Using the volume-weighted average price (VWAP) when trading in short-term time frames is highly effective and simple. One common strategy for a bullish trader is to wait for a clean VWAP cross above, then enter long. When there is a VWAP cross above, the stock shows that buyers may be stepping in, signaling there may be upward momentum. When a stock's price breaks above the VWAP, the previous time frame's VWAP can be thought of as a support level.
A trader can also use the VWAP in conjunction with Bollinger Bands. One can short a stock with a clean VWAP cross below and cover a short position if the stock breaks below the lower band and vice versa when buying.
For example, if a stock is trading at $39.90 and the VWAP is $39.95, and a trader sees a VWAP cross above $39.95 and the stock price goes higher to $40.05, they can look to get long on this VWAP break to the upside. The stock may be showing signs of strength and momentum to the upside. Now, if traders are using this VWAP strategy along with Bollinger Bands, they can define a target if the stock gets above the upper band, and can also have a stop-loss order placed if the stock breaks below the VWAP, depending on their risk tolerance.