With the growing demand for access to VWAP (Volume Weighted Average Price), we’ve developed a custom TradingView VWAP indicator that’s free to use. Together with webhooks, we can trigger bot automations based on the various VWAP signals and let the bot handle the position management.Â
In this article, I’ll explain how the OA VWAP Indicator works, why VWAP is such a valuable tool, and how you can leverage it for more efficient, automated trading through Option Alpha.
What is VWAP?
VWAP, or Volume Weighted Average Price, is an intraday indicator that shows the average price of an asset based on both its price and trading volume. It represents the "true" average price at which a security has traded throughout the session, making it particularly useful for identifying market sentiment.
Unlike traditional moving averages that only consider price over a period, VWAP accounts for the volume of shares traded at each price level and the belief is that it gives traders a more nuanced understanding of price trends. This makes VWAP an interesting tool for identifying optimal entry and exit points, and it serves as both a benchmark and a trend indicator.
Using VWAP for Crossover and Mean Reversion Strategies
VWAP was originally developed for institutional trading in the 1980s. However, it’s now a popular tool for retail traders as well. Here’s how I typically use VWAP:
1. VWAP Crossovers: Another popular use case is to buy when the price crosses above VWAP and to short when the price crosses below. This simple crossover strategy is used if you’re looking to capitalize on intraday price moves.
2. Mean Reversion: Traders using mean reversion strategies rely on VWAP to identify when the price has moved too far from the average and is likely to revert. This is especially powerful when combined with standard deviation bands, which help you visualize overbought and oversold conditions.
By leveraging VWAP in these ways, I can make more informed trading decisions and respond quickly to market changes. Now, let’s take a closer look at the key features of the OA VWAP Indicator and how it enhances these strategies with automation and customization.
Key Features of the OA VWAP Indicator
- Customizable Anchor Periods: Set the VWAP to reset on different timeframes—daily, week, month, or even based on events like earnings, dividends, or splits.
- Standard Deviation Bands: Visually identify overbought or oversold conditions with multiple bands above and below the VWAP.
- Automated Alerts: Get alerted when the price crosses above or below VWAP, or when it interacts with specific standard deviation bands, allowing you to take timely action or automate your trades.
How the OA VWAP Indicator Works
Reversal Signals
You will find a series of reversal signals for bars that are crossing over the Standard Deviation lines. For example, an SD1 (Grey SD1) reversal is for a bar that is crossing over the SD1 line in the same direction as the bar close. The same is true for SD2 (Blue Rev2) and SD3 (Red Rev3), and the signal colors correspond with the color of the SD lines for easy identification.
Trend Crossover Signals
Green and red triangles are plotted on bars that cross over the VWAP line and can be used to signal a possible change in trend.
Customizable Signal Window
One of the challenges with the VWAP is false signals in the beginning of the session as the VWAP bands are contracted. To help alleviate this, a time window is added to block any signals before a certain time.
How to Use the OA VWAP Indicator with Webhooks
With webhook integration on platforms like TradingView, I can now trigger automated trades in real-time using signals from the OA VWAP Indicator inside my bot’s automation. Here’s how I use Option Alpha webhooks inside one of my bots:
1. Set Up Your Chart: Add the OA VWAP indicator to your Superchart and click to create a new alert.
2. Create your alert: From the alert window, you can select a variety of signal options from the dropdown:
2. Configure Webhooks: add your Option Alpha webhook URL to the Notifications panel here:
4. Connect to your Bot: Inside my bot, I build an automation and set the schedule to Webhook. That’s it!
For all signals triggering a short position, the bot’s automation will open an XSP short call spread. For all signals triggering a long position, the bot’s automation will open an XSP short put spread. All automations can be modified to customize your preferred position and symbol type.
These are just two basic examples of how options traders ca use the VWAP indicator to find trading opportunities inside Option Alpha and automatically enter positions once a signal triggers. Option Alpha members can view and clone the sample bot, automations, and custom indicator here: VWAP Crossovers & Reversals.
*This bot is an example of using Option Alpha webhooks to automate the VWAP indicator through TradingView. Option Alpha is not affiliated with TradingView and does not endorse any specific strategy, indicator, or alert. Additional fees may be required to use TradingView. Option Alpha is not responsible for any data latency issues inside TradingView.
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