cover short-term loss.
As a retail trader, it is better to keep things simple. When a technical setup breaks, it is best to exit positions. It minimizes your loss on the day and lets you trade the next day.
Too tight Stop Loss
Stop-loss (SL) is not the value that you assume you can bear. It is the value the technical structure demands.
Traders frequently make this mistake to manage losses. Except it only rises the amount of losing trades and in turn lowers your accuracy level and confidence in trades.
If you sense, you can’t bear a wide stop, then decrease your trading volume.
Determine the margin value you could manage and then calculate the trade size respectively.
Mistake #7— Trading News
No person can resist the appeal of making easy money. And the news trading presents it. As a rookie trader, you should resist it as it is not the news that matters most. It is the aftermath response of the traders and the sentiment of the community that takes the spotlight.
As an example, suppose the FOMC made a rate cut of 20% which by protocol and understanding should have made the XAUUSD prices to fly. Many retail traders had a serious amount of long orders placed during that day. But the market took them as casualty eventually. Opposite to common understanding, it fell 300 pips and shocked everyone.
Well, the trading community usually has its comments like, “It wasn’t level or higher to the expectations.” The reasons don’t matter because you would get a margin call from your broker before you can say the word ‘why’.
Trading news is more of gambling than trading. Because you can’t read what others have planned for any event featured in the economic calendar.
Mistake #8— Trading without a trading plan
When you don’t have a trading plan, you tend to surrender to the moments. And trading gives you those moments often.
It’s all about the system, the trading plan that’s going to bring success and profitability to you.
Pick a strategy or choose an indicator to help you. Find your trading tools from the Marketplace
Mistake #9— Thinking that price cannot go higher/lower
Even when the price has been in an extended rally for several months, you will always discover traders who week after week tell you that the change is near and they are looking for short entries. Traders would do well to focus on what is obvious and join the trend as long as it is possible.
Crude Oil Futures, April 2020
Mistake #10— Advice from random people
Never make trades based on opinions, tweets, or promises made by other people. “Give a man a fish, and you feed him for a day; show him how to catch fish, and you feed him for a lifetime.”
The Bottom Line
If you have the money to invest and can avoid these rookie mistakes, you could make your investments pay off; and getting a good return on your investments (ROI) could take you closer to your financial goals.
As an individual investor, the best thing you can do to expand your securities for the long term is to realize a reasonable trading strategy that you are comfortable with and willing to stick to.
If you are looking to make a big win by betting your money on your gut feelings, try gambling. Take pride in your trading decisions, and in the long run, your securities will grow and reflect your actions.
The difference between Fundamental and Technical analysis
Have you ever wondered which type of analysis is better for a trader? Is it better to be a fundamental trader or a technical trader? Here we will give a short overview of the differences between these two types of analysis and which pieces of information traders tend to look at.
Technical and Fundamental analysis comparison
Defined by forecasting price movements using chart patterns and technical tools
Data considered for trade setup: Price action (trading from charts)
Suits best for short, medium and long term trades
Skillset suggested: Chart analysis
Defined by use of various economic data to establish value and target price
Data considered for trade setup: NFP, CPI, GDP, Interest rates, etc
Suits best for medium and long term trades
Skillset suggested: Economics and data analysis
Fundamental analysis involves learning the economic well-being of a country and the currency by reading relevant data. It does not take into account currency price movements. Rather, fundamental traders use data points to determine the strength of a currency.
A fundamental trader analyses economic data, such as the country’s inflation, gross domestic product (GDP), non-farm payrolls (NFP), and even speeches delivered from central banks and other institutions with a tendency of affecting the strength of any selected currency.
Below is an example of an economic calendar used by fundamental traders to keep up to date with the latest data releases. Here you can read how to use an economic calendar as a trading tool.
As you study the relative trend of data points, a trader is analyzing the relative health of the country’s economy and whether to trade the future movement of that country’s currency.
Below is a summary of the general effects that economic data tends to have on the strength of a currency. However, this is not guaranteed as there are many factors that influence currency movements.
