Many traders are taught to sell below VWAP. But does this always work? No! Many traders lose money because they follow this blindly. Let’s understand how to use VWAP practically and not just as a theory.
What is VWAP?
VWAP stands for Volume Weighted Average Price. It shows the average price of a stock, considering both price and volume.
VWAP is a indicator which helps traders to understand if a stock is trading above or below its average price.
How VWAP Moves?
If price is moving fast, VWAP stays close to the candles.
If price is moving slow, VWAP stays far from the candles.
VWAP is always changing because it calculates price and volume live.
Why Selling Below VWAP is a Mistake?
Many traders believe that if price moves below VWAP, they should sell. But this is wrong! But this strategy is given by many fininfluencers. You should think logically , if prices becomes cheaper , it will attract buyers not sellers. Yes definetly It will attract sellers if intraday trend is downtrend.
📌 If the stock is in an uptrend, a pullback is normal.
📌 Instead of selling, you should look for buying opportunities.
📌 Selling below VWAP in an uptrend means you are going against the trend.
Example: Stock in Uptrend
Suppose Stock A is trading in an uptrend on a 5-minute chart. It makes a higher high, then falls and closes below VWAP. What should you do?
Many traders will sell thinking VWAP is resistance.
But smart traders wait and see if price takes support.
If price consolidates below VWAP and then breaks out again, it’s a buy signal!
If you sell below VWAP in an uptrend, you might be selling at the best buying price!
How to Use VWAP Correctly?
Instead of blindly selling below VWAP, follow these three simple steps:
Step 1: Identify the Trend
In intraday trading, wait for the first 30 minutes.
Check if the stock is making higher highs and higher lows (uptrend).
If it’s making lower highs and lower lows, it’s a downtrend.
Step 2: Wait for Price to Come Near VWAP
If trend is bullish, wait for price to fall near VWAP.
Do not enter a trade at the top. Buy on dips!
Step 3: Look for Confirmation
Price should consolidate below VWAP for some time.
If price breaks out above VWAP, it confirms buyers are back.
This is the right time to enter the trade.
Where to Place Stop Loss and Target?
Once you enter a trade, always manage your risk:
🔹 Stop-loss: Below the latest swing low.
🔹 Target: Previous higher high or set a 1:2 or 1:3 risk-reward ratio.
What If Price Falls Below VWAP?
Many traders ask: "What if the stock keeps falling below VWAP?"
✅ If the stock is strong, it will not stay below VWAP for long. Either it will consolidate below vwap and move updward to continue trend.
✅ If price keeps falling, there may be some bad news or big sellers. Do not make entry and avoid trade on that stock.
✅ If market is weak, stocks may struggle to hold VWAP.
Common VWAP Mistakes to Avoid
❌ Selling below VWAP in an uptrend. Instead, look for buying opportunities.
❌ Buying above VWAP in a downtrend. Instead, wait for a pullback to short.
❌ Ignoring volume. If there is no volume near VWAP, the move may be fake.
❌ Using VWAP alone. Combine VWAP with trend, support, and RSI for better accuracy.
Example of a Real Trade
Lets take example of reliance on 5 min timeframe. Date: 5 march 2025
During first 30 minutes trend was bullish.
After a short rally, price pulls back and closes below VWAP.
Many traders panic and sell.
But the stock consolidates and then breaks out above VWAP.
If you had bought near VWAP, you would have made a good profit. If you had sold below VWAP, you would have missed the rally.
Here another example of reliance on 5 min timeframe. Date: 6 march 2025
During first 30 min trend was bearish.
Price gets close above vwap. So we should have to wait for consolidation. Why? because consolidations means it will absorbs all buy orders. But here no consolidation happens. Avoid this trade.
Final Words
🚀 Stop blindly selling below VWAP! Instead, follow a smart approach:
✅ Check the trend before making a decision.
✅ Use VWAP as a support/resistance zone, not a fixed rule.
✅ Wait for confirmation before entering.
✅ Always keep a stop loss and follow risk management.
By applying these steps, you can make better trading decisions. Trade smart, not blindly! 🎯🚀
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