Wednesday, March 22nd, 2017 by Tim Lanoue
Wow has it been quite a bit of time since I have written an educational investment article for Michael Freeman and binary options! I can honestly say that I am happy to be back and let’s get back into the swing of things! Today I have this updated version of my previously published VWAP Indicator and Strategy from a little over 2 1/2 years ago made available after receiving over 20 requests to have an updated version of this article to be completed. So what do you need to get started? Well, first and foremost since this is a technical analysis based trading strategy access to a charting solution is absolutely essential!
A few charting solutions that you could consider using would be FreeStockCharts.com, MetaTrader4 and MetaTrader5. Also, access to a Free Demo Account is encouraged so you can practice this strategy prior to implementing it in a live investment situation. Moving forward, all of the images provided to you below are taken from the FreeStockCharts charting solution and are meant to help you better understand the concept and executing process of this software.
So once you have your charting solution up and running, you should select up to 5 different assets in different tabs to use with this strategy. Typically I encourage traders to get started with low volatility currency pairs such as the Eur/Usd, Usd/Cad, Nzd/Usd and Usd/Chf. Other assets you could consider investing with would be high volume stocks such as Apple, Facebook, Exxon, Google and Amazon. These assets are less prone to change directions due to minor fluctuations that may occur in the financial markets which ultimately mean they are more reliable for you to invest with.
Now, there are two technical indicators that we use when investing with this strategy which would be the Moving Average and the VWAP (Volume Weighted Average Price) indicator. The main function of the Moving Average technical indicator would be to help filter out the “noise” from random price fluctuations and serves as a trend following indicator. This indicator is extremely effective when used with trend trading or when used in combination with the VWAP indicator which effectively identifies powerful short-term market reversals.
Now that you have your targeted assets of choice and your indicators incorporated into your charting solution, the next step you need to complete would be to make sure that the time frame of each chart is set to a period of 5 minutes. Once you have completed that step, the next step that you need to fulfill would be to edit your Moving Average indicator so that the Average Type reflected is showcased as Simple. If you right-click your mouse while hovering over the Moving Average indicator, you should see this option made available to you then the other alteration that you do would be to make sure that the period is set to 4.
In case some of you were wondering the numerical period value that you set your Moving Average to will showcase the number of days that the indicator reflects. So if you were to set the period to 10 it would reflect a period of 10 days but with it being 4 with this strategy we are seeing the average price period of that asset over the past four days. No customizations are necessary with the VWAP indicator but if you want to change the Line Style to dotted you can, typically it is a line but I prefer dotted just to change things up once and awhile!
Applying The Strategy
The signaling process with this strategy is simple and relatively straightforward. If our VWAP indicator crosses our Simple Moving Average indicator in a downward direction then we go ahead and place a short-term PUT investment with an expiration between 3 to 10 minutes. However, if our VWAP indicator was to cross our Moving Average indicator in an upward cross then we go ahead and place a CALL trade with an expiration time between 3 to 10 minutes.
Now, if you want to filter out signals, you can wait for a confirmation candle to appear next to the cross to signify that a reversal is in fact in play although you can only apply this confirmation if you are planning on trading an investment with an expiry close to 10 minutes. Otherwise if you wait too long and place a more short-term trade, you may completely miss the signal while you were waiting for the candle to close. (A confirmation candle for a PUT trade set up would be a bearish candle and vice versa for a CALL trade set up).
- Try to invest like assets with correlating market hours. Meaning that if you are trading the Usd/Cad for example make sure that you are using this strategy during the New York Stock Exchange. Or if you are trading the Eur/Jpy, try to only invest that currency pair during the late Sydney and throughout the Tokyo trading session.
- Try to take 10 minute breaks before and 15 minutes breaks after a major press release has been released. A free online economic calendar has been provided to you below for simplicity and to make things easier on you. Any press release with a bull symbol of 2 or 3 is when we apply this tip!
- Try tweaking some of the indicator settings to smaller or large values if you want to test this strategy with different time frames and expiration periods. Make sure you change the Moving Average Period, the time frame of your charts along with your expiry times before applying these customizations in a live investment mode. Make sure to practice on a Free Demo Account first though!
VWAP Strategy Conclusion
The best advantage about this strategy would be how user-friendly and simple this strategy is to apply in a live investment scenario. One of my main goals when I provide you guys educational and informative articles would be to provide it to you in an easy-to-read and understandable manner which are among one of the many goals I strive for. Make sure to follow all of the tips above, only invest with regulated online trading brokers that are legal where you reside and leave any questions or your feedback below in a comment!
When investing online with binary options or Forex it is imperative that you invest with only regulated binary option or Forex brokers. Due to the large number of fraudulent trading operations and crooked trading brokers I only encourage you to sign up with regulated brokers!
If you need help finding a regulated broker you can always contact Mike by leaving a comment below and I know he will be more than willing to help you out! I have been asked to stay as well due to the demand of strategies and educational articles so if you would like to learn about a specific investing topic or have any educational topics you want covered, feel free to leave your feedback and requests below!