Learn how economic data affects currencies
Economic event – Expectation and effect on currency
NFP Non-Farm Payment Report – ‘Actual’ greater than ‘Forecast’ is good for currency
Central Bank increases Interest Rate – ‘Actual’ greater than ‘Forecast’ is good for currency
Trade Balance in deficit (imports > exports) – A low reading is seen as negative for the currency
ECB`s President speech – More hawkish than expected is good for currency and dovish is considered negative for the currency
Technical analysis involves pattern recognition on a price chart. Technical traders look for price patterns such as triangles, flags, and double bottoms. Technical traders also use trading tools like Bollinger Bands, Relative Strength Index, Moving Averages, etc to determine the trend of the traded instrument and oversold/overbought areas with a simple glance over price charts. Based on the pattern, a trader will determine the entry and exit points. Unlike fundamental traders, a technical trader is not as concerned about why something is moving because the trends and patterns on the charts are their signals.
Below is an example of a chart pattern – the double bottom pattern. The market makes the first low, rebounds slightly before creating a new low, and subsequently gains upward momentum as the trend reverses. Technical traders will look to set a stop loss at the recent (lowest) low and wait for the market to produce higher highs and higher lows before placing the long trade.
In practice, technical traders will need to identify the pattern as shown above on the GBPUSD m15 chart where the “W” shape can be seen.
A technical trader will learn the price action, trend, support, and resistance levels observed on a chart. Most of the patterns used in technical analysis can be applied to any markets as well with different timeframes.
Additionally, traders make use of technical indicators and oscillators which are added to a price chart when analyzing the markets. Moving averages (MA), Bollinger Bands (BB), Relative Strength Index (RSI), and stochastic (STOCH) tend to be some of the more common tools in a technical trader toolbox. Indicators are preferred by technical traders because they are easy to use and provide clear signals.
As most technical tools are considered lagging indicators, it is suggested to use custom technical tools over default ones found on any trading platform, to remove the noise and minimize false signals on your real-time trading experience. Please find custom developed trading tools from our marketplace.
Benefits of technical analysis
Mastering the technical analysis does not require special skills that many fundamentalists claim. Getting started in technical analysis can be done quickly by learning how to recognize the direction and strength of trends. This will show you, how to use the trend analysis and help you determine which pair to trade and the direction to trade it.
Below, is an example of how a technical trader would notice this 1200 pip (point) trend where the USD is very strong relative to a very weak AUD (which is why the currency pair is moving down). Furthermore, it is clear to see that the currency pair is trading in a strong downward direction. This is referred to as a tend and traders make use of key levels, levels of support and resistance (SR Levels), and technical indicators to identify trends as soon as possible and with accuracy.
Learning how to identify strong and weak currencies will provide traders with an indication of which currency pairs are most likely to trend and lead to higher probability trades. A trader would trade in the direction of this particular trend by selling the AUDUSD pair.
Conclusion for Technical and Fundamental Analysis
Fundamental and technical analysis involves very different strategies and approaches to trading; providing different ways to support trading decisions, and when to enter or exit a trade. While some traders prefer to use these types of analysis separately based on their preferred trading style and goals, many use a combination of the two. The benefits of combining fundamental and technical analysis are wide-ranging and might lead you to more profitable trades overall.
Fundamental traders monitor economic data releases, and many do so with the intention of trading the news (economic events). It is essential that traders apply firm risk management when doing so as volatility can spike immediately after important releases.
Technical traders have different styles and strategies that rely on technical tools and price action. Technical trading is also suitable for automation, where your strategy can work for you 24/7.
How to Read and Trade an Economic Calendar
An economic calendar is a useful tool for traders to learn about upcoming economic events (news releases) that can affect their fundamental analysis. You will be explained an economic calendar in-depth, offering tips on how to read an economic calendar to plan and execute strategic trades, and manage risk.
What is an Economic Calendar
An economic calendar is an information resource that allows traders to study economic information scheduled to be released beforehand. Such events might include Gross Domestic Production (GDP), the consumer price index (CPI), and the Non-Farm Payrolls (NFP) report. In today’s environment of fiscal politics and central bank interventions, it can be very helpful to know the date of the next central bank meeting or major news announcement.
The events on the calendar are categorized from low, medium to high, depending on their likely market impact.
How to Read an Economic Calendar
Learning to read the forex economic calendar properly is important to enhance your trading skills prior to and following the most important releases. Checking the calendar every morning will allow you to prepare yourself with the upcoming events that matter the most according to your trading plan.
For removing the information overload, you are suggested to customize your economic calendar, as in default mode the calendar will show you every piece of economic news coming out for the major economies. With customizing you can clear your calendar and keep the most relevant data needed to work with your trades.
How and Why Should I Customize my Economic Calendar
In order to customize the economic calendar, you can look at events in the past, today and in the future by scrolling up to find past events or down to see any future events expected to come.
Once you select the ‘United States’ and ‘Europe’ buttons, you should only see Eurozone and US news announcements that have a high probability to move the markets you trade.
To learn more information about any economic event, click the ‘chevron’ button next to the name of the selected event in the calendar.
Benefits of Using an Economic Calendar
Benefits of using the economic calendar are:
• Being able to plan positions ahead to increase profitable trades
• Being able to manage risk effectively
• Being able to compare fundamental and technical analysis in trading
Planning Positions Ahead
The economic calendar allows you to plan ahead. For example, if a Gross Domestic Production (GDP) report is set to be released, traders will know that this indicator has the potential to move forex markets substantially, so awareness of the timings means they can plan their trades according to the news release
The ability to plan your trades ahead based on economic calendar events means you can prepare yourself for potential movements in price. When an event listed on the calendar occurs, there may be an expected period of volatility if data is released well above, below, or according to expectations.
Fundamental and Technical Analysis Comparison
Ability to compare your fundamental analysis based on economic calendar allow you to confirm or cancel your technical analysis based trade plans before entering into a trade, especially with lagging indicators, such as Bollinger bands and relative strength index for example.
Digital products can’t be caught, felt, or tasted, but everyone uses them—from music to videos, ebooks to online courses, trading tools to online trading, and more.
Many authors organize entire businesses around these intangible goods, due to their demand and ease of distribution, and we are here to provide these authors the springboard to success in the form of Poshtrader Marketplace.
What are digital products?
A digital product is an intangible asset that can be sold and distributed repeatedly online without the need to replace inventory. These products often come in the form of downloadable or streamable files, such as MP3s, PDFs, videos, and in our case trading tools and apps.
The benefits of creating digital products
Digital products have many advantages that make them uniquely attractive to sell:
- Low overhead costs- You don’t have to hold inventory or incur any shipping charges.
- High-profit margins- There’s no recurring cost of goods, so you retain the majority of your sales in profits.
But digital products also come with specific challenges you’ll need to watch out for:
You’re competing with free content. With digital goods, users can probably find free alternatives to what you’re offering. You’ll have to think carefully about the niche you target and your product descriptions, offer premium value with your products to compete.
You’re sensitive to piracy/theft. You need to take precautions and reduce these risks by applying the right tools to protect your products.
Most of these difficulties can be overcome, with the right tools, development process, and marketing of your digital product business.
Selling at Poshtrader Marketplace
Developers for Traders – If you already have built something for any of our supported trading platforms than this is where you can start selling it, or use our marketplace as secondary marketing output.
You need to develop a trading solution but don’t have the coding expertise, we are here to help you out. Our team of experienced developers is offering programming services to get you started with ease.
Toggle our Author Fee Schedule to make your decision on which sales plan suits the best with your products. If you have both exclusive and non-exclusive products, you need to sell them from separate accounts, where you can add products per exclusivity plan.
The Author Dashboard
After you have applied to become an author with us, you will get access to the Author Dashboard. This is where you can manage your store within the Poshtrader Marketplace.
You have options to name your store, add a bio, payment information, and much more. Most important this is where you can manage your products, control your earnings, and follow the feedback from others.
Before you apply to become an author make sure you read and agree with our policies;
Now that you are ready, let’s get started
How to install items for NinjaTrader 8
- Download the item
- From the Control Center select the menu Tools > Import > NinjaScript Add-On…
- Select the downloaded ZIP file and press the “Import” button
- Once attached to a chart, you will be asked to enter your license key
- After successful validation, the NinjaScript should run
Important: If you haven’t installed any item from this marketplace before, you will need to restart NinjaTrader 8 platform so it can load our licensing library.
How to install items for cTrader
- Download the item
- Run the downloaded ALGO file which will install all necessary files
- Once attached to a chart, you will be asked to enter your license key
- After successful validation, the indicator/cBot should